Onwards and upwards

Germany’s residential real estate market continued its growth trajectory in 2017. The first quarter’s transaction volume registered year-on-year growth and prices and rents continue to rise. This is just as true in Germany’s Top 7 cities as it is anywhere else, despite what Harald Simons, CEO of empirica, had to say last year. He attracted fierce criticism for raising the specter of falling real estate prices, highlighting Berlin and Munich as the two cities with the most to fear. In the months since his dire warnings, his own research and consultancy company’s studies have scotched his pessimism – property prices and rents in Germany’s largest cities are still rising. The Project Investment Gruppe, for example, has registered price increases of 9.8 percent in Berlin, 9.1 percent in Hamburg and 4.9 percent in Munich.

Construction falters despite rise in building permits – no signs of a property price bubble

The shortage of housing is particularly acute in Germany’s already densely built metropolises. The population of Berlin alone grew by around 60,000 in 2016, while the city’s planning authorities only managed to issue building permits for 25,000 new apartments. That may well be 12 percent more than just one year earlier, however it is nowhere enough to satisfy current demand. Transaction volumes on the housing market rose last year, but this owes more to property prices climbing to new record highs than it does to any increase in the number of apartments bought and sold. A majority of market observers expect current trends to continue for the foreseeable future, especially as demand remains so strong. Germany’s major metropolitan centers are popular, and their populations are still growing, so housing is much sought-after. While the number of building permits issued and apartments completed continues to increase, the numbers are still not high enough to keep up with the rate at which Germany’s most attractive major cities are growing, or the surge in demand for new housing. At the same time, this pent up demand is preventing a property price bubble from developing. Only recently, experts from Deutsche Bank confirmed that prices on Berlin’s residential real estate market are fair, ruling out any possibility of the market overheating.

Foreign investors prefer the premium segment

There was no shortage of foreign money pouring into the German market last year. Germany’s economy and political landscape offer reliable stability, in stark contrast to the political developments across Europe and other international markets that are unsettling so many investors. This makes investments in “safe haven” Germany all the more attactive. And Germany’s major metropolitan centers, above all Berlin, are attracting an ever-increasing number of immigrants. Germany’s capital is well on its way to becoming a “gateway city” for the global middle class.

Within Germany’s largest cities, the most impressive growth has been seen in the premium property segment, which is attracting interest from financially strong private investors. Building land in central locations is expensive and in short supply, so construction has focused on the highest-quality, premium apartments – those that justify their significant construction costs by securing the highest purchase prices and rents. Thanks to even stronger demand from international buyers, prices have been growing dynamically in this segment since the beginning of the year. Berlin has even overtaken Munich and Frankfurt to emerge as the leading growth market in the whole of Germany.

High-skilled immigration creates a virtuous circle for Berlin

Germany’s capital has developed an excellent, international reputation as a vibrant and creative metropolis. This has attracted more and more start-up founders, along with a stream of artists and creatives, who have given the city’s image even more of a boost, creating a virtuous, self-sustaining circle. In turn, these new Berliners serve as both employers and consumers, feeding the city’s economy and contributing to purchasing power growth across the whole of Berlin.

Experts are confident that the residential real estate market will maintain its growth trajectory throughout this year. The signs are equally positive for the years to come. The pace of growth may not set new records every year, but investors in Germany’s capital can be confident that there is only one direction – onwards and upwards – for the foreseeable future.