Real estate prices in Germany have begun to increase not so long ago. The overall price index has increased by 3.1% in April 2013 after three months of decline of 1.9% in March, 2.5% in February, and 0.7% in January, according to the figures released by Europace and Global Property Guide. House price index of new homes in Germany rose by 5.2% price index of existing homes increased by 8.7%.
The highest price increase was observed in Berlin. The average price for apartments reached € 2,333 per sq. m, a gain of 9.91% compared in the annual calculation. The median price on houses was €1,771 per sq. m, a gain of 6.88% compared with last year.
In southern Germany, the largest increase was recorded in Munich. Luxurious houses are worth on average of €9,535 per sq. m. The average price for apartments in Munich was €3,053 per sq. m; homes were selling for an average of € 3,951 per sq. m, that is a gain of 7.2% compared with last year.
In Frankfurt, luxurious houses had an average price of €7,227 per sq. m. The median price of apartments in Frankfurt was € 2,468 per sq. m, and cost of houses has reached €2,030 per sq. m, which is equal to 3% house price increase in comparison with last year.
In Düsseldorf, luxurious houses are worth on average of €4,567 per sq. m. The median price of apartments was €2,226 per sq. m, and houses cost on the average of €1,815 per sq. m. The prices of houses for the year decreased by 0.39%, and on the contrary apartments rose by 7.95%.
In Cologne, luxurious houses had an average price of €4,650 per sq. m. The median price for apartments reached €1,815 per sq. m, and €1,839 per sq. m for the houses, that means a gain of 3.87% in comparison with last year.
In Hamburg, the average price for apartments was €2,850 per sq. m. Houses are worth on average €2,720 per sq. m, which is 6.42% higher than a year earlier.
Where to buy - East or West?
After two decades of Germany’s reunification, difference in the economic development between the East and the West is still evident. Unemployment in Germany (5.4% in April 2013), is more noticeable in the former East Germany than in the western part of the country. A wage gap also remains. According to Deutsche Bundesbank research, the gap in state sector wages between east and west was around 10% in 2011, but in private sector the wage gap reached 30%.
An older population resides in eastern Germany. The proportion of residents aged over 65 ranges from 22.1% to 25%, while this figure in the west ranges from 19.4% to 22.1%.
Germany’s declining and aging population is hardly experiencing positive emotions in relation to the property market. It is projected that the number of households would increase by 7% in West Germany over the next 15 years, but only by 2.4% in eastern part of the country.
Experts have pointed out that single-family homes are the future. There will be a shift away from apartments towards single and two-family houses (duplexes) in the next 15 years. By 2020, an additional 1.5 million single-family houses are forecasted to be needed in West Germany, while only 500,000 houses in the East Germany.
Fixed rate mortgages
Home-buyers in Germany borrow houses at a fixed rate. During 2003 to 2012, an average of about 67% of the loans was borrowed at a fixed rate of 5 years or even more. Such state of affairs gives the German market stability and protects against sudden fluctuations of interest rates and house prices. When the ECB cut the interest rate from 4.25% in September 2008 to 1% in May 2009, fixed interest rate fell from 5.17% to 4.35%. It is only since the ECB implemented its 0.75% rate in July 2012, that interest rate has been below 3% in Germany.
Housing loan rates in April 2013:
- Interest Rate Fixation (IRF) for a loan up to 1 year: 2.87%
- IRF for a loan for 1-5 years: 2.5%
- IRF for a loan for 5-10 years: 2.74%
- IRF for a loan for 10 years or more: 3.08%
Comparatively stable interest rates are the key factor for the stability of the German market.
Housing supply
After Germany’s reunification in 1990, there was a boom of residential estate construction in the New Federal Countries and East Berlin. The main incentive was tax write-offs for the construction of large residential complexes for rent. The number of completed buildings has increased from 257,000 in 1990 to about 500,000 in the period between 1995 and 2000. Unfortunately, a large number of these projects failed. Whole buildings stood empty for a long time.
In 2011, only 183,110 buildings were completed, which is the worst result in comparison with 583,517 in 1995.
The slowdown in economic growth in the nearest future
The German economy slowed down sharply in development in 2012 (rate of growth was +0.7%) compared to the strong growth in 2010 and 2011 (4.2% and 3%, respectively). In the first quarter of 2013 unusually prolonged winter delayed the construction process and influenced the slowdown in the economy. In comparison to the previous year, real GDP in Germany declined by 1.4%, according to the Federal Statistical Office.
GDP is expected to grow in 2013 by 0.3% and by 1.5% in 2014. The continuing problems in the euro zone slow down the development in Germany. The EU accounts for about two-thirds of German exports.
The unemployment rate was 5.4% in April 2013, or 2.9 million. However, according to the European standards is the low level of unemployment.
Inflation will persist below 2% this year. In May 2013 the inflation rate was 1.7%. In an effort to support the economic condition of the region, the ECB reduced its key rate to a historic low of 0.5% in May 2013.
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