Germany experiences a 4.1 percent increase in real estate prices during the second quarter
The German real estate market is experiencing a sustained period of moderate recovery, as residential property prices continue to rise, according to the Association of German Pfandbrief Banks (vdp).
In the second quarter of 2021, residential real estate prices increased by an average of 4.1% year-on-year and 1.1% quarter-on-quarter. This growth outpaced the increase in commercial real estate prices, which rose by 1.1% and 2.9% respectively during the same period.
Single-family houses experienced the strongest gains, with prices increasing by approximately 3.7% year-on-year. Apartments and multi-family houses rose by roughly 2.7% in the same period.
The continued rise in residential real estate prices is attributed to a tense situation in the housing market, as demand remains strong while supply remains limited. The persistent shortage of rental properties and new housing supply, partly due to a construction slowdown, has created a competitive market. Since late 2022, new construction projects have declined sharply, restricting availability.
The high construction and financing costs also create a bottleneck for new development, particularly in the new construction sector. This is evident in Berlin's real estate market, where new-build contract volumes are significantly lower compared to previous years despite price increases.
Despite these challenges, transaction volumes in existing properties remain stable or slightly rise, contributing to moderate but positive price growth. Buyers are focusing on available inventory rather than new builds.
Regional variations exist, with urban centers like Berlin seeing fragmented dynamics and supply shortages, while smaller towns experience sharper construction declines affecting supply and price trends variably.
Regarding commercial real estate, while data is less detailed, the construction slowdown and financing challenges similarly impact commercial property development, potentially constraining supply and supporting price growth in this sector as well.
Rental prices for apartments grew slower in 2021 relative to previous years, with a 3.4% nominal increase year-on-year but slight declines when adjusted for inflation. This indicates a stabilization in rental market growth compared to past surges.
In summary, the current German real estate price increases, especially in the residential market, are driven by strong demand amid persistent supply bottlenecks, reduced new construction activity, and high building costs. The market is in a moderate expansion phase rather than rapid acceleration, with regional differences and more restrained rental price growth. The recovery phase on the real estate market is continuing, according to vdp CEO Jens Tolckmitt.
- The federal government could consider implementing a community policy that encourages investing in vocational training programs for the construction sector, to bridge the skill gap and increase the supply of housing, thus reducing the competition in the real-estate market and potentially lowering the prices of both residential and commercial properties.
- To address the high construction and financing costs in the new-build sector, private companies could explore partnership opportunities with local governments to secure funds for innovative, cost-effective, and sustainable real-estate development, thus contributing to a more efficient growth in the German real-estate market.
