Why is the German property market booming?

Despite the fact that the European Union is in disarray, the German economy is not exactly setting the world alight it seems that demand for German real estate is still growing. A recent report by German Postbank has cast a very interesting light on the market amid suggestions that the price of property in Germany’s largest cities is moving into new realms. How can the market be so buoyant if the economy is subdued at best and the European Union is struggling?

Many move to urban areas

As employment markets across Europe remain exceptionally competitive it looks as though many people in Germany are moving to urban areas looking for employment. This has created unprecedented demand for apartments in particular with the cost of property in Munich, Berlin, Hamburg and Frankfurt said to be in the region of 10 to 15 years earnings. Figures show that apartment prices in Hamburg increased by 70% between 2010 and 2015 which is a phenomenal move when you bear in mind the ongoing economic troubles of the European Union.

Interest rates attracting buyers

As we have seen across Europe, and indeed across the Western world, historically low interest rates and volatile stock markets have seen many people look towards property as their long-term investment of choice. Even though the vast majority of individuals and families in Germany still rent their homes there has certainly been movement towards more purchases. So, when you take into account increased demand for rental properties in the private sector and investors/individuals looking to own their properties this has caused an extreme squeeze in demand with very little in the way of change in supply.

It has also been documented in various publications that apartment viewings are attracting up to 50 different parties fighting to secure their future homes. Recent information regarding the Hamburg real estate market suggests there are only 92 apartments for every 100 households in the city. This may not seem an awfully big gap but it is encouraging competition and demand continues to outstrip supply.

Restrictions on rent

There are ongoing demands for new restrictions on rents across Germany with some parties suggesting they need at least two salaries to even begin to look at rented property. The problem is that the free market policy of Germany, the European Union and the Western world frowns upon rent restrictions in their most basic form. However, the German government has tried a number of subtle policy changes to try and control increases in rent but to no avail so far.

The main problem is a shortage of supply and the fact the authorities will need the assistance of the private sector/investors to fulfil this supply in the longer term. However, investors will need to see a return on their funds and any restriction on rental levels could have a long-term detrimental impact upon their forecast returns. So, in some ways the German government is dammed if it does and dammed if it doesn’t leaving buy to let investors to expand their portfolios and look forward to increasing rents at least in the short term.

It will need some significant changes and significant investment by the German authorities to even slowdown the increase in rents and property prices never mind assisting first-time buyers who have been effectively priced out of the market.