The real estate market in Germany is showing signs of recovery. Prices are declining, while interest rates remain stable, what the demand for loans for houses, apartments and commercial properties. Nevertheless, the market remains deeply divided.
The German real estate market appears to be gradually recovering. Although prices have fallen more recently, Banks once again granted more real estate loans in the summer quarter. Current data from the Association of Pfandbrief Banks (VDP) show, that it was the third increase in a row, both for residential- as well as for commercial properties, compared to the previous quarter. Nevertheless, the minus is still over the previous year's value 20 percent.
Quote from VDP managing director Jens Tolckmitt: “The real estate financing business is still at a subdued level.” However, the foreseeable end of the rise in interest rates is clear to private individuals and professionals “increasingly more planning security again”. In October, the European Central Bank paused interest rates for the first time after more than a year and ten hikes. The loan costs for private developers and property buyers have recently fallen slightly, for example of good 4,2 to just under four percent for a loan with a ten-year fixed interest rate.
Market remains divided: Professionals on the rise, Private reserved
Nevertheless, the market remains divided: Banks' business with private individuals only increased slightly by just under seven percent compared to the spring. On the other hand, demand for loans for multi-family homes increased by more than 40 percent. Apparently, professional property developers and investors in particular have increasingly entered the market again, while house builders and buyers continue to be cautious. Prices tend to fall, but apparently not yet sufficient, to compensate for the significantly increased financing costs.
Quote from real estate expert Tobias Just from the University of Regensburg: “So far, the price declines have not sufficiently reflected the rise in interest rates.” Even in business with professionals, the total volume of new loans granted was still below the figure from the third quarter 2022.
Housing crisis continues, Commercial real estate market faces challenges
The housing crisis is not over. By September there were around 77.000 Fewer apartments approved than in the same period last year. Construction companies are also complaining about a wave of cancellations of older orders, which is causing the business climate in the industry to sink to new lows.
According to the VDP, business with offices in particular continues to collapse in commercial real estate. In the third quarter, a good ten percent fewer new loans were granted than in the spring and more than a third fewer than in the previous year. The corona pandemic has led to this, that many employees have not fully returned to their offices. The trend towards mobile working and home offices continues, which leads to increasing vacancies. Observers assume so, that fewer and fewer offices will be needed in the long term.