28.10.2021 – 08:35
Association of German Pfandbrief Banks (vdp) eV
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The Association of German Pfandbrief Banks (vdp) sees the sharp rise in residential property prices as a result of rent and interest rate developments. This assessment is based on an analysis by the real estate market research company vdpResearch, which has examined price developments over the past ten years. The results have been published as part of the “vdp Spotlight” series of publications.
The reason for the analysis is the ongoing price growth for residential real estate in Germany: for example, residential real estate prices rose by an average of 4.3% annually between 2011 and 2015. This was followed by a mean annual price increase of 7% in the period from 2016 to 2020. In the first half of 2021, residential real estate rose nominally by 9.6%, after a price increase of 6.8% in 2020 as an annual average.
“The ongoing price increases can still largely be explained by fundamental principles” Jens Tolckmitt
“The price increases on the housing market are not driven by speculation, but are the result of tense rental markets and extremely low interest rates,” explained Jens Tolckmitt, Managing Director of the vdp. “This means that the strong price increases can still largely be explained by fundamental principles.”
The Spotlight “Home Prices: What’s Up?” analyzes the development of prices for condominiums and capital values for apartment buildings for Germany as a whole as well as by districts and urban districts. The price growth is broken down into the influence of rents and property interest. The author Dr. Franz Eilers, Head of Real Estate Market Research at vdpResearch, points out that these two parameters taken together provide comprehensive reasons for the rise in residential property prices.
“Today, given the annual net rental income, higher purchase prices are demanded and paid” Dr. Franz Eilers
“Property rates are conceptually comparable to the return on earnings from stocks. In the last ten years, these property rates have fallen significantly,” explained Eilers. “This means that given the annual net rental income, higher purchase prices are charged and paid than ten years ago.”
The reasons lie in the excess demand for residential real estate as the center of life and capital investment, which is mainly fed by the low lending rates, the falling returns on alternative capital investments and a positive assessment of the further development of the real estate market.
“A change in the fundamentals would not trigger a price slump” Jens Tolckmitt
“Should there be a change in the fundamentals, for example in interest rates, this will not lead to a price slump, but to a run-off at a high level,” stressed Tolckmitt. “A collapse in house prices is very unlikely, because that would mean that many homeowners would have to try to sell their property under all circumstances within a short period of time. Such a scenario is not in sight – not even if interest rates should rise.”
In addition, no additional impetus for price increases is to be expected from the interest rate trend. “Against this background, residential property prices should develop less dynamically than recently,” said Eilers. In addition, due to the current level and the resulting mobility behavior and other socio-economic consequences, a weakening of the increase in new contract rents can be expected.
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Original content from: Association of German Pfandbrief Banks (vdp) eV, transmitted by news aktuell