Rent or Buy? Quite a number or people are toying with the idea of homeownership. However, most prospective buyers are made uneasy by the recent increase in property purchase prices, and refrain from actually taking the step and signing the deed. Yet a recent study conducted by the IW German Economic Institute in Cologne shows buying property is often more affordable than renting on account of the currently low lending rates. For the time being, low lending rates keep homeownership costs below rental costs almost anywhere in Germany.
Buying Property Tends to be more Affordable in Germany
Experts from the IW German Economic Institute in Cologne used the owner-occupier approach to show that buying is financially more sensible than renting in many parts of Germany. The method compares the average net rental growth in Germany to the development of running costs for owner-occupied condominiums. Applying the method, the experts of the IW Institute found that the running costs of owner-occupied condominiums have steadily declined since 2008 whereas rents have registered consistent growth since 2006. In other words: Homeownership has become more and more affordable compared to rental housing in recent years. For example, expenses for an owner-occupied 100-sqm condominium in 2014 were 43 percent lower than they had been as recently as 2009. Accordingly, buying translates into considerable cost savings compared to renting, and this appears to be true almost everywhere in Germany. The only places where renting made more sense financially than buying were the Bavarian counties of Miesbach, Aichach-Friedberg, Rosenheim and Kempten.
Buying a Condo would Remain Sensible even if Interest Rates were to Rise
What makes buying a home such an appealing proposition is the low level of interest rates and consequently the relatively low borrowing costs. Even if lending rates were to perk up, the costs of homeownership would rarely ever exceed rental costs right away. The figures released by the IW institute suggest that a rise in borrowing costs by one percentage point would cause the running costs of owner-occupied apartments to exceed rental costs by more than ten percent in just 35 out of 400 German counties. For the sake of comparison: Today, this is the case in four counties. Moreover, the cost hike would exclusively apply to certain regions in Bavaria. Even on Munich's strained residential property market, homeownership costs would exceed rental costs by a mere ten percent if interest rates crossed the three-percent mark. In metropolises like Berlin, Frankfurt, Hamburg or Cologne, interest rates would actually have to top four percent.