The robust growth dynamic of residential property prices’ in Germany continued unchecked over the past year. As late as Q4 2016, average rents and prices showed a quarter-over-quarter growth of 1.2 percent, according to the latest F+B Housing Index Germany. This brings the growth rate over prior-year quarter up to 5.2 percent. It should be added, however, that the national German index is kept on this high level by the country’s major cities with their massive incoming migration, and that their housing shortage is what keeps pushing up rents.
Inadequate Building Activity
It would take an annual completion rate of 400,000 new flats over a period of five to ten years to satisfy today’s strong housing demand in Germany’s major cities – and this target was certainly not met last year. Ludwig Dorffmeister, housing expert at the ifo Institute for Economic Research in Munich, assumes that residential completions in 2016 totalled around 300,000 units, about 260,000 thereof in new buildings. Going forward, Dorffmeister projects a completion rate of roughly 325,000 units by the end of this year, and 335,000 residential completions in 2018. He is sceptical that the target figure will ever be achieved, and considers an annual completion rate of 400,000 residential units quite unrealistic.
Changes to Pre-Approved Building Projects
The implementation of badly needed housing development programs is often impeded by red tape, a shortage of available craftsmen and a lack of suitable building sites. Another factor that has strongly influenced construction planning in Germany is the dynamic of the incoming flow of migrants. The massive inflow of refugees in 2015, for instance, caused the planning effort for affordable accommodation in multi-family dwellings to be stepped up above all. The main player driving the effort was, of course, the public sector. But with the flow of incoming migration having slowed lately, the relevant construction projects were reassessed with the result that state and city governments felt compelled in many instances to modify already approved building projects.
Parallel Trend in Condominium Prices
The situation is matched by a comparable trend in condominium prices. According to the F+B Housing Index Germany, condominium prices registered a quarter-on-quarter growth by 1.3 percent in Q4 2016 while prices for single-family detached homes rose by 1.6 percent. Year on year, condominium prices actually went up by 6.9 percent and prices for single-family homes by 6.2 percent – which implies that the growth rate in this segment was significantly higher than the average growth rate of 5.2 percent that the F+B Housing Index established for the overall total of rents and prices. Over the past five years, condominium prices increased by 32.3 percent, prices for single-family detached homes by 20.2 percent, whereas prices for multi-family dwellings rose by a mere 7.6 percent. Indeed, condominiums still show the fastest growth dynamic.
Housing Market Trends Most Conspicuous in Berlin
In the German capital, the general housing market trends observed in the country’s major cities are exacerbated by particularly keen demand. This is the upshot of the Housing Market Report Berlin 2017 that the bank Berlin Hyp and real estate service provider CBRE compiled after analysing 31,000 property listings from the first three quarters of 2016. The report quotes an average square-metre price of 3,289 euros for condominiums in Berlin. In four boroughs – these being Friedrichshain-Kreuzberg, Charlottenburg-Wilmersdorf, Pankow and particularly Mitte – condominiums significantly exceed the mean price level, selling at 4,139 euros per square metre on average. All other boroughs remain below Berlin’s price median. But as far as growth goes, the steepest one-year price hikes were registered in peripheral boroughs beyond the rapid-transit circle line that used to be thought of as affordable. Among these, the fastest price growth was noted in Spandau where average prices climbed by 23.7 percent to 1,939 euros per square metre. A similarly brisk dynamic was registered in Lichtenberg and Tempelhof-Schöneberg. In the eastern borough of Lichtenberg, the going rate for condominiums is now 2,868 euros per square metre, reflecting a 23-percent hike, whereas condominiums in Tempelhof-Schöneberg are now selling for 3,119 euros per square metre after an increase by 21 percent.