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10 03 2016
Purchase Remains The Less Expensive Alternative

Although purchase prices have risen residential properties remain less expensive than renting. This is the result of the current IW study (Cologne Institute for German Economic Research). The latter shows that owner occupiers of residential properties have an average of 30 % less costs compared to tenants. Experts believe that low interest rates compensating the increase in price for residential properties are one reason for this trend. This is despite the fact that prices for residential properties are rising at a faster rate than rent prices. Despite this, the study however does not see any danger for a speculative bubble. According to experts there would only be a risk if costs for ownership exceed rental costs. But within 402 German Districts and cities, ownership-living is significantly cheaper than living in a rented accommodation. Due to this advantage of owner-occupancy, purchase requests of German households have increased considerably since 2010, as confirmed by the researchers.

Berlin - Attractive Location For Owner-Occupiers

It is also worth purchasing a residential property in demanded cities such as Berlin, as proved by the figures of the IW and IVD (Real Estate Association Berlin-Brandenburg) study. In the capital the rate of residential property owners is only 14.8 %. Berlin is known to be a city of tenants, even though average costs per square metre for a rented apartment are according to IW EUR 7.65 higher than the costs for owner-occupiers. The latter are at EUR 4.84 per square metre and provide a substantial cost benefit of more than 35 % to Berlin’s owner occupiers. Thus, Berlin is staying slightly above the national average. Taking into account interest charges, opportunity costs, regular maintenance expenses and deterioration costs as well as the development in land plot prices, the national average costs for owner-occupiers are approximately 30 % less than the costs for tenants. Among Germany’s most important cities, Berlin is even the location offering owner-occupiers the highest cost benefit. Cities like Munich or Stuttgart which are used to be popular only end up at the last few ranks according to the IW.

The IVD study comes to a similar conclusion. Purchasing an apartment is less expensive than renting regardless its location in Berlin. According to the IVD, the great interest in residential properties in Berlin however is not only due to low interest rates but also to rising household incomes of Berlin’s citizens. The study having investigated the affordability of owner-occupied housing in the whole of Germany, moreover concludes that Germany’s most favourable properties can be found in East Berlin.

It is therefore not surprising that more and more people decide themselves for an owner-occupied property in Germany’s capital. Although the purchase of an apartment requires equity, it is worth investing savings in real estate, inter alia, due to the sustained period of low interest rates. When parking the money in the bank account it often generates little to no interests at all. Taking into account the inflation, some even talk about a losing deal. However, the period of persistently low interest rates has advantages, too. It enables a lot of households to purchase residential property through favourable loans despite price increases. And this not only in order to enjoy independence from landlords but also to be protected from non-transparent and rising service and maintenance costs.

Renting Is Subject To Hidden Costs

The desire for transparency on living costs and the mistrust of landlords are particularly strong among Germans. Most of the tenants in Germany believe that landlords are regularly sending incorrect service charge statements to them. This is the conclusion of a study carried out by TU Darmstadt (Darmstadt). 77 % of the respondents stated that landlords were not interested in keeping service costs low. In this context, important savings could be achieved especially in waste disposal and electricity supply costs. Experts of IW expect the rate of home ownership to rise continuously last but not least due to the growing dissatisfaction among tenants but also because of enormous cost advantages provided by owing a residential property. The rate is expected to increase by more than 50 % within the next few years. Moreover, real estate is still considered to be a secure retirement provision.