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Residential Rents just Keep Going Up

Notwithstanding the coronavirus crisis, rent rates for flats in Germany, rather than softening during the first half-year of 2020, continued to rise. According to the Immowelt real estate portal, new lettings showed rent hikes in three out of four German cities. Analogously, average asking rents in the largest metropolises increased – by six percent in Düsseldorf, by five percent in Cologne, by four percent in Berlin, by three percent in Hamburg and by two percent in Munich.1

The residential rent growth in Germany was also registered by the Federal Statistical Office, as the WELT daily reported. According to the statistics experts, the residential rent index rose by 1.4 percent each in April, May and June, whereas the inflation rate during these months ranged between 0.6 and 0.9 percent only. Quite evidently, residential rents are clearly outpacing the general consumer prices.

German Cooperative Banks and Agricultural Credit Cooperatives Predict Price Hikes

This is good news for buy-to-let investors because they can continue to expect stable rates of return for their tenant-occupied condominiums. And potential owner-occupiers are also likely to be encouraged by the trend to give up their rental flat in favour of a home owned outright. Previously, this year’s ACCENTRO-IW Housing Cost Report documented that, on the national level, the housing costs of condominium buyers are 48.5 percent lower on average than those of tenants. This situation will persist if residential rent rates keep going up.

The same trend also makes it unlikely that selling prices for condominiums are likely to suffer any major set-back before the end of this year. On the contrary, the National Association of German Cooperative Banks (BVR), for instance, assumes that prices for owner-occupied condominiums will increase by nearly five percent, which is only a slightly lower growth rate than last year’s (5.7 percent).2

Even Big-Ticket Investors Gravitating toward Residential

The BVR association does expect the disposable income of private German households to decline in the wake of the coronavirus crisis. It goes on to argue, however, that the business cycle is already stabilising while the sustained inflow of people into the swarm cities and the very reasonable terms of financing will ensure that the repercussions of the crisis for condominium prices remain manageable.

Not least, their argument is motivated by the trend among large-scale property funds and property investors to deepen their commitments in the residential segment. According to the Immobilien Zeitung real estate trade paper, for instance, one of Germany’s biggest open-ended public funds, HausInvest by Commerz Real, intends to invest a total of two billion euros in residential accommodation in the years ahead—“given the stability of the use type, even and especially in times of crisis”—and thereby raise the residential share of an investment fund actually focused on commercial real estate from currently 2.1 percent up to around ten percent.3