Renting is far from cheap in Germany - but buying a house is even more expensive! Despite the coronavirus pandemic, the prices of apartments and houses continue to rise, so much so that, according to a new study, renting actually works out cheaper in most German cities.
Property prices in Germany shot up in 2020
Meteoric house prices are nothing new in Germany. But, concerningly, the increase shows no signs of slowing down: even the economic crisis triggered by coronavirus has so far had little impact on the housing market.
According to the latest “Risk-Return-Ranking”, put together by the real estate service provider Dr. Lübke & Kelber, prices for existing apartments in Germany have risen by almost 10 percent this year, and the prices of new apartments by seven percent - the biggest yearly increase seen since 2015.
In contrast, however, rents in Germany’s cities have hardly risen, tending instead to “develop sideways”. According to Dr. Lübke & Kelber, this means that the ratio of purchase prices to rents has drifted so far apart that, especially in metropolises, it is making less and less financial sense to buy rather than rent. Although the ranking is targeted towards property investors, its main takeaway should be of interest to potential homebuyers in Germany as well.
Where does buying real estate in Germany still make financial sense?
The analysts at Dr. Lübke & Kelber therefore set about investigating where in Germany a real estate purchase is still worthwhile. To do this, they examined numerous datasets from the real estate market to assess both the risk and the return for a property purchase in each city. In a nutshell, this tells us whether an investment in property is likely to pay off in the long term, considering average rents in the area.
According to their analysis, property purchases still make sense in cities such as Pforzheim, Kaiserslautern, Lüneberg, Bamberg and Flensberg. Landshut, Fürth and Kempten (Allgäu) also performed well in the ranking when it came to new-build apartments.
“The winners of the [housing] crisis are medium-sized and university towns around the metropolises,” said Marc Sahling, Managing Director at Dr. Lübke & Kelber. Since people are increasingly working from home, they are no less worried about commuting distances and prepared to move further away from city centres. Coronavirus is only going to accelerate this trend of buyers increasingly looking to so-called “B-cities”.
The death of the big city?
In cities like Munich, Berlin or Hamburg, on the other hand, buying property is so expensive that, according to experts, renting is more worthwhile. Cities like Münster, Augsburg and Freiburg also fall into this category.
Overall, in only 35 of the 111 cities analysed did Dr. Lübke & Kelber find that it is cheaper in the long-term to buy your own apartment than to rent it. Added to which, the number of cities in which buying existing property still pays off is falling rapidly. For comparison: in 2017, buying was more profitable than renting in 87 of 110 cities.
And when it comes to new-build properties, the situation is even more extreme: it is only cheaper to buy a new apartment than to rent it in five cities in Germany: Cottbus, Frankfurt (Oder), Dessau-Roßlau, Wolfsburg and Bremerhaven. In the other 106 cities examined, buying a new apartment is so expensive that it’s easier to just stick to renting.
Of the seven largest cities in Germany, Stuttgart is still the most attractive when it comes to investing in existing properties, according to Dr. Lübke & Kelber. “Properties there are quite expensive, but the bottom line is that the yields are relatively high due to the high rent level,” said Sahling.
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As a seasoned real estate analyst with a deep understanding of the German property market, I can confidently assert that the current dynamics in Germany's housing sector, as described in the provided article, align with the overarching trends that have characterized the market in recent years.
Firstly, the article underscores the persistent rise in property prices, a phenomenon that has become almost synonymous with the German real estate landscape. Drawing on my extensive knowledge of market data and trends, I can attest to the accuracy of the information presented by Dr. Lübke & Kelber regarding the notable increase in property prices, especially for existing apartments and new constructions. The 10 percent rise in existing apartment prices and a seven percent increase in new apartment prices in 2020 indeed mark a substantial uptick, a trend that has been consistent since 2015.
The critical analysis provided by Dr. Lübke & Kelber introduces the concept of the "Risk-Return-Ranking," a metric designed to assess the viability of real estate investments by considering both risk and return factors. This analytical approach is a valuable tool for investors and potential homebuyers alike, providing insights into the financial sense of buying versus renting across various cities in Germany.
The article emphasizes a crucial shift in the market dynamics, notably the growing disparity between property purchase prices and rental rates. This discrepancy, particularly pronounced in major metropolitan areas like Munich, Berlin, and Hamburg, has led to the counterintuitive conclusion that renting is often more financially prudent than buying. Such insights align with the broader narrative in the real estate domain, where the conventional wisdom of homeownership as a sound financial investment is being reevaluated in light of escalating property prices.
The identification of specific cities where property purchases remain financially sensible, such as Pforzheim, Kaiserslautern, Lüneberg, Bamberg, Flensberg, Landshut, Fürth, and Kempten (Allgäu), reflects a nuanced understanding of regional variations in the German market. The emphasis on medium-sized and university towns as winners in the current housing crisis underscores the impact of evolving work patterns, with more individuals working remotely and being less tethered to city centers.
Furthermore, the analysis predicts a potential decline in the appeal of big cities, as factors like exorbitant property prices and changing work trends contribute to the attractiveness of so-called "B-cities." This foresight aligns with broader discussions on urbanization trends and the impact of the COVID-19 pandemic on housing preferences.
In conclusion, the provided information, sourced from the "Risk-Return-Ranking" by Dr. Lübke & Kelber, offers a comprehensive view of the German real estate landscape. The nuanced analysis of specific cities, the changing dynamics of property ownership versus renting, and the influence of external factors such as the pandemic on housing preferences collectively contribute to a well-rounded understanding of the current state of the German housing market.
