Home & Living

Affordability of Residential Real Estate Remains on High Level


February 2019

In a recent survey, Commerzbank predicted the continuation of the real estate boom through the end of this year (source: boerse.ard.de). The main reason underlying its assessment that prices for residential real estate keep surging is the persistently high level of affordability. Admittedly, 2018 proved to be another year of brisk price growth for the housing market with a rate of 6.8 percent nationwide and 7.9 percent in the metropolises, according to the latest bulwiengesa Real Estate Index (source: www.haufe.de). But high wages and the fact that interest rates are still on a historically low level ensure that residential real estate remains within reach for many households, or so the Affordability Index of Commerzbank suggests.

Survey: Real Estate Transfer Tax Reform Would Encourage Homeownership

The survey shows that, while the affordability of a condominium acquisition may have increased by a narrow margin over the past three years, residential real estate has never been more affordable since the turn of the millennium, apart from the years 2015 through 2018. The Affordability Index of Commerzbank juxtaposes the amount of the debt service with the disposable per-capita income, and assumes an equity stake of 20 percent.

While the monthly financial burden shouldered by acquiring a condominium or by taking out a mortgage loan is affordable for many German households, the required equity remains a formidable hurdle for the acquisition of property. A recent survey by the Empirica real estate research institute revealed that a reform of the real estate transfer taxation would be instrumental in helping more German households to acquire homes of their own.

Tax Receipts at a Record High

According to the above survey, even a low allowance of 100,000 euros would increase the number of first-time buyers by around six percent (source: www.faz.net). A higher allowance would boost the potential even more effectively. Yet the authors of the survey, rather than recommending the introduction of an allowance, propose lowering the tax rate to three percent nationwide because it would spread the tax break more evenly across regions and cities of all categories. An allowance of 100,000 euros, for instance, would mainly benefit buyers in rural regions rather than buyers in urban areas where real estate prices are substantially higher.

The fact that a reform of the real estate transfer tax is politically difficult is illustrated by the latest stats on state revenue from that tax: The latest figures suggest that the tax receipts climbed to a new all-time high of 14.1 billion euros in 2018. This implies a one-year increase by 7.2 percent, and revenue from the real estate transfer tax have actually doubled since 2010 (source: www.konii.de).

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