To rent or to buy? This crucial question in real estate investment has always had the potential to heat up emotions. Each side has its proponents - with interest rates rising this year for the first time in a long time and inflation continuing to grow, the cards have been reshuffled. Are we seeing a turnaround in the real estate market? What are the arguments in favor of renting and what are the arguments in favor of buying under these greatly changed conditions? And which option is the best for all those who want to secure themselves for the future? Even with all the changes that 2022 has brought - most notably the impact of the war in Ukraine - investing in real estate like a condo remains an excellent investment option. Below, we explain the reasons why this is the case.
Owning a property brings numerous advantages: Among other things, you benefit from the increase in value of your residential property and have the opportunity to generate rental income - more on this later. Homeowners also live much more affordably than tenants, as the latest ACCENTRO Housing Cost Report shows: As the report notes, in 2021 it was about 59 percent cheaper to own a home in Germany than to rent. Owners have been living more cheaply than tenants since 2020, both in rural regions and in metropolitan areas.
For a long time, homeowners were able to secure continuously favorable mortgage loans. From 2020 to 2021, owner-occupier costs decreased by an average of EUR 0.11 per square meter per month compared with the previous year, while prices for new contract rents continued to climb and were more than twice as expensive per square meter on average. Even if interest rates have risen noticeably in 2022 - currently the European Central Bank's (ECB) key interest rate is two percent - the authors of the report conclude that owners will still have significant cost advantages even at an interest rate of three percent.
An investment in real estate not only ensures that one's own assets are secure in the long term, but also makes a decisive contribution to asset accumulation. Buyers who do not live in the property themselves but rent it out benefit from additional income. Rental income is then added to the long-term increase in value. Not to mention that owners have many opportunities to save taxes.
In addition, investing in real estate protects your assets from the effects of inflation - protection that is currently needed more urgently than ever. According to the Federal Statistical Office, inflation in Germany cracked the ten percent mark in October. So if you don't want to watch helplessly as your savings and wealth melt away under this massive loss of value, investing in real estate is the best decision.
You are also well advised to invest in real estate because the alternatives, especially for private investors, are extremely meager. The value of shares fluctuates on the stock markets from day to day, sometimes considerably, and extensive specialist knowledge is also required for a sensible investment strategy. Precious metals are less exposed to strong price fluctuations, but are still not necessarily the best investment. Although gold in particular is in high demand and does not lose value due to inflation. Unlike real estate, however, precious metals do not yield regular returns. As an investment, real estate therefore combines the best of both worlds: both inflation protection and income potential.
Owning real estate also contributes to financial freedom in retirement - see section five for more details. As debt is repaid, the financial freedom increases due to rent-free living if the property is owner-occupied or rental income if the property is rented out. According to calculations by the market research institute empirica, property buyers are on average five times as wealthy as those who rent when they retire.
Real estate prices in Germany have been rising constantly for years - even the Corona pandemic and Russia's war in Ukraine have not changed this. This has been confirmed in black and white by the ACCENTRO Homeownership Report: This shows that sales on the German residential market increased by almost 20 percent in 2021 - from 36 billion euros to a record level of almost 43 billion euros. Overall, there were 4.4 percent more transactions than a year earlier and the average apartment price climbed to 250,272 euros, in the top 8 cities even to 456,233 euros.
In addition to metropolitan areas such as Berlin, cities in eastern Germany, such as Leipzig and Chemnitz, also stood out, registering the most sellers per 1,000 inhabitants. This shows: Not only the largest metropolitan areas, but also medium-sized cities have enormous potential and are attractive to investors. What's more, sales are rising, while demand remains high and home ownership a scarce commodity. This leads to only one conclusion: a steadily rising price level in the residential real estate market in the coming years.
Not only does real estate protect you against inflation better than any other form of investment and help you build up assets thanks to rental income: It can also provide an additional safeguard for your retirement provision - especially if you rent it out rather than occupy it yourself. Pension levels will continue to shrink in the future, as demographic change means there will be more and more pensioners and fewer and fewer contributors. And even with the now higher interest rates, real estate is still more worthwhile than other capital investments, as already explained.
A recent study by the Pestel Institute showed that seniors in particular benefit from owning real estate. The study states that home ownership protects against poverty in old age, since this results primarily from a lifetime of renting. Home ownership must therefore be promoted more strongly, the authors demand. According to the study, housing costs account for more than 30 percent of the income of almost two-thirds of tenant households with persons aged 65 and over. This proportion has increased significantly in recent years - in 1996, only 38 percent of senior tenant households had a housing cost burden of more than 30 percent. Among homeowners, by contrast, just ten percent of households have to spend more than 30 percent of income on housing.
The discussion about a bubble on the German real estate market and whether it might burst (soon) is almost omnipresent. Someone is always trying to argue that this will happen soon. While it is true that real estate prices are in a year-long uptrend that is not likely to continue forever. At the same time, interest rates on loans have been raised significantly this year and banks are now stricter about lending.
Nevertheless, it is not even clear that a real estate bubble exists in Germany at present. Let alone that this could also burst. Because for this to happen, one condition must be met first and foremost: Demand must suddenly drop sharply. However, there is no indication of this on the German real estate market towards the end of 2022. Despite the high and rising prices, demand still far outweighs supply - not least because more and more people are pushing into the conurbations of major German cities, where building land is becoming increasingly scarce.
Due to increased material prices and the shortage of skilled workers in the construction sector, annual new construction figures are lagging well behind expectations. Neither falling prices nor falling demand are to be expected. The emergence of a real estate bubble - and accordingly its bursting - is therefore unlikely in this country in the near future.
Anyone who assumes that renting will soon be the better alternative to buying is likely to be disappointed. Even though the ongoing crises of the past few years and the turbulent changes in 2022 have caused a lot of turmoil in the real estate industry and on the markets, many principles remain the same. One of those principles is that owners always fare better than renters on the bottom line. And even with interest rates now higher, buying is far from out. On the contrary, with interest rates likely to rise even further, the time to buy is right now.
Are you looking for the right residential property or do you have other questions regarding the purchase, financing or investment in real estate? Feel free to contact us if you are interested - as experts in real estate as an investment or for owner-occupancy with concrete investment opportunities, we at ACCENTRO are here to answer all your questions and help you find the property that best suits your needs.