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German residential real estate continues to offer strong protection against inflation and value stability
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German residential real estate retains its value better than real estate in other European countries and other real estate investment products
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In 2022, owning a home was more affordable than renting in 328 out of 401 districts (on average: 8.0 percent)
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An interest rate turnaround appears to be on the horizon; inflation rates are expected to continue to ease starting in mid-2023
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Increasing cost advantages for owner-occupiers are possible starting in late 2023
Berlin, June 15, 2023 – Despite rising inflation,residential real estate in Germany continues to offer high value stability. The inflation protection provided by residential real estate also remains high. This is one of the findings of this year’s ACCENTRO Housing Costs Report, the eighth edition of which was compiled in collaboration with the German Economic Institute (IW). In addition, the study’s authors calculated the cost advantages of owning a condominium compared to renting a comparable apartment. According to the study, in 2022, homeowners lived more affordably than renters in 328 of Germany’s 401 districts and independent cities, including four of the seven largest cities. They paid an average of 10.04 euros per square meter, compared to new lease rents for comparable apartments of 10.90 euros per square meter. The cost advantage averaged 8.0 percent. The authors assume that a decline in inflation will lead to a prompt interest rate cut, which would in turn increase the cost advantages for homeowners.
German Residential Real Estate Remains the Most Stable in Value Despite Inflation – Inflation Protection Intact
“The question of whether direct real estate investments offer protection against inflation has long been debated. We can demonstrate that the returns on direct real estate investments actually correlate positively with inflation. Of all real estate asset classes, residential real estate offers the highest level of protection against inflation; here, rents are most likely to adjust to inflation,” explains Prof. Michael Voigtländer of the German Economic Institute. “In addition, the German residential market is resilient to sudden fluctuations in value; conservative real estate financing with long-term fixed interest rates and high transaction costs help stabilize the market.”
The studies show that the standard deviation of real residential prices in Germany is 3.1 percent, meaning price volatility is lower than in other European countries (UK: 9.6 percent, NL: 8.2 percent, FR: 4.9 percent).
“German residential real estate is one of the most stable asset classes in terms of value. Especially in times of high inflation, buyers seek security. We are seeing that the motives for purchasing real estate are increasingly changing; buyers and investors are focusing more on preserving value and security, while those speculating on sharp short-term price increases are on the decline. The long-term investment horizon is more popular than ever before,” explains Lars Schriewer, CEO of ACCENTRO. “Due to the sudden shift in interest rates, buyers are currently acting more cautiously, but as soon as inflation—and consequently interest rates—fall again, we will see a catch-up effect.”
Interest Rate Reversal on the Horizon – Rising Cost Advantages for Homeowners in Sight
The authors of the Housing Costs Report expect inflation rates to continue to ease in the second half of 2023. Consequently, there is a high probability of an initial interest rate cut within six months of the last rate hike. The impact on cost advantages for homeowners was analyzed in three scenarios. The “Rapid Recovery” and “Moderate Recovery” scenarios assume the first interest rate cuts will occur at the end of 2023 and in the first quarter of 2024, respectively. As a result, the costs of owner-occupied housing are likely to fall significantly compared to rent. The “Stagnation” scenario assumes that interest rates will remain stable despite falling inflation. In this scenario, rising rents would not lead to further increases in the cost advantages for homeowners until after 2024.
“Despite interest rate hikes, buying was still more affordable than renting in 2022. As a result of inflation, rents will also continue to rise. With an interest rate cut on the horizon, the appeal of owner-occupied housing is likely to receive another boost,” explains Schriewer.
“Especially in major cities, an interest rate cut would lead to a rapid decline in owner-occupier costs. Overall, we continue to observe cost advantages for owner-occupiers in the majority of German districts, albeit with significant regional differences,” adds Prof. Voigtländer.
2022: 328 of 401 districts and independent cities offer cost advantages for homeowners
In 328 of 401 counties and independent cities in Germany, buying was cheaper than renting in 2022. On average, this cost advantage amounted to 8.0 percent. Compared to the previous year’s report, owner-occupiers had to pay more—10.04 euros per month per square meter instead of 4.23 euros—but renters still paid more at 10.90 euros (2021: 10.30 euros). This trend is almost exclusively attributable to the rise in interest rates on borrowed capital, while the 8.9 percent increase in purchase prices and the 5.8 percent rise in rents for new leases were nearly balanced.
“The nightmare scenario for property owners did not materialize. Despite interest costs doubling, buying was still cheaper on average than renting in 2022. We expect rents to continue rising this year, while purchase prices will fluctuate slightly,” explains Schriewer. “Buyers with substantial equity can currently hope to find one or two good buying opportunities.”
“We observed the greatest cost advantages in the outskirts of metropolitan areas and major cities, as well as in rural areas. In the Berlin area in particular, several districts showed cost advantages of more than 20 percent,” adds Prof. Voigtländer.
Significant cost advantages in the areas surrounding Berlin and other major cities
The districts of Oder-Spree (47.4 percent), Dahme-Spreewald (41.3 percent), Oberhavel (37.2 percent), Barnim (35.8 percent), Märkisch-Oderland (34.8 percent), Havelland (34.0 percent), Teltow-Fläming (24.3 percent), and Potsdam-Mittelmark (19.9 percent)—all in the immediate vicinity of Berlin—all showed comparatively high cost advantages for homeowners. Even the city of Potsdam, despite price trends in recent years, recorded a cost advantage of 11.0 percent for homeowners over renters.
The highest cost advantages for homeowners were found in the districts of Sömmerda (59.0 percent), Jerichower Land (49.0 percent), Oder-Spree (47.7 percent), Bautzen (45.9 percent), and Altmarkkreis-Salzwedel (42.5 percent). The independent cities with the largest cost advantages for owner-occupiers were Trier (34.3 percent), Hof (33.5 percent), Passau (33.4 percent), and Wolfsburg (33.2 percent). The lowest cost advantages for owner-occupiers were observed in the Haßberge district (-88.7 percent) and the independent city of Hagen (-72.3 percent).
In high-cost metropolitan areas, which traditionally have lower cost advantages for homeowners than rural areas, widely varying costs were observed. There, the cost advantage for homeowners compared to renters ranged from 19.0 percent in Cologne, to 17.0 percent in Düsseldorf, 13.0 percent in Frankfurt am Main, and 3.0 percent in Stuttgart, down to -8.0 percent in Munich, -11.0 percent in Hamburg, and -26.0 percent in Berlin.
“Despite the costs for owner-occupiers, these metropolitan areas should not be underestimated. Investors there are particularly optimistic about the future, as they rate the long-term, future market dynamics for rents and purchase prices more highly than in many other regions. In short, prices there have risen particularly sharply in the past because demand has far exceeded supply,” explains Schriewer. “The areas surrounding these metropolitan areas and major cities are benefiting from this dynamic; there is still a larger supply of owner-occupied housing there, and at the same time, the costs for homeowners are still significantly lower than for renters.”
“While we can observe that rental costs and owner-occupier costs converged last year, if the interest rate and inflation environment eases, homeownership is likely to become significantly more attractive,” explains Prof. Voigtländer.
Sociodemographic and economic indicators are becoming more important
The study’s authors anticipate that the housing market in regions with strong future prospects will regain momentum following a minor market correction.
“Buyers must increasingly take economic and sociodemographic developments into account when making their purchase decisions—automatic price increases are no longer guaranteed. The key is to find the right property in the right location,” explains Schriewer. “Investors with strong equity, in particular, should explore the market now—there are many interesting properties available and less competition among buyers.”
“The German real estate market has shown in the past that it can offer more stable returns than other markets. However, the shift in interest rates has made it more difficult to access homeownership,” explains Prof. Voigtländer.
“Legislators could ease the burden on young families in particular when it comes to closing costs and possibly provide government subordinated loans to assist with financing,” adds Schriewer.
“Younger buyers, in particular, often retrofit properties to improve energy efficiency. Against the backdrop of the energy transition in the building sector, it is especially desirable to enable young first-time buyers to finance real estate,” concludes Prof. Voigtländer.
Methodology:
For the Housing Costs Report, now in its eighth edition, the IW compared the housing costs of homeowners and renters; nationwide, rents and housing-related costs for all 401 counties and independent cities were analyzed. The calculations are based on net base rents as well as the costs for owner-occupiers, which consist of the purchase price, incidental purchase costs, mortgage interest, and opportunity cost on equity, as well as repairs and depreciation.
About Accentro Real Estate AG
ACCENTRO Real Estate AG is the market leader in residential privatization in Germany. In addition to its home market of Berlin, the company focuses on promising metropolitan regions such as Hamburg, the Rhine-Ruhr region, and Leipzig. In its Privatization division, ACCENTRO sells apartments from its own portfolio to owner-occupiers and capital investors or—bundled as portfolios—to institutional investors. In its Services & Ventures division, ACCENTRO markets apartments for investors and project developers—including through joint venture partnerships. ACCENTRO Real Estate AG is listed on the Prime Standard segment of the Frankfurt Stock Exchange (WKN: A0KFKB, ISIN: DE000A0KFKB3). investors.accentro.de
About the German Economic Institute (IW)
The German Economic Institute is a private economic research institute that advocates for a free-market economic and social order. Members of the registered association include approximately 110 business and employer associations in Germany, as well as individual companies. Project partners primarily include foundations, associations, and public institutions.
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