Berlin, July 2, 2024 – The housing shortage in metropolitan areas continues to drive high demand and rising rents. Residential real estate in Germany therefore remains an attractive long-term investment despite higher interest rates. This is one of the findings of this year’s ACCENTRO Housing Costs Report, the ninth edition of which was compiled in collaboration with the German Economic Institute (IW). Among other things, the study’s authors calculated the cost advantages of owning a condominium compared to renting a comparable apartment. According to the report, in 2023, homeowners paid an average of 13.14 euros per square meter, meaning that—despite rising interest rates—they lived more affordably than renters in 127 of Germany’s 401 districts and independent cities.
“The costs for homeowners rose again in 2023 compared to the previous year, but a turning point is now emerging as 2024 progresses. The relative advantage of homeownership over renting is increasing again. This is due to the continued rise in rents for new leases, the general decline in the number of new housing units being completed, and the stabilization of interest rates,” says Prof. Dr. Michael Voigtländer, Head of the Financial and Real Estate Markets Division at the German Economic Institute.
“Purchase prices have stabilized after a slight decline, while rents are rising steadily due to the immense demand for housing. Buyers with sufficient equity are benefiting from very attractive opportunities in this market,” explains Jörg Neuß, CEO of Accentro Real Estate AG.
Interest Rate Scenarios: Costs for Owner-Occupiers Are Expected to Fall Again
As part of the study, the IW examined the effects of various interest rate scenarios on owner-occupier costs. The findings indicate that owner-occupier costs are expected to decline over the course of the year. The “Rapid Recovery” interest rate scenario describes the trajectory of owner-occupier costs assuming a decline in mortgage rates starting in the second half of 2024 at a rate of 50 basis points per half-year, starting from the first-half-2024 level of 3.5 percent. In this case, owner-occupier costs would fall to 9 euros in 2025. In the “Moderate Recovery” scenario, the interest rate does not decline to 3.0 percent until the first half of 2025. In this case, costs are projected to fall from 13 euros to around 11 euros by 2025. In the “Stagnation” scenario, the interest rate remains unchanged at 3.5 percent in the coming year, and owner-occupier costs also remain flat. In each of the three scenarios, transaction volume in the German housing market is expected to rise starting in the second half of 2024.
Yield Triangle: High Long-Term Average Yield Since 1990
Real estate is a long-term asset class. To determine the long-term average return on German residential real estate, the IW has developed a return triangle covering the years 1990 through 2023. An investor who purchased a residential property in 1990 and held it until 2023 was able to realize an average annual total return of 5.5 percent in nominal terms and 3.4 percent in real terms. Investors with shorter holding periods were able to achieve a higher average return during this period.
Calculation: Above-Average Returns Expected in the 2020s
“Unlike in the 1990s, there is currently no oversupply in the housing market; rather, in many metropolitan areas, supply is far too low. Due to declining construction figures and the continued urgent need for immigration, rising demand is to be expected. In addition to rising rents, investors are therefore likely to benefit from increasing appreciation in value once again soon. The data suggests that returns in the 2020s will be at a historically above-average level,” concludes Prof. Voigtländer.
2023: Cost Advantages in the Suburbs of Berlin and Other Major Cities
Nationwide, owner-occupier costs in 2023 have risen by an average of about 30 percent compared to the previous year’s study. This trend can be attributed almost exclusively to the sharp rise in interest rates on debt. As a result, the cost advantage of owner-occupiers over renters has also declined, with significant regional differences in some cases:
The districts of Oder-Spree (33.2 percent), Dahme-Spreewald (23.2 percent), Oberhavel (23.1 percent), Barnim (15.5 percent), Märkisch-Oderland (12.7 percent), and Havelland (12.2 percent)—all in the immediate vicinity of Berlin—all showed comparatively high cost advantages for homeowners. Nationwide, the cost advantages for owner-occupiers were highest in the regions of Sömmerda (49.3 percent), Oder-Spree (33.2 percent), Bautzen (33 percent), Jerichower Land (31.4 percent), Emden (28.6 percent), Stendal (26.7 percent), and Salzwedel (23.8 percent). The lowest cost advantages for owner-occupiers were observed in the Haßberge district (-107.3 percent) and the independent city of Hagen (-94.7 percent).
In high-cost metropolitan areas, which traditionally have lower cost advantages for homeowners than rural areas, costs vary widely. The cost advantage for homeowners compared to renters ranged from -1.7 percent in Cologne to -4.7 percent in Düsseldorf, -7.1 percent in Frankfurt am Main, and -23.2 percent in Stuttgart, all the way down to -33.5 percent in Munich, -40.4 percent in Hamburg, and -56.8 percent in Berlin. “Although owner-occupier costs have risen in the major cities in 2023, investors should continue to keep an eye on the top seven cities. The housing shortage is particularly acute in these major cities, and the economic outlook is good—in the long term, demand is expected to be virtually impossible to meet,” explains Neuß.
Methodology:
For the Housing Costs Report, now in its ninth edition, the IW compared the housing costs of homeowners and renters; nationwide, rents and owner-occupier costs were analyzed for all 401 counties and independent cities. 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 a residential real estate investor and the market leader in housing privatization in Germany. As of December 31, 2023, its real estate portfolio comprised approximately 5,900 units. In addition to Berlin, its regional focus includes major East German cities and metropolitan areas, as well as the Rhine-Ruhr metropolitan region. ACCENTRO’s business activities encompass three core areas: the sale of apartments to private owner-occupiers and investors at rental-based prices; the sale of real estate portfolios to institutional investors; the development and management of its own real estate portfolio; and services for third parties. The shares of ACCENTRO Real Estate AG are listed on the Prime Standard segment of the Frankfurt Stock Exchange (WKN: A0KFKB, ISIN: DE000A0KFKB3). www.accentro.de
About the German Economic Institute (IW)
The German Economic Institute (IW) 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. Its project partners primarily consist of foundations, associations, and public institutions.
Contact for Press and Public Relations:
Theresa Walz
ACCENTRO Real Estate AG
Kantstraße 44/45, 10625 Berlin
Email: walz@accentro.de
Phone: +49 (0)30 88 71 81 572