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Last Updated: Nov 21, 2017




After three years of strong house price rises, Germany’s housing market remains very strong. In a country where the housing market has historically been extraordinarily stable, this is a significant shift. The reasons?  Strong economic growth, 1.1 million refugees, high work-related immigration, record-low unemployment, weak construction supply and low interest rates.

The German hedonic price index rose by 6.24% (4.4% inflation-adjusted) during the year to end-Q3 2017 (hedonic indices attempt to compare like-for-like exactly, so are the best measure of house price trends), based on Europace figures. Quarter-on-quarter, the index increased 0.9% (0.4% inflation-adjusted) during the latest quarter.

During the year to Q3 2017:
  • Apartment prices rose by 7.4% (5.54% inflation-adjusted), after y-o-y rises of 8.65% in Q2 2017, 7.47% in Q1 2017, 8.66% in Q4 2016, and 9.35% in Q3 2016.
  • New home prices rose by 5.28% (3.45% inflation-adjusted), after y-o-y rises of 11.44% in Q2 2017, 11.13% in Q1 2017, 12.33% in Q4 2016, and 10.24% in Q3 2016.
  • Existing home prices rose by 6.1% (4.26% inflation-adjusted), after a y-o-y decline of 1.03% in Q2 2017, and annual rises of 3.71% in Q1 2017, 9.49% in Q4 2016, and 4.63% in Q3 2016.

The German housing market was one of the few that avoided a slump in the wake of the 2008-2009 global financial crisis.

German house price changes:
  • In 2009, the price index fell by 1.9% y-o-y (-2.7% inflation-adjusted).
  • In 2010, prices bounced back, rising by 3.6% y-o-y (2.2% inflation-adjusted).
  • In 2011, house prices rose by 4.7% y-o-y (2.7% inflation-adjusted).
  • In 2012, house prices rose by 4.6% y-o-y (2.5% inflation-adjusted).
  • In 2013, house prices rose by 3.2% y-o-y (1.8% inflation-adjusted).
  • In 2014, house prices rose by 3.7% y-o-y (3.5% inflation-adjusted).
  • In 2015, house prices rose by 5.6% y-o-y (5.3% inflation-adjusted).
  • In 2016, house prices surged by 10.2% y-o-y (8.4% inflation-adjusted).

Extremely low interest rates and bond yields have encouraged persistently growing demand, despite the fact that most German mortgage borrowers borrow on long-term interest rates, which are higher than "tracker" rates.

The quantitative easing programme pursued by the European Central Bank, worth about US$65 billion per month, is fuelling fears of housing price bubbles in several eurozone countries – with Germany and Norway most at risk, according to a report by Moody’s Analytics (other researchers come to different conclusions). The QE programme lowers bank interest rates to zero, encouraging demand for homes. German homes could be overvalued by between 15% and 30% the German Federal Bank has warned.

Recently, the migration crisis and strong economic growth have added to the pressure.

But while Bundesbankhas recognized the possibility that German house prices might be overvalued, it has ruled out the existence of a full-blown property bubble – at least not yet.

“The good news is that there is currently no real estate bubble that threatens financial stability in Germany,” said Bundesbank’s chief banking supervisor Andreas Dombret. “But the traffic light is clearly on yellow.”

This view is supported by Michael Voigtlaender of Cologne Institute of Economic Research. “Rising prices on their own aren’t enough to create a bubble – you have to look at the fundamentals,” said Voiglaender. “We have a stable mortgage market with steady equity ratios, and fairly moderate levels of home construction.”

To ensure the health of the banking sector and the real estate market, the German government implemented the Mortgage Credit Directive (MCD) in March 2016, which requires banks to apply stringent rules to borrowers intending to acquire residential properties in Germany. Aside from the property’s value, this new legislation requires banks to examine borrowers’ creditworthiness, making it more difficult for borrowers to obtain mortgage loans.

During the year to Q3 2017:

In North-East Germany:
  • Berlin had the strongest y-o-y apartment price hike in the region in Q3 2017, rising by 18.63% to a median price of €3,593 (US$4,191) per square metre (sq. m.). The median price of one- and two-family houses rose by 10.1% y-o-y to €2,321 (US$2,707) per sq. m.
  • In Hanover apartment prices soared by 14.41% to a median price of €2,257 (US$2,633) per sq. m. Likewise, the median price of one- and two-family houses increased 11.7% to €2,007 (US$2,341) per sq. m.
  • In Dresden, median apartment prices rose by 8.31% to €2,182 (US$2,545) per sq. m., while one- and two-family houses increased by 4.31% to €2,113 (US$2,465) per sq. m.
  • In Hamburg, median apartment prices increased by 8.19% y-o-y to €3,669 (US$4,280) per sq. m. One- and two-family houses rose by 10.34% to €2,529 (US$2,950) per sq. m.

In West Germany:
  • In Dusseldorf, median apartment prices rose by 8.8% y-o-y to a median price of €2,483 (US$2,896) per sq. m. in Q2 2017 while the median price of one- and two-family houses soared 17.2% to €2,330 (US$2,718) per sq. m.
  • In Cologne, median apartment prices rose by 10.63% y-o-y to €2,671 (US$3,116) per sq. m. One- and two-family houses had a price increase of 12.02% y-o-y to €2,240 (US$2,613) per sq. m.
  • Dortmund had the highest apartment price increase in the region, rising by 15.82% to €1,434 (US$1,673) per sq. m. during the year to Q2 2017. Prices of one- and two-family houses also rose by 11.22% to €2,058 (US$ 2,401) per sq. m.


In South Germany:
Germany house prices
  • Frankfurt had the strongest y-o-y apartment price hike in South Germany in Q2 2017, increasing by 21.87% to €3,167 (US$3,694) per sq. m. Prices of one- and two-family houses rose by 14.62% to €2,500 (US$ 2,916) per sq. m. over the same period.
  • In Munich, apartment prices rose by 8.92% to €5,839 (US$6,811) per sq. m. during the year to Q2 2017. One- and two-family houses had a y-o-y price increase of 21.56% to €4,233 (US$4,938) per sq. m.
  • In Stuttgart, apartment prices rose by 14.02% to a median price of €2,813 (US$3,281) per sq. m., while the median price of one- and two-family houses rose by 14.11% to €2,747 (US$3,204) per sq. m.

All figures from Dr. Klein’s trend indicator of property prices (DTI).

Analysis of Germany Residential Property Market »


RENTAL YIELDS
Last Updated: Sep 16, 2017



Prices of houses and apartments in Germany are rising.  Berlin is still much more affordable than Munich, but Germany's capital city is now more expensive than its financial centre, Frankfurt.
  • Munich is Germany’s high-cost leader. To buy a 120 square metre (sq. m.) apartment in Munich costs around 940,000 euros
  • in Berlin a 120 sq. m. apartment costs around 600,000 euros
  • in Frankfurt, a 120 sq. m. apartment costs around 550,000 euros.


The purchase price of apartments in Munich's prime residential districts is around 7,800 euros per sq. m., while in Berlin apartments cost around 4,900 euros per sq. m., and in Frankfurt around 4,500 euros per sq. m..

How much will you earn? Over the last two years, Frankfurt has moved into the lead in terms of rental return-on-investment.  Yields both in Munich and Berlin are a little lower than in Frankfurt.
  • In Munich a 120 sq. m. apartment can rent for around 2,250 euros a month, earning a yield of 2.9%.
  • in Berlin a 120 sq. m. apartment can rent for around 1,500 euros a month, earning a yield of 3.0%
  • in Frankfurt, a 120 sq. m. apartment can rent for around 1,700 euros a month, earning a yield of 3.7%.

These are not high yields.  All apartments included in the survey are located in the upscale residential neighbourhoods of Berlin, Frankfurt and Munich, and somewhat higher yields can be had on smaller apartments in poorer neighbourhoods.

Wherever you buy, you are unlikely to have much problem letting your apartment. Especially at the lower end there is an acute shortage of affordable apartments as the German boom continues, sucking in workers from all over Europe.

Round trip transaction costs are moderate to high in Germany. See our Germany transaction costs analysis and our Residential property transaction costs in Romania compared to other countries.

Read Rental Yields  »



TAXES AND COSTS
Last Updated: May 18, 2017



Rental Income: Rental income is taxed at progressive rates, up to 45%.

Capital Gains: Properties held for more than ten years are not liable to tax on capital gains.

Inheritance: Inheritances are taxed at progressive rates, depending upon the relationship to the deceased, and the value of the inheritance. Spouses and children are taxed at progressive rates, from 7% to 30%.

Residents: The same tax system applies to residents and nonresidents except for various tax allowances and filing options e.g. joint returns.

Read Taxes and Costs  »



BUYING GUIDE
Last Updated: May 19, 2017



Roundtrip transaction costs are low to moderate at around 9.02% to 16.34% of the total price. Real estate transfer tax is levied at 3.5% to 6.5%, depending on the federal state where the property is located. Real estate agent’s fee is negotiable from 3% to 6%, plus 19% VAT.

Read Buying Guide  »



LANDLORD AND TENANT
Last Updated: May 25, 2006



German law leans signifcantly toward the tenant.

Germany propertiesRents: While rents can be freely agreed, “exorbitant” rents can subsequently be appealed.

Rent increases are controlled, and cannot exceed more than 20% in nominal terms (less in real terms) over three years.

Tenant Security: Unlimited contracts are standard, effectively giving the tenant security of tenure. The tenant can object to the “ordinary notice”, and demand continuation, if termination of the lease would give rise to hardship for himself or his family that would be unjustified, even in the light of the landlord’s legitimate interests.

Read Landlord and Tenant  »



ECONOMIC GROWTH
Last Updated: Nov 21, 2017


German economy to expand in 2016

Germany GDP inflationGermany’s economy expanded by 1.9% in 2016, the strongest rate in five years, propelled by strongprivate consumption and state spending. The German economy slowed sharply in Q2 2017, with real GDP growth rate of just 0.8%, down from the previous quarter’s 3.2% growth and the lowest growth since Q1 2013, according to the Destatis.

Despite this, the outlook for the Europe’s biggest economy remains positive, with the IMF recently raising its growth forecast to 2% this year and to 1.8% in 2018. The European Commission is even more optimistic, projecting the German economy to expand by 2.2% this year and by another 2.1% next year, “driven by domestic demand and supported by robust world trade and a firming recovery in the euro area.”

In 2016, Germany posted a budget surplus of €23.7 billion, its third consecutive year of surpluses and the highest level since reunification. The country also registered a current account surplus of about 8.4% of GDP last year.

“These figures show that Germany is doing well,” said Deputy Finance Minister Jens Spahn. “We invest more than ever — and still have surpluses.”

Unemployment remains low. Germany’s unemployment rate was 3.6% in September 2017 – far below the entire euro area’s unemployment rate of 7.5%.

Germany’s annual inflation rate was 1.8% in September 2017, up from 0.7% in the previous year, according to the Destatis. From an annual average of 0.4% from 2014 to 2016, Germany’s inflation rate is expected to accelerate to 1.7% this year, according to the European Commission.







  • Low to moderate transaction costs
  • Largest economy in Europe
  • High yields in Berlin
  • Pro-tenant rental market
  • Moderate rental income tax
RESIDENTIAL PROPERTY FACTS
Price (sq.m): €4,326 For a 120 sq. m. property, usually an apartment.
Rental Yield: 3.99% For a 120 sq. m. property, usually an apartment.
Rent/month: €1,440 For a 120 sq. m. property.
Income Tax: 2.71% Assumptions: Owners are a non-resident couple drawing US$ / €1,500 per month in rent, with no other local income.
Roundtrip Cost: 12.71% The total cost of buying and then reselling an apartment. Includes:

* all transaction taxes and charges:
* lawyers' and notaries' fees
* agents' fees

Assumptions: The buyers are non-resident foreigners. The apartment cost US$250,00 / €250,000.
Cap Gains Tax: n.a. Assumptions: The property was bought for US$250,000 / €250,000, and sold 10 years later, after a 100% appreciation.
Landlord and Tenant Law: Pro-Tenant Rating is based on a detailed study of each country’s law and practice.

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