- The hedonic house price index of new homes rose by 5.2% (4% in real terms) during the year to April 2013.
- The hedonic house price index of existing homes was up 8.7% (7.4% in real terms) y-o-y.
Hedonic indices attempt to compare like-for-like exactly, so should be a better measure of house price trends than other indices.
Dr. Klein’s trend indicator of property prices (DTI) showed a strong upward trend in West Germany’s housing market in Q1 2013.
Munich was the housing market leader in the south, with luxurious family houses reaching a new average price of € 9,535 per sq. m. The median price of apartments in Munich was € 3,053 per sq.m., and of houses € 3,951 per sq. m., with one and two family house prices rising 7.20% compared with last year.
In Frankfurt, luxurious family houses had an average price of € 7,227 per sq. m. The median price of apartments in Frankfurt was € 2,468 per sq.m., and of houses € 2,030 per sq. m., with house prices rising 3.00% compared with last year.
In Hamburg, the median price for apartments was € 2,850 per sq. m., and € 2,720 per sq. m. for one-and two-family houses, a gain of 6.42% compared with last year.
In Berlin, the median price for apartments was € 2,333 per sq. m., a gain of 9.91% compared with last year, and € 1,771 per sq. m. for one-and two-family houses, a gain of 6.88% compared with last year.
Total dwelling permits rose 4.8%% to 239,465 units in 2012, according to Federal Statistical office (Destatis). In 2011, a 21.7% y-o-y increase in dwelling permits was recorded, added by a 14.6% increase in dwelling completions to 183,000 units.
Germany’s economy barely expanded in 2012 with a GDP growth rate of 0.7%, a sharp slowdown after the country’s strong economic rebound of 3% in 2011 and 4.2% in 2010. In Q1 2013, real GDP was up just 0.1% from the previous quarter. Germany is expected to expand by around 0.3% in 2013, and 1.5% in 2014, due to the continuing structural problems in the euro zone, according to the Deutsche Bundesbank.
Analysis of Germany Residential Property Market »
Munich is Germany’s high-cost leader, of course. A 120 square metre (sq. m.) apartment in Munich costs around EUR5,700 per sq. m., while in Berlin it costs around EUR3,300 per sq. m., and in Frankfurt, the same sized apartment costs around EUR3,600 per sq. m. while in
Berlin’s higher yields come on the smallest apartments, and are caused by the fact that very small apartments are relatively cheap to buy. So despite the fact that rents are the cheapest in Berlin, ranging from around EUR11 to EUR12 per sq. m. per month, returns on these small apartments are reasonable, at 4.77% to 5.09%.
In Frankfurt, rents range from around EUR14 to EUR16 per sq. m. per month. Apartments in Munich are the most expensive to rent, with rents ranging from around EUR16 to EUR17 per sq. m. per month.
Real estate investors, i.e., buyers of property for investment purposes, earn the highest rental return on their investment from apartments in Berlin or Frankfurt. Gross rental yields on apartment in Berlin came in first, because of those small Berlin apartments which earn as much as 5.09%. Gross rental yields in Frankfurt came in second, ranging from 3.60% to 4.85%. Rental returns for apartments in Munich range from 2.58% to 3.93%.
In terms of prices, both Berlin and Munich are up on last year.
All apartments included in the survey were located in the upscale residential neighborhoods of Berlin, Frankfurt and Munich.
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.
Rents: 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.
In Q4 2012, the unusually long winter which damped construction, also played a role in Germany’s meager growth. In comparison to the previous year, real GDP was actually down by 1.4%, according to the Federal Statistics Office.
Germany is expected to grow 0.3% in 2013 and by 1.5% in 2014, a downgrade from Deutsche Bundesbank’s previous estimates of 0.4% and 1.9%. The continuing structural problems in the euro zone are dragging Germany’s economy down. The EU accounts for almost two-thirds of German exports.
Growth is deemed crucial to Chancellor Angela Merkel’s chances a third term in office in the incoming September 2013 national elections.
Germany’s unemployment rate remains high at 5.4% in April 2013, according to Bundesbank. The number of unemployed climbed to 2.9 million in May 2013.
Inflation is expected to remain below the 2% mark this year, higher than the 1.1% recorded last April, according to the Federal Statistical office (Destatis). In an effort to boost Europe’s economies, the ECB slashed its key rate to a historical low of 0.5% by May 2013.
Germany, being Europe’s economic powerhouse, is currently playing a crucial role in the sovereign debt crisis in Europe. The country is in a difficult position. German banks are major creditors of the vulnerable economies.
So while Germany has resisted aiding its less-disciplined neighbors, as the crisis has continued, it has progressively given in to their pressure, approving a €22.4 billion contribution to bail out Greece in May 2010. In September 2011, Chancellor Merkel won the backing of German lawmakers to expand the €440 billion European Financial Stability Facility (ESEF) bailout fund.
In June 2013, the Bundesbank head Jens Weidmann, and ECB executive board member Jörg Asmussen, both appeared before the constitutional court in Karlsruhe to argue about the European Stability Mechanism. The previous year, ECB President Mario Draghi promised to buy unlimited bonds of troubled euro zone countries, and purchases would only be in secondary markets. In September 2012, the court already gave a preliminary nod to the program.
Weidmann argues that the program violates the ECB’s mandate. which is to make only monetary policy. The Constitutional Court is expected to issue a ruling of this case within this year.