Real Estate
Analyses of the situation in the construction sector and studies on the real-estate market both in Germany as a whole and in selected centres in Germany and abroad.
Germany Monitor
House prices: Imminent return to normal, overvaluation likely
The question regarding the consequences of a Brexit for the EU, the United Kingdom and Germany is expected to remain unanswered for some time. The political uncertainties and exit scenarios range from a contentious separation to a second referendum. At present, however, we can expect that Frankfurt will be one of places to benefit most from a Brexit. In light of the differences between the size of London and Frankfurt, London's crumbs could become Frankfurt's pie. The relocation of jobs to Frankfurt is also likely to boost property demand. The additional demand potential is welcome on the Frankfurt office market because it will equalise structurally induced reductions in the financial sector and will tend to lead to further reductions in vacancies and increase rents. The assumed 5,000 office workers are likely to relocate to the highly priced sub-markets close to the city centre. However, as new building projects also focus on these sub-markets, positive demand effects will be diluted. Because of existing demand overhangs, disadvantages are emerging on the Frankfurt residential property market from a potential relocation of employees. Price growth and the shortage of housing will remain elevated for the foreseeable future. An additional 5,000 homes and a correspondingly elevated housing shortage are likely to drive prices up by more than EUR 100 per m². While purchase prices remain affordable thanks to low interest rates, they are strongly dependent on future interest rate developments.  [more]
Talking Point
Germany: Is housing policy heading towards the precipice?
It will take many years to reduce the demand overhang in the housing market if there is not a huge jump in building activity. This harbours the risk that the current phase of prices returning to normal could first lead to overshooting and end in a market correction. This scenario comes with high economic costs. These could be avoided by improving depreciation conditions for newbuild housing in Germany's large cities and metropolitan regions. [more]
House prices
Focus Germany: 2016 GDP growth: External headwinds & domestic tailwinds
In 2015, the prices for apartments in the 126 most important German towns and cities rose by 6% yoy again significantly outstripping rents. Among the major cities, Munich, Stuttgart and Hamburg recorded larger price rises between 2009 and 2015 than, for example, Cologne and Düsseldorf. Frankfurt was at the bottom, while Berlin was in the middle, but could catch up in the future. Measured by affordability indices residential property prices have been below their historical averages until now. The anticipated price rises of 6% in 2016 are likely to bring the normalisation to an end. Owing to the high and likely increasing level of excess demand house prices are likely to continue to rise. As a result, they are expected to become overvalued increasing macro-prudential risks significantly. (go to p. 14) [more]
Real Estate
Construction investment: Sharp increase expected, but focus on downside risks
Despite the unbroken upswing in the real estate market since 2009, construction investment has grown only moderately at around 3% per year. This corresponds to a relatively low price elasticity of only about ½, since prices have climbed by roughly 6% per year. This expansion of construction investment started from a low level. As a percentage of gross domestic product, German construction investment is relatively low both by historical and international standards. (go to page 5) [more]
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