2018 German Real Estate Market Intelligence By LoanLink
Letter from LoanLink’s Founders:
LoanLink equips internationals with transparent professional advice in English to make real estate investments in Germany safe and simple.
Before we founded LoanLink, we lived and worked abroad in New York, San Diego, London, and Stockholm. In these cities we experienced very client-friendly mortgage shopping environments. Meanwhile back in Germany, the process remained rooted in offline paperwork and painful bureaucracy. This gap in German service became our motivation to start LoanLink.
If you’re thinking of taking a mortgage but don’t know which one to go for, you could try to find a good deal from a set of generic results on a price comparison website. Or you could go to a traditional mortgage broker — one that will do the searching on your behalf. But that usually requires you to be inside Germany and for you to speak decent German.
As two guys who grew-up in Germany, we realize home buying is even more of a challenge for non-German citizens due to a stricter scrutiny by institutions. Plus let’s not forget the foreign language challenge. We all remember that famous Mark Twain essay published in 1880 called “The Awful German Language” about his adventures learning to Deutsch sprechen.
“A gifted person ought to learn English in 30 hours, French in 30 days and German in 30 years.”
— Mark Twain: American Writer and Publisher
Our advanced technology scans the rates of more than 400 partner banks to allow us to find the best deal possible for our clients. This means we work independently from financial institutions. We also share this information with you in English.
The LoanLink platform provides full transparency and lowers the entry boundaries for non-German speakers. Easing access to the German real estate market enables our clients to benefit from the historically low interest rates and participate in German real estate growth — the largest property market in the European Union.
We value transparency and want to empower our clients with solid research as you make the important decision of when and where to buy a property. Below you’ll find our overview of the German real estate market for 2018. We hope this helps support your search. And as always, feel free to give us a call or send us an email with your questions.
Sincerely,
Başar Canıperk and Gernot Schusser
Founders and Managing Directors
LoanLink GmbH
Table of Contents:
- Overview of the German real estate market in 2018.
- Where did rent increase in Germany the most?
- When and where its better to buy rather than to rent.
1. Overview of the German real estate market in 2018:
The German real estate market experienced solid growth in 2017, even as the global housing market slowed down. Moving into 2018, strong demand is likely to drive continued growth.
Low interest rates and a volatile stock market have fueled a real estate investment boom across major German cities. The cost of financing to buy property in Germany is at a 70-year low, according to the IWD market research institute. Additionally, last year interest levels sat at 1.67%, compared to an average of 5.05% just 10 years before.
However, such favorable borrowing conditions have also driven a steep increase in residential real estate prices. For the first time, Germany’s robust property market saw Berlin, Hamburg, Munich and Frankfurt rank in the world’s top 10 cities for price growth.
Berlin now leads the world’s property markets with the fastest price growth. According to LoanLink and Knight Frank, residential property prices in the capital city grew by nearly 21% in 2017.
While the results for 2018 are in the making, growth in service jobs in major German cities continue to drive rent increases. As a result, rental properties are in high demand across Germany.
Deutsche Bank, among others, predicts that rents will only continue to rise as housing shortages drive up value. In Berlin, for example, the super cycle could last beyond 2020 thanks to strong economic growth that will likely attract more than 250,000 new residents by 2030.
With a strong and growing market, purchasing German real estate in 2018 can be a solid investment and great source of income.
2. Where did rent increase in Germany the most?
In major German cities, recent years have seen continual, sharp rental increases, as the below graph shows.
Munich, historically the country’s least affordable city, saw rent prices rise the most. The Bavarian capital has had the most significant increase in average annual rent since 2011 of all German cities, according to research by the German property website immowelt.de. In practical terms, tenants paid an average of €5,640 more per year for a new rental contract in 2017 then they would have paid for a contract signed in 2011.
Berlin follows close behind in terms of the largest increase in rent prices. Yearly rents in the city sat at €6,840 per year in 2011, and rose to €11,520 annually in 2017. Altogether, rents have shot up nearly 10 percent in the past two years.
Rent prices in Hamburg and Frankfurt also rose, although less dramatically than in Munich and Berlin.
Smaller cities like Leipzig, however, experienced rapid price growth as well. In 2011, the eastern German city was the cheapest of the 14 German cities listed. A tenant will now pay €2,160 more per year to rent a flat than in 2011, or an average of €7,560 annually.
Rents in the west German cities of Essen and Dortmund rose fairly moderately. Even so, a tenant will still pay €840 and €1,080 more respectively compared to six years ago.
Immowelt.de examined nearly 54,000 rental flats with a surface area of between 80 to 120 square meters during the first half of 2011 and 2017 to calculate the statistics collected in the study. The apartments had been previously been listed on the real estate website immowelt.de.
3. Where is it better to buy rather than to rent?
To understand rent increases in Germany, the IWD put together a helpful comparison on renting vs. buying across 401 different German districts. The research center takes into account developments in the rental and real estate markets, interest rates and additional costs involved in purchasing residential property.
In 2008, renters enjoyed living costs that were roughly a third less expensive per month than those of homeowners. Now, the trend has reversed. Homeowners now pay a third less per month than a renter would for a similar apartment.
Today, purchasing a home can lower living costs in major German cities. The financial advantages of renting versus buying are broken down per city in the graph below.
Buyers in cities like Cologne and Dusseldorf can enjoy financing terms of 35 years, with a 28.5% and 24.9% financial advantage over renting, respectively. However in Munich, the housing market is saturated so renting remains cheaper than buying. Meanwhile, the advantages of owning are significantly higher in rural areas compared to Germany’s larger cities. Therefore overall, long-term financing makes purchasing a home or apartment a sound financial decision for most German cities.
Follow us on Medium, Twitter, Facebook and/or LinkedIn. And as always, if you have any questions about how to finance your home in Germany, give us a call for fast and friendly help in English. And finally, our full contact details are always listed on our website LoanLink.de.
