After years of the real estate boom, international investments in Germany are on the decline. Nevertheless, prices and rents are likely to continue to rise in some cities.
SStrong economy, political stability, legal security: apartments and houses in Germany are considered a safe haven by investors around the world – to the chagrin of tenants and property buyers. In some cities in Germany the housing shortage is great, property is becoming unaffordable for many people. But in view of the high prices, some large investors are now turning away, as an analysis by the consulting firm PwC shows.
Accordingly, the corresponding real estate investments in Germany fell in the past twelve months by 3 billion to 65 billion euros. Apartments and houses in local cities are valued by large investors because they attach great importance to security, according to the paper available to the German press agency. “Nevertheless, Berlin, Frankfurt, Hamburg and Munich are viewed by many investors as overpriced,” says PwC partner Susanne Eikermann-Riepe.
The more than 800 real estate professionals who were surveyed find the house prices in these major German cities – as in other European metropolises – very sporty. “Close to the summit”, “far advanced” or “overpriced” is often their verdict.
Britain is attracting more capital
For some investors it was apparently too colorful. At the top of their favor across Europe is no longer Germany, but Great Britain. From the final quarter of 2017 to the end of the third quarter of this year, 68 billion euros were invested in real estate on the island. Germany has too few target properties and these are too expensive, says Eikermann-Riepe. “Because of this, Great Britain was able to pass despite the impending Brexit.”
In the past few years, investors from the United States, Great Britain and China had bought apartments and houses on a large scale in German cities. According to the Association of German Pfandbrief Banks, more than every second euro in deals over ten million euros came from foreign investors in 2017. The assessment of large investors is therefore important.
Late-stage real estate cycle
The study is also evidence that the real estate cycle that has been running for a decade in Germany is now in a late phase. The Bundesbank warned several times against excessive prices in metropolitan areas. She sees overvaluations of up to 30 percent, even if there is not yet a nationwide bubble.
The Brexit planned for 2019 is now also making itself felt in Germany, the PwC study shows. In Frankfurt, which attracts many London bankers, real estate investments rose rapidly: On the Main, eight billion euros were invested in apartments and houses – an increase of 12.5 percent within a year. With that, Frankfurt caught up with Berlin in terms of volume. The two German frontrunners are jointly third in Europe behind Paris and London.
Prices in Frankfurt are likely to continue to rise
Landesbank Helaba expects the number of bank employees in Frankfurt to rise by at least 8,000 people in the medium term. The influx of bankers from London because of Brexit will help “the rise in house prices and rents to continue at at least a similar pace,” she estimates.
According to the PwC study, not only Frankfurt, but also other major German cities remain in demand – despite all the skepticism about high property prices. When asked about the best prospects for European metropolises, the interviewed professionals see four German cities in the top ten: Berlin (2), Frankfurt (5), Hamburg (7) and Munich (10).
Even with the expected rent increases, the study authors do not give the all-clear. Surcharges are also expected here in Frankfurt and Hamburg – and above all in Berlin. The capital is rated as the most lucrative in Europe. “The love affair between the real estate industry and Berlin should continue in 2019,” it says. “Everyone wants to be there, and rents are skyrocketing.”
According to a report by the real estate industry associations, the entire real estate market in Germany now generates annual added value of more than 500 billion euros.