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World´s No. 1 housing market

01/09/2010, by Propfund Germany

Germany’s housing market registers price growth in April 2010. Germany remains the world’s most stable housing market and continues to show positive signs during the first few months of 2010. In April, the average price of apartments was €134,000. It had increased by 2.7% compared to the same month last year, according to Hypoport AG, a leading financial services portal. The price of single-family houses also posted positive annual growth rates. The average price of existing houses was €170,000 in April, up by 1.8% from a year earlier. The price of new houses was €230,000, up by 1.1% over the same period.

Germany’s residential real estate prices declined during the first half of 2009, before posting marginal gains in the second half. The continued ascent of prices in the first few months of 2010 was largely due to government support, rising mortgages and economic growth caused by the revival of exports.

Despite the increases, prices of existing apartments and houses in 2010 are still below their 2005 levels. Nevertheless, any price increase in Germany can be treated as a surprise.

Germany is Europe’s number one location for research and is backed by €5 billion annual federal funds helping to make Germany the world leader in innovation. It is this commitment which also makes Germany, Europe’s leading patent applicant and the leading global force in high-tech solutions. A lacklustre performance seemed to be a permanent feature of Germany’s housing market. With a massive oversupply of flats in Western Germany and a population not obsessed with ownership, it missed the massive house price boom that swept across Europe and developed countries from 2000 to 2006.

Rental yields up

Most Germans live in rented accommodation. Although the proportion of renters to total households slightly dropprd from 58% in 1990, to 55% in 2004, this rate is still among the highest in the world. Private landlords own about 46% of the housing stock, social housing accounts for 6%, and co-operative rentals are around 6%.

Monthly rents rose an average of 3.2% in 2008 on new contracts, to €7.65 per sq. m., while existing contract rents rose 3%, to €6.44 per sq. m., according to Bulwien Gesa. Rent increases have outpaced real estate prices since 2000, leading to slightly higher yields. Rents for existing contracts rose 8.4%, while rents for 08new contracts rose 7.8%, between 2000 and 2008. Over the same period, owner-occupied house prices rose only 4.5%, while the average price of terraced houses fell by 13.8%. Rental yields on smaller flats are generally higher than bigger units, according to Global Property Guide research.

In Berlin, rental yields for 30 – 60 sq. m. flats range from 5.4% - 6%, while bigger units (90 sq. m. – 250 sq. m.) have yields of 4.3% to 4.8%. In Frankfurt, rental yields for small units are at 5.6% - 6.6%, higher compared with bigger units, at 4.6% - 4.7%.

(Source: Propfund Germany, www.propfund.com)