Germany’s housing market seems rosy. The rise in prices is continuing unabated. Yet harbingers of the end of this boom have now appeared, and residential property prices in Berlin and Munich will soon tend downwards.
Forecast predicts declining prices
A year ago, Harald Simons shocked Germany’s real estate scene with his forecast for the housing market: in the coming five years, purchase prices for condominiums in some major cities could fall by as much as one third. The member of empirica’s board of management wrote in last year’s Spring Report of the real estate industry that a break in the trend of purchase prices was to be expected with certainty in Berlin, probably in Munich and possibly in Frankfurt and Hamburg.
But last year saw no decline in prices: the upswing in the housing market continued throughout 2017. Condos in Berlin, of all places, rose especially rapidly, with prices increasing by an average of 15.6%. Yet as Simons sees it, this presents no contradiction to his thesis. After all, he made no claim that his downward scenario would start as early as 2017. Giving up his thesis does not come into question for him at all. On the contrary, in this year’s issue of the real-estate industry’s Spring Report, he wrote, “We maintain the forecast for Berlin and Munich, but from the present perspective would add Stuttgart and tend to remove Hamburg”.
Housing supply is expanding
Current prices can only be justified if the earnings, i.e. the rents, were to continue to climb, but there is no basis for that. “The times of turbulent development in the demand for apartments” have come to an end according to Simons, while at the same time the “turbulent development in the supply of condominiums” is continuing and in some cases becoming even stronger. Berlin in particular is facing a “veritable wave of construction”. The recently measured rent increases will consequently probably taper off, and Simons expects a stagnating level of new leases in Berlin, Munich and Stuttgart and possibly in Frankfurt as well.
At least at the present time, Simons thinks nothing of politically initiated “supporting measures” such as are foreseen by the coalitionists from the CDU/CSU and the SPD in the form of a child-related building allowance and a limited exemption from real estate transfer tax. In his view, this would merely delay the inevitable decline in condominium prices and prolong the cycle.