February: Purchase prices versus rents - the historical gap

February: Purchase prices versus rents - the historical gap

Chart of the Month
01.02.2021 Author/s: André Adami

The development of purchase prices and rents for apartments is causing a lot of discussion and social explosives. bulwiengesa analyzes 125 German cities since 1990. The graphs show: For a long time, condominiums were real slow sellers. Why did that change?

Today, people are rubbing their eyes. Since 2000 or thereabouts, as the chart of the month shows, rents for existing apartments have risen steadily, while prices for used condominiums have actually fallen. For a variety of reasons: Germany was a tenant country, interest rates were above six percent, apartments as capital investments were uncommon, and the run on cities was unpredictable - starting around 2005, even municipal rental housing stock was sold in cities like Berlin. The underlying data relate to all 125 RIWIS cities analyzed by bulwiengesa. They are also part of the bulwiengesa Property Market Index 2021 published at the end of January, which evaluates five variables in the residential segment alone.

Until around ten years ago, the German residential real estate market in many cities and regions was characterized by a rather balanced supply and demand ratio. Around 2009/2010, after the economic and financial crisis had been overcome and the full impact of Agenda 2010 had been felt, a strong rise in employment set in, especially in the cities, and consequently also significant population growth. Immigration to the major metropolitan areas led to shortages in both the rental and owner-occupied housing markets. The construction industry recognized this trend only after a slight time lag, with the result that rents and purchase prices developed comparatively dynamically due to increased demand. Purchase prices in particular grew rapidly - and significantly more strongly than rents for existing apartments. The reason: interest rates on financing fell steadily, alternative investment products hardly paid any interest and still do, and foreign capital flooded into Germany. The unchecked price trend shows that the construction industry is unable to make up the deficit and that demand pressure is just as high as the willingness to spend a great deal of money when buying a home.

These fundamental conditions will change little in the coming years. Purchase prices will continue to rise more strongly than existing rents, as the latter are also subject to ever greater regulation.

Note: Here you will find further information on the bulwiengesa property market index. For the purchase of individual evaluations and time series, e.g. of individual locations and asset classes, please contact us.

Contact person: André Adami, Division Manager Residential, adami [at] bulwiengesa.de