Departure Leipzig

Departure Leipzig

20.08.2021 Author/s: André Adami

Prices in Leipzig are rising; for condominiums, for example, they have almost doubled within five years. No other major city in Germany has seen such a development. André Adami talked about Leipzig's housing market in an interview with WELT.

WELT: What is the trigger for this development?

André Adami: On the one hand, we still have very low interest rates, financing is cheap. On the other hand, the Corona pandemic has once again strengthened the urge to buy real estate as a retirement provision. Many prospective buyers have had time to think about the subject, and some have a little more money to spare due to a lack of alternatives. However, these effects exist throughout Germany, but in Leipzig we are also coming from a relatively low price level. So a faster percentage increase is probably easier to achieve.

WELT: Nevertheless, something has changed, within only three or four years. What is the trigger for such a flow of money into a city? And who can keep up with the prices? The people in Leipzig themselves obviously can't, incomes there are only rising slowly.

Adami: It's true, according to our observations, a good 80 per cent of buyers do not come from Leipzig. Condominiums in the portfolio are bought by private investors from other parts of the republic. As far as undeveloped land and large construction projects are concerned, the classic investment market - professionals are active there: special funds, insurance companies and pension funds. They finance and develop large construction projects. Compared to other cities in eastern Germany, Leipzig is currently a top location.

WELT: With prices per square metre of more than 3,500 euros and building land prices of over 800 euros, many local citizens are financially overburdened. The ownership rate is around twelve per cent, in other cities it is twice as high.

Adami: This is also due to the fact that relatively few classic owner-occupied homes - detached houses and terraced houses - are planned and built. This type of construction makes up a significant share of owner-occupied housing in other cities with a different building history, for example in West Germany. We estimate that 50 per cent of prospective local buyers who do not find a suitable offer are families with children. There are, of course, other reasons for the low ownership rate. One of them is a different asset structure in the west and east. The capital stock of families in eastern Germany is nowhere near as large as in the west - always in relation to the broad average. This difference in relation to real estate was initially reinforced somewhat in the 1990s by the special tax write-offs for purchases and renovations. At that time, almost only citizens from the West invested in flats in the East. Leipzig was particularly popular. Some of these flats are now being sold again - with significant increases in value.

WELT: Most households are therefore dependent on rented flats. How are prices developing there?

Adami: There is an enormous difference between new and existing buildings. Rents for new buildings have risen significantly and have now settled between 11.50 and 12.50 euros. Only very few local households can afford that. In the existing housing stock there is - still - a relatively large supply, including flats for seven euros per square metre.

WELT: What role do land prices play in the high prices for new buildings?

Adami: As in other cities, land prices have risen very quickly, from 300 to 800 to 1,000 euros per square metre. The share of land prices in the price of new buildings is still low in Leipzig, at around 25 per cent. This is quite different in other cities, such as Hamburg or Berlin, where the land price accounts for up to 50 per cent. In Leipzig, however, things are moving in a similar direction. As in other cities, land is sold on speculatively or negotiated until construction actually begins. Sometimes this even has consequences for the cityscape, for example when there are renegotiations about building density or height because the project developer has to produce more space to get his money's worth.

WELT: But if a developer buys a plot of land, then gets the building rights, builds flats and then sells or rents them out - then he has no problem with the land prices that have risen in the meantime.

Adami: From conversations with project developers, we know that most of the money is often no longer earned with the construction itself, but with the trade in land. If you buy an unused plot of land and then get the right to build, you can achieve an enormous increase in value - and with less risk than with elaborate planning and construction, which can become more expensive and delayed. This is because the construction costs themselves are also rising rapidly. In the meantime, we observe that some developers do not even deal with complicated building anymore, but specialise in a kind of pre-development of building plots. A plot of land is bought, a development plan is drawn up by the municipality, then it is sold on.

WELT: Don't the cities have a way to stop this spiral of sales and prices so that more affordable housing can be built?

Adami: There are possibilities, such as putting a time limit on a building permit. But there are no conditions attached to a development plan itself, so the cities' hands are tied, at least if the plan already exists or if the land is already in private hands. In the case of land that is still in public hands, conditions can of course be attached to the sale. Some cities operate concept procedures where the type of development or the proportion of price-linked housing is subsequently determined. But land prices rise anyway. Sometimes it also depends on which developer you work with. Traditional developers like Kondor Wessels or Bonava still have their own construction departments. You can assume that these resources will be used, that they will also build.

WELT: What if the child has already fallen into the well, so to speak, if the land is in private hands and there is an old development plan - that is the case in many cases.

Adami: Basically, there is still room for manoeuvre, but my impression is that it is not always used. The cities could, for example, stipulate that a building permit expires if a property is sold on.

WELT: In some cities, immigration has slowed down, the demand for housing is declining. Could it be that some developers have miscalculated?

Adami: At least in Leipzig and Dresden it can be observed that some properties are on the market longer than initially thought. Some projects are also rented out furnished or used temporarily as offices.

WELT: The goal of cities and municipalities is to provide affordable housing. Now flats are being built, but fewer and fewer people can do anything with them. In Berlin, new-build asking rents are now heading towards 15 euros, which is Hamburg level - with completely different income levels.

Adami: Many people have moved to Berlin from abroad. Those who move to Berlin from Paris still find the rents for existing and new flats comparatively cheap. The newcomers to Berlin often have higher incomes. So it is also a question of willingness to pay.

Note: The interview (here in a slightly abridged version) was first published in the WELT of 14 August 2021. The questions were asked by Michael Fabricius.

Contact person: André Adami, Head of division residential at bulwiengesa, adami [at]