Annual outlook for 2012: real estate environment remains good
• Housing demand continuing strong
• Real estate remains affordable
• Rental rates to rise
The German real estate business is heading for a good year in 2012 according to IVD forecasts. “Overall economic conditions in Germany can still be considered stable, despite the ongoing monetary turbulences”, says IVD Vice-President Jürgen Michael Schick. “As things stand we expect the domestic economy to continue growing in 2012.” The general positive trend promises a high demand for residential real estate, in his view. “Low interest rates and an altogether moderate price climate make German residential properties attractive and affordable for many buyers”, Schick describes the present constellation.
Interest on ten-year loans rose to just above four percent in the first quarter of 2011, but then dipped again significantly to around 3.2 percent. “With the ECB’s last cut in key lending rates only just behind us interest is very unlikely to rise beyond recent levels during the coming year”, says Schick. “This should allow German residential real estate to remain affordable.” Other major determinants of buying interest such as employment figures or income trends are difficult to predict for the coming months, but are expected to remain stable from today’s viewpoint, according to Schick.
He expects the price uptrend of the past year to be sustained by the strong demand, but adds that German real estate prices are still quite low compared with other European countries. “An 80 square metre flat in Berlin costs slightly less than half the price of one in Brussels”, says Schick. “In Stockholm it takes an average 496,000 euros to buy a flat, whereas in Berlin the average is 112,000 euros”, he continues, illustrating his view that German residential real estate is anything but overpriced.
The coming year will also see in many regions a continuation of the uptrend in rental levels, according to the IVD. For 2011 the IVD reports increases between 2.1 (housing built 1949 or later) and 2.9 percent (older housing), at an average inflation rate of 2.4 percent. In the urban centres it has even found rates to have increased in the range from 3.8 (housing built 1949 or later) to 5.8 percent (housing built up to 1948). “There will be no trend reversal in rental levels in the coming year”, Schick predicts. Especially in the larger cities tenants will have to adjust to rising rents”. Real estate supply in the cities is barely keeping pace with the growth in demand, and the low housing completion figures of the past years has led to a substantial and widespread demand backlog, as he explains.
“Despite the revival of residential construction it will take some time before this balances the demand”, says Schick. For the first half of 2011 the Federal Statistical Office reported building permits for 95,000 residential units, which is equivalent to a year-to-year increase by 28.9 percent or 21,300 units. The IVD sees the strong increase in building permits over the previous year as a sign that the turnaround in housing construction has now been ultimately achieved. In 2010 the number of residential units approved was 6.8 percent higher than it was in 2009.
“With construction activity only picking up slowly and demand still growing, investment in residential real estate will continue to be a good asset management option in 2012 as well,” says Schick. “German housing was also a welcome harbour for both private and institutional investors in the two preceding years. This has invigorated the market for rented private flats and multi-family houses.” This trend is expected to continue through the coming year. IVD members who cooperate with capital investors report continued brisk demand well into the new year.
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Berlin, 9 January 2012
