Property prices in Germany up again
Last Updated: October 15, 2015
The national property index rose 5.3% during the year to July 2015 (5.1% inflation-adjusted), compared to the 2.6% price rise during the year to July 2014 (1.7% inflation-adjusted), according to data provider Europace.
Europace's hedonic price index for existing homes - which should be more accurate - increased 5.9% in nominal terms, and new home prices rose by 6.4% y-o-y (6.2% in real terms).
Home prices have risen more or less everywhere in Germany during the year to Q1 2015, according to Dr. Klein’s trend indicator of property prices (DTI):
In North-East Germany
- Berlin is booming. Apartment prices in Berlin rose by 5.1% y-o-y to a median price of €2,785 (US$ 3,119) per square metre (sq. m.).
The median price of one- and two-family houses in Berlin rose by 7.1% y-o-y to €1,966 (US$ 2,202).
- Hanover's prices rose by 5.2% y-o-y to €1,773 (US$ 1,986) per sq. m.
The median price of one- and two-family houses in Hanover rose by 4.9% to €1,710 (US$ 1,915) per sq. m.
- In Dresden apartment prices rose 7.6% y-o-y to €1,991 (US$ 2,230) per sq. m., while one- and two-family houses rose by 5.5% to €1,902 (US$ 2,130) per sq. m.
- Hamburg apartment prices rose 3.0% y-o-y to around €3,247 (US$ 3,636) per sq. m..
One- and two-family houses in Hamburg rose 3.6% to a median of €2,240 (US$ 2,509) per sq. m..
In West Germany
- Dusseldorf apartment prices rose only 0.5% y-o-y, to a median price of €2,128 (US$ 2,383) per sq. m. during the year to Q1 2015.
One- and two-family houses in Dusseldorf rose 4.0% to a median price of €2,079 (US$ 2,329) per sq. m., higher than the previous year.
- Cologne's apartment prices rose 9.9%, to € 2,372 (US$ 32,656) per sq. m. The median price of one- and two-family houses rose by 5.0% y-o-y, to €1,995 (US$ 2,234) per sq. m.
- In Dortmund, apartment prices rose 6.1%, to a median price of €1,385 (US$ 1,551) per sq. m., while one- and two-family houses rose by 3.4%, to €1,773 (US$ 1,986) per sq. m.
In South Germany
- Frankfurt apartment prices rose by 1.7%, to €2,647 (US$ 2,964) per sq. m., while one- and two-family houses rose 6.5% to a median price of €2,148 (US$ 2,406) per sq. m..
- Munich apartments were up by 10.7%, to a median price of €4,691 (US$ 5,253) per sq. m.. One- and two- family houses increasing by 6.1% to €3,068 (US$ 3,436) per sq. m.
- Stuttgart apartments rose by 8.3%, to €2,206 (US$ 2,471) per sq. m. One- and two-family houses in Stuttgart increased by around 2.7% to €2,262 (US$ 2,533) per sq. m.
Dwelling permits rose 5.4% to 284,851 in 2014, and completions were 14.2% higher than in 2013, at around 245,325 units, according to the German Federal Statistical Office (Destatis). This level is the highest in 9 years. In 2015 around 270,000 completions are expected, according to Construction Minister Barbara Hendricks.
Yields are moderate in Germany
For those who wish to buy or rent an old, but well-refurbished apartment, Berlin is still more affordable than Frankfurt or (especially) Munich.
Munich is Germany’s high-cost leader, of course. To buy a 120 square metre (sq. m.) apartment in Munich costs around EUR 8,100 per sq. m., while in Berlin it costs around EUR 4,200 per sq. m., and in Frankfurt, the same sized apartment costs around EUR5,300 per sq. m.. Rents are correspondingly pricey.
Wherever you buy, you are unlikely to have much problem letting your apartment. Especially at the lower end there is an acute shortage of affordable apartments as the German boom continues, sucking in workers from all over Europe.
The higher yields in all three cities come on the smallest apartments, and are caused by the fact that very small apartments are relatively cheap to buy.
Over the last two years the yields gap between Berlin and the other two cities has narrowed as rents have risen significantly in Frankfurt. Berlin remains much less expensive, but in terms of rental return-on-investment, there is no longer much difference between Berlin and Frankfurt, while Munich´s yields are still a little lower.
All apartments included in the survey were located in the upscale residential neighbourhoods of Berlin, Frankfurt and Munich.
Round trip transaction costs are moderate to high in Germany. See our Germany transaction costs analysis and our Residential property transaction costs in Romania compared to other countries.
Rental income tax is high in Germany
Rental Income: Rental income is taxed at progressive rates, up to 45%.
Capital Gains: Properties held for more than ten years are not liable to tax on capital gains.
Inheritance: Inheritances are taxed at progressive rates, depending upon the relationship to the deceased, and the value of the inheritance. Spouses and children are taxed at progressive rates, from 7% to 30%.
Residents: The same tax system applies to residents and nonresidents except for various tax allowances and filing options e.g. joint returns.
Roundtrip costs are low to moderate in Germany
Roundtrip transaction costs are low to moderate at around 9.02% to 16.34% of the total price. Real estate transfer tax is levied at 3.5% to 6.5%, depending on the federal state where the property is located. Real estate agent’s fee is negotiable from 3% to 6%, plus 19% VAT.
German law is pro-tenant
German law leans signifcantly toward the tenant.
Rents: While rents can be freely agreed, “exorbitant” rents can subsequently be appealed.
Rent increases are controlled, and cannot exceed more than 20% in nominal terms (less in real terms) over three years.
Tenant Security: Unlimited contracts are standard, effectively giving the tenant security of tenure. The tenant can object to the “ordinary notice”, and demand continuation, if termination of the lease would give rise to hardship for himself or his family that would be unjustified, even in the light of the landlord’s legitimate interests.
Robust economic growthThe German economy expanded by 1.6% year-on-year (seasonally adjusted) in the second quarter of 2015.
“The conditions are currently in place for fairly solid economic growth in the second half of 2015, fuelled by both external and domestic demand,” according to the Bundesbank.
Following the sharp slowdown in 2012, Germany’s economy slowed further in 2013, growing by only 0.2%, according to the IMF. The economy bounced back in 2014 with a 1.6% growth and has since then been registering robust GDP growth.
Germany’s unemployment rate was 4.8% in June 2015. In contrast, the entire euro area’s unemployment rate was around 11.1%.
Germany’s inflation was 0.1% in July 2015, according to Federal Statistical Office (Destatis). The European Central Bank (ECB) projects area-wide inflation to come in at 0.1% this year, and 1.1% in 2016.