2022-01-05 | Is a trend reversal in the real estate market immanent?
29th Live Event | Meet the Expert
Is a trend reversal in the real estate market immanent?
How are the changing dynamics in the property market affecting price developments in swarm cities and surrounding regions?
|Experts:||Dr. Reiner Braun, empirica AG and CEO Achim Amann|
|Wann:||January 11th, 2022, 7 p.m. CET|
|Wo:||Live via Zoom|
Conclusion of the 29th Berlin Real Estate Talk:
Do we have a trend reversal? Yes. Do we have a price bubble? No. These are the responses of our expert in a nutshell.
After more than a decade of rapid growth figures in the urban and metropolitan areas of Germany, price growth in the following years is forecasted to be less dynamic or flat. There is even the potential of a price correction in the residential real estate sector. As seen in the lowering rental growth rates since 2018 a similar but delayed market on purchase prices is expected. There are several indicators that lead to that conclusion:
- The net income of German households is not growing as fast as the property prices. This means that less can afford to buy apartments or houses in Germany. The rental market is even worse, so people move away from the rather expensive cities and choose lower priced communities with good local infrastructure. Employers are already confirming that they’re having less people apply for jobs than before the property boom.
- The vacancy rates in the main cities are starting to raise again. Not all landlords find tenants for the rent they have hoped for. We observe this trend already since 2019 with our sister company Black Label Property Management GmbH. Especially furnished apartments are less popular. We have observed this trend already before the Corona Pandemic.
- The interest rates are increasing. Dr. Braun: “The historic low interested rates are behind us.” Banks will increase mortgage rates in 2022 and for the years to come. The high inflation will put more pressure on the speed of increase than anticipated.
- The new German government has finally created their own housing department with a new housing minister. Its main task is to get more properties built. Even if they don´t achieve the planned 300,000 apartments per year, the direction is clear. Once there is more supply, the demand will be covered, and the pressure on further price increases will slow down.
- We expect less migration into the urban communities as lifestyles are changing. Home office is now even part of German employment contracts.
- The slowly developing infrastructure programmes in the rural areas including the connection of households to fiber-optic internet are showing the first results. More regions within Germany can then participate in the general economic growth.
- The economic development schemes by the German government for sustainable refurbishments and carbon neutral buildings will motivate landlords and developers to build more. Once they receive government and tax advantages, they don’t have to increase the rents or asking prices to recover their expenses. The side costs for tenants such as cost of energy might even be lower than now.
- The tax authorities are considering to lower the stamp duty for families and first time buyers. This will lower the transaction costs and leaves more deposit for buyers that will release partly financial pressure on homebuyers. Windfall gains are less likely due to fairly strict finance checks of property buyers by the lenders.
- Renting residential real estate is often not profitable for landlords. A good multiple between net rental income per year to purchase price is 20 (as seen between 2000 and 2010). So 20 times the yearly net income was the realistic value of a property before the real estate boom started. Today the multiples are between 30 to 40. If the real estate rents are not going up, the purchase prices for investment properties won’t increase either.
- In a normal economy with normal interest rates, it is not attractive for private investors to buy investment properties for under 3% yield. This only works if there are no realistic alternative investments providing a better return. Th market is now changing in the USA, and we expect market returns well above 3% in other important economies worldwide. The yield expectation will go up on the capital markets. An investment into investment properties will then be less attractive.
Experts in our Real Estate Talk:
Dr. Reiner Braun
Economist Dr. Reiner Braun is CEO of empirica AG(Berlin). After having vompleted his degree in economics at the universities of Osnabrück and Bonn, he received his doctorate at the University of Cologne. Since 1994 Mr. Braun has been a project manager at empirica GmbH. In 2003 he was appointed to the board of empirica AG, where he has been chairman since 2019.
The main focus of his work lies in the area of housing markets, Income and wealth analysis as well as retirement provision. Mr. Braun is a member of the Association Council of the German Association for Housing, Urban Development and Regional Planning e.V., and a member of various working groups and task forces www.empirica-institut.de
Achim is the Co-Founder and Director of Black Label Properties. Since 2004 he works in real estate in Europe. He started his career in St. Tropez (2004—2007) and completed his full time executive MBA in Henley in 2008. Since 2008 he advises and manages clients and international real estate developers, he is responsible of Marketing the two brands Black Label Immobilien and Black Label Properties.
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