How have real estate prices changed in Germany in 2023?

Introduction

Which cities in Germany have both the highest and lowest apartment prices? Which areas in the real estate sector are becoming increasingly attractive to investors? How have house prices changed over the last ten years and what are the current market realities in 2023? These and many other questions will be answered in this analytical article.

Expert opinion

Irene Verkhovetskaya, CEO of Estate-Service24, shared with us her observations on the dramatic changes in price policy in the real estate market in Germany, as well as the impact of interest rates and housing cost trends in the seven largest cities in the country.

Key themes of the review

• Dynamics of real estate prices in Germany.
• Cost of housing in major German cities.
• Market analysis in cities such as Munich, Frankfurt am Main, Berlin, Hamburg, Stuttgart, Düsseldorf, and Cologne.
• Classification of residential properties by their location.
• Conditions for foreign buyers of real estate.
• The popularity of certain properties that are in high demand.

Dynamics of housing prices in 2023

Academic research shows that the house price dynamics in Germany in 2023 are complex and controversial for the sector. A number of negative factors are evident:

• Decrease in activity in the sphere of financing.
• Stagnation in the transaction market.
• Rising construction costs.
• Suspension of a number of construction projects.
• Increase in bankruptcies among construction companies.

Trends in price increases

In recent years, there has been a steady upward trend in home prices at levels ranging from8 to 10%until the end of 2022. At the same time, in 2023, the demand for residential real estate, which significantly exceeded its supply, began to decline due to several factors:

• Increase in interest rates from1 to 4%.
• Inflationary processes.
• Tightening of conditions for obtaining loans.
• Changes to energy standards for buildings.

Nevertheless, it is still too early to talk about a sharp drop in prices.

Price fluctuations in upscale neighborhoods

While home values in upscale neighborhoods remain flat, some segments are seeing slight price declines starting in 2023, at the level of10-15%for apartments in certain locations, especially for properties requiring major renovations.

State of interest rates

Interest rates are now falling slightly, sitting at about3.5%. This creates preconditions for an improvement in the market situation, and we should not expect a significant drop in real estate prices in major cities, especially in the western part of the country.

Reasons for market stability

The main causes of this condition are:

• Constant inflow of labor migrants.
• Shortage of land for new residential developments.

Consequently, real estate values can be expected to rise in the long run.

Purchase of secondary housing

Those who are going to buy secondary housing, you should count on some opportunity to get a discount, but do not forget about the need for repairs, which can cost in the range of500 euros per square meterhousing. In the end, the investment made can still pay for itself if you choose your location wisely and take into account current market trends.

Changes in the real estate market in Germany in 2023

Germany's real estate market went through major changes in 2023, as revealed by an analysis by the Federal Statistical Office. The year was marked by the biggest price decline in two decades and three years, with a 10.2% year-on-year drop in house prices recorded in the third quarter of 2023. On average, house values fell by 12.7%, while apartment prices fell by 9.1%.

Price reductions by region

In particular, Munich has seen a sharp decline in apartment prices, with figures falling by 15.25% in the third quarter of 2023 compared to the same quarter in 2022. Hannover and Stuttgart show smaller price declines, with figures of -14.02% and -13.78% respectively. When it comes to private homes in Munich, there has also been a decline in prices, with a 10.84% decrease over the same period. In comparison, Hamburg and Düsseldorf showed a decrease of 9.77% and 8.55% respectively. The minimum price drop was recorded in Dresden - only by 3.22%.

Housing prices in major cities

Speaking about the prices of residential real estate in the largest cities in Germany, it is worth noting that Dortmund has the lowest rates - an average of 2300 euros per square meter. In the context of expensive cities, Munich stands out with a cost of about 8400 euros per square meter. For example, to buy a 2-bedroom apartment of 60 square meters in Dortmund would cost 138,000 euros, while a similar dwelling in Munich would cost almost 504,000 euros.

Prices in the Big Seven

Let's take a closer look at housing costs in Germany's seven largest cities, known as the “Big Seven”.

• Munich:The average price threshold for a square meter apartment is 8400 euros, for private houses - about 8000 euros.
• Frankfurt am Main:Rates for apartments can reach 5800 euros per square meter, and for houses - about 5100 euros.
• Berlin:The average price for apartments is 5100 euros per square meter, for private houses slightly higher - 5130 euros.
• Hamburg:price per square meter for apartments at the level of 5800 euros, and for houses - 5000 euros.
• Stuttgart:about 4800 euros per square meter for an apartment and 5200 euros for a private house.
• Düsseldorf:the cost per square meter for apartments is about 4500 euros, for houses - 4600 euros.
• Cologne:prices in the range of 4700 euros per square meter for apartments and 4400 euros for private homes.

Impact of location on cost

A key aspect to consider is the impact of the location and condition of a property on its value. These characteristics can significantly change the price depending on the popularity of the region and the current economic situation of the country.

Unique cities in Germany

Germany offers many unusual and interesting places to visit, but some cities stand out from the rest due to their unique living conditions. In this article, we take a closer look at five of the country's main cities: Berlin, Munich, Hamburg, Stuttgart and Leipzig. These places provide an opportunity to familiarize yourself with the advantages and disadvantages of living based on the experiences of people who have already made the move to Germany.

Classification of cities

Cities in Germany are divided into several categories depending on their location and importance. The first group, marked with the letter “A”, includes the most popular metropolitan areas, where the demand for housing is extremely high, and therefore, real estate prices too. Such major cities include:

• Berlin
• Munich
• Hamburg
• Stuttgart
• Leipzig

The second group - “B” - covers significant regions that have an impact both on the economy of the country as a whole and on the regions. This includes cities with the number of inhabitants from 250 to 600 thousand, for example:

• Leipzig
• Nuremberg
• Mannheim
• Wiesbaden

The third category “C” includes settlements with a small population - from 100 to 250 thousand people - which are of less importance at the national level, but may be key at the regional level. Such cities can include:

• Wuppertal
• Kiel
• Freiburg

Real estate market analysis

Although such a classification exists, some experts point out that it does not always adequately reflect the real situation on the housing market in small and medium-sized settlements. For example, in different regions, cities of the same category may differ significantly in terms of conditions and demand. It should also be noted that the eastern part of Germany has a less active real estate market compared to the western regions, which are provided with greater economic stability and population size.

Purchase of real estate by foreigners

Turning to the process of acquiring real estate by foreigners in Germany, it is worth mentioning a few peculiarities. As a foreign citizen, you can buyreal estate in this country without special restrictions. This is an advantage for Germany compared to neighboring countries such as Austria or Switzerland, where you need to obtain permits from special committees dealing with land issues. However, it should be borne in mind that the German real estate market requiresconfirmation of funding sourceswhich will definitely need to be taken into consideration when purchasing.

Documents for purchasing real estate

In order to successfully purchase real estate in Germany, you need to prepare a certain set of documents. The main one is a copy of your ID card. If the buyer is a legal entity, you will need an extract from the commercial register.

Introduction to the German real estate market

It is possible to purchase real estate in Germany, but certain conditions must be met. The first requirement applies to foreign citizens who do not have a residence permit in European countries such as Italy, Spain or Greece, but already have an open account in a European bank. This account must receive a sufficiently large amount of money to pay not only for the property itself, but also for all related expenses.

In such a situation, the purchase of both residential and commercial real estate in Germany becomes a reality. At the same time, the client can freely dispose of the funds in his account if he is not on the sanctions lists and has no frozen assets.

Conditions for purchasing real estate

The second important condition for the purchase implies that the buyer has an indefinite residence permit in the European Union. Citizens with this status can freely transfer money to their accounts, take out loans in German banks and invest in various projects. This creates equal conditions for both local residents and foreign investors to participate in financial transactions.

Difficulties for citizens of countries outside the EU

As for citizens who have bank accounts in non-EU countries, such as Turkey or Georgia, it can be quite difficult to open an account in German banks. The reason is that German credit institutions are very strict about verifying the origin of funds, which makes the process difficult and lengthy.

• Banks try to minimize possible risks.
• Transparent documentation of the origin of funds is required.
• Citizens of Russia or Belarus can increase the chances of successfully opening an account.
• Citizens of other CIS countries may open accounts upon confirmation of the source of income.

Problems for Ukrainian citizens

For Ukrainian citizens, the main problem remains the difficulty of withdrawing funds from Ukrainian banks, which significantly complicates the process of buying real estate in Germany.

Trends in the real estate market

The real estate market in Germany at the moment shows interesting trends, especially the segment of residential real estate, which is steadily in demand both for own residence and for subsequent rent. Apartments, residential complexes and income houses are of particular interest to investors depending on their financial capabilities.

Why are residential properties so attractive?

The answer is simple: Germany is a highly developed country with a stable economy and a high standard of living, which leads to a significant increase in residential real estate prices. Residential properties yield about 3.5% per year, which is lower than commercial real estate, where yields range from 5 to 6%. However, the value of residential properties increases faster, which makes such investments more attractive to investors.

In addition, the demand for residential units always remains high in the market, which also inspires confidence in both local and international investors.

Decrease in new buildings in the central parts of cities

In recent years, there has been a sharp decline in the number of new buildings in the central districts of cities. This is due to a shortage of available land plots. Nevertheless, apartment buyers can still find affordable options, although the situation with commercial real estate is more confusing. It often takes clients about a year to find a suitable property if they have specific criteria regarding the type of property and its location.

Demand for commercial real estate

Commercial real estate that hasreliable long-term tenantsThe demand continues to be high. It can be either an office building in large urban centers or a supermarket in a small town in the country. It is important to note that in Germany there is a decentralized infrastructure, where in each settlement there are shopping centers, sports facilities, educational and health care institutions. The local population can count on all the necessary comfortable living conditions.

Analysis of investment real estate

When choosing investment real estate in small towns, it is crucial to make a detailed analysis of the real estate market.economic analysisin a particular region. The new federal states of eastern Germany are now considered less secure from an investment perspective. This is due to the high level of migration, which in turn creates a risk of vacant properties if tenants decide to leave their properties.

Popular investment destinations

As for the new investment areas that are gaining popularity, it is worth highlighting the growing interest in thesocial real estateIn particular, apartments and apartment buildings for the elderly. Germany has a well-developed social security system, to which the government annually allocates about 25% of the national gross product. Older people's homes, in turn, represent a reliable source of regular income with good opportunities for financial growth.

Demographic change and the social investment market

Today's real estate social investment market is booming, driven by thedemographic changesin the country. Forecasts show that despite the recent increase in birth rates, Germany's overall population continues to age. This means that purchasing apartment complexes or homes for the elderly is becoming a sustainable way to protect capital.

Promising areas for investment

In addition, promising areas for investment may include:

• development of energy infrastructure;
• data centers;
• Health care.

Investors are taking an active interest in deepening their involvement in these sectors in an effort to meet the growing need for advanced real estate technology solutions. Thus, prospective investors should carefully study current trends and demographic changes in order to make informed choices in favor of certain areas. Thus, the real estate market remains complex and multifaceted, requiring investors to be cautious and analyze in depth.

Conclusion

To conclude our detailed analysis of the real estate market in Germany, it is safe to say that it is going through challenging times, but still maintains its long-term prospects. The current stability of interest rates and the moderate decline in house prices are factors that may attract both foreign and local investors. Despite notable price fluctuations in 2023, the location and quality of properties continue to be the main criteria for their valuation.

Of particular note is that while current prices in cities such asMunichorFrankfurt am MainWhile this may discourage some potential buyers, demand for housing in prime locations remains high due to the constant influx of population. This creates a situation in which, with all the temporary difficulties, we can expect a gradually recovering market with a subsequent rise in prices.

Key aspects of real estate investing

• Investing in real estate in Germany can be a lucrative choice.
• Attention to detail when selecting properties is critical.
• A flexible approach to finding and acquiring real estate can help you avoid potential risks.

Thus, the future of the real estate market in Germany, despite the current challenges, looks promising - stay tuned for changes and don't miss out on potential opportunities in this attractive field.