Market News

Date of Housing Summit Confirmed

The highly anticipated Housing Summit will be held in the German Chancellery on 21 September, reported the IMMOBILIEN ZEITUNG on 02.08.2018. A preparatory meeting has been scheduled for 31 August at the Ministry of Construction with the aim of discussing a range of topics, including how best to simplify and speed up construction and approval processes. The main summit will then address topics related to urban development and the zoning of building land, along with potential amendments to building codes, tenancy law, social housing construction and land sales by the Federal Institute for Real Estate (Bima). Jürgen Michael Schick of the IVD sees the summit as “a great opportunity that must be seized urgently in order to set the stage for increased housing construction”. According to Schick, the Housing Summit needs to come up with a “clearly defined, national action plan”.

German Households Have Sound Finances

Based on an analysis of OECD data on property prices and economic developments from 20 countries, the German Institute for Economic Research (DIW) believes that new property price bubbles are inevitable, especially in Great Britain and Sweden, revealed the IMMOBILIEN ZEITUNG on 02.08.2018. Regarding Germany, DIW identified signs of speculative bubbles in Berlin and Hamburg, but described the rest of the country as benefiting from “generally sound financing” due to the low level of household debt and the extended maturity of real estate loans. Nevertheless, DIW has called for Germany’s financial supervisory authority, BaFin, to be given precisely defined instruments to intervene in the country’s property markets, should the need arise.

Munich Introduces Municipal Rental Price Brake

On 02.08.2018, the IMMOBILIEN ZEITUNG reported that Munich’s city council has voted to introduce a municipal rental price brake to limit rental increases to 10% over any five-year period for free market apartments owned by the municipal housing companies, GWG and Gewofag. The council’s new legislation also sets a rent ceiling of 90% of the current rent index and limits the modernisation levy that can be charged to tenants. The modernisation levy limit also applies to the city’s pilot programme for rental housing construction (KMB).

Blockchain in the Real Estate Industry

On 02.08.2018, the IMMOBILIEN ZEITUNG analysed the benefits of blockchain technologies in the real estate industry. Asset managers, in particular those who manage large portfolios, are highly interested in taking advantage of the new technologies. “Blockchain technologies make Smart Contracts a reality. And with Smart Contracts, we can make the entire investment process faster and more secure”, explained Michael Stephan of iFunded: “Instead of taking several days, we can finalise an investment within a matter of hours”. Blockchain could also conceivably be used as the basis of a decentralised alternative to land registers. Nevertheless, blockchain should not be regarded as a panacea. “Blockchain is currently one of the most hyped, least understood and most ill-defined technologies”, said Thomas Herr of CBRE. He expects the widespread adoption of blockchain to take at least another five years, if not longer.

Number of Dwellings up by 265,000

According to the Federal Office of Statistics, the number of dwellings in Germany increased by 265,000 units in 2017 and climbed to a total of almost 42 million units, reported the IMMOBILIEN ZEITUNG on 02.08.2018. At the end of 2017, Germany’s housing stock totalled just under 3.9 billion square metres of living space.

Investors Fall in Love with Microapartments

According to the IMMOBILIEN ZEITUNG on 02.08.2018, CBRE has reported that more than EUR 1.6 billion was invested in student residences and existing/planned microapartment buildings in Germany in H1/2018. This marked a 224% increase on the first six months of 2017. However, the number of microapartments transacted during the same period only increased to about 8,800 units (+110%), totalling approximately 277,000 square metres of living space (+118%). As CBRE explained, the sector has seen significant price increases over the last six to twelve months. CBRE reports a prime yield of 3.75% on average, with significantly lower returns generated by existing properties in good locations. For the year as a whole, Konstantin Lüttger of CBRE Germany expects a transaction volume “above the EUR 2 billion mark”.

Care Properties are an Attractive Asset Class

According to CBRE, EUR 824.4 million was invested in German nursing care and retirement homes in H1/2018, reported HAUFE.DE on 31.07.2018, followed by CASH.ONLINE and other media on 01.08.2018. This is 123% more than in the same period of 2017. According to CBRE, the significant increase in investment was driven by demographic developments in Germany, which have fuelled demand for nursing homes. The prime yield in the sector currently stands at 4.8%, although “this is trending downwards slightly”, explained Dirk Richolt of CBRE. For the year as a whole, Richolt expects an investment volume of well over EUR 1.0 billion. Above all, demand from international investors continues to strengthen.

Co-working is Here to Stay

On 03.08.2018, the FAZ examined whether the current hype surrounding co-working spaces will continue even if the economy weakens. Fabian Schuster, Partner of EY Real Estate, described the flexible workspaces as “overflow spaces”, catering to demand that exceeds supply. However, he acknowledges that co-working is by no means a short-term phenomenon, but will become an established feature of the office landscape. For providers, it is important to offer more flexible lease terms than usual. “When it comes to leases, we are being brave and offering bold lease terms for our properties in top locations”, said Jens Böhnlein of Commerz Real: “Today’s users expect built-in flexibility in their leases. They also appreciate the benefits co-working spaces offer in terms of meeting other people and the extensive range of additional services they provide.

Urban Tourism Gives the Hotel Market a Boost

According to Dr. Lübke & Kelber’s Hotel Market Report 2018, urban tourism in Germany grew at a significantly faster rate than overall tourism in Germany last year. This was reported by THOMAS DAILY on 30.07.2018, HAUFE.DE on 31.07.2018, and other online media and the FAZ on 03.08.2018. While the number of overnight stays nationwide rose by 2.7% compared to 2016, growth in the top 10 cities hit 4.6%. The top performers were Munich (+11.1%), followed by Leipzig (+9.4%) and Frankfurt (+8.4%). Berlin, Germany’s largest market with around 31 million overnight stays in 2017, only grew by 0.3%. HAUFE.DE quoted Daniela Bense of Dr. Lübke & Kelber: “The continuing expansion of capacity gives reason to expect further growth in Germany’s hotel markets”. The supply of hotel rooms is expected to increase in almost all of the top 10 markets in the current year.

Prosperous Municipalities Have Lower Property Taxes

A study from EY has revealed that property taxes increased in 60% of Germany’s municipalities between 2012 and 2017, reported the FAZ on 09.08.2018. The study found that property taxes increased by an average of more than 8% and that the average assessment rate climbed to 375% in the same period. The highest property tax assessment rate is levied in municipalities in North Rhine-Westphalia (534%), followed by Hesse and Saxony. Baden-Wuerttemberg, Bavaria and Schleswig-Holstein have the lowest property tax assessment rates. To a large extent, property tax assessment rates depend on the economic health of each municipality. “Above all, highly indebted municipalities in structurally weak regions have been turning the tax screw in order to balance their budgets”, explained Bernhard Lorentz of EY.

Populations in Decline Despite Healthy Labour Market

According to a study from the Institute of Economic Research (IW), populations are in decline in a number of economically successful regions and smaller cities because young people prefer to live in major cities, reported DIE WELT on 06.08.2018. In a ranking of the top ten cities and regions in which the difference between positive labour market dynamics and weak population growth is most pronounced, Würzburg is in first place.

Prices for Student Apartments Continue to Rise

According to the Price Atlas published by the property broker Homeday, prices for student apartments continue to rise, reported DIE WELT on 08.08.2018. The basic rent (i.e. excluding utility and service charges) for a room in a typical three-student flat with standard equipment in a typical residential area has risen by an average of 12% over the last three years. In Munich, Berlin, Stuttgart and Passau, rents have increased by more than 20%. Homeday found that the most expensive rooms are in Munich, where students pay roughly EUR 470 per month for a 26-square-metre room in a shared apartment, which is equivalent to almost EUR 18.00 per square metre. In Leipzig, on the other hand, students only have to pay an average of EUR 6.65 per square metre.

Smart Home Technologies Gain Ground

A survey by the industry association Bitkom has shown that one in four Germans now uses at least one Smart Home device, reported the FAZ on 08.08.2018. According to the survey, intelligent lighting (17%), video surveillance (14%) and speech activated assistants (13%) are especially popular. More than a third of those surveyed plan to purchase a smart application for their households over the next twelve months, while one-in-ten Germans wants to buy a speech activated assistant. The number of people who say they are familiar with the topic of smart homes has risen to 70% from 61% two years ago. However, 37% of those surveyed stated that installing the technology is still too complicated and just as many had problems operating their devices. Of those surveyed, 36% said that the devices are too expensive, 26% fear hacker attacks and 24% are worried about the negative impact on their privacy.