Residential Investments in Germany – September 2025

Dear Reader,

The German residential investment market is experiencing a notable recovery from its previous slump. In many cities, buyers and sellers of multi-family properties are once again negotiating on equal terms. A prime example of this trend is Berlin, where there has been an 18 per cent increase in the number of transactions, and a 20 per cent rise in the sales volume for multi-family properties. As the largest market for rental properties in Germany, accounting for approximately 24 per cent of the total German market, Berlin is representative of many major metropolitan areas.

Despite these positive developments, the challenges remain significant. A substantial backlog of renovations in the public housing sector, declining new construction completions, and homeownership remaining unaffordable for too many households all require decisive political action. Faster planning and permit approval processes, a stable regulatory framework for rental housing, and technology-neutral, CO2-reduction incentives for energy efficiency upgrades are urgently needed.

At the same time, opportunities are emerging for investors. The secondary market is gaining momentum, providing appealing entry points in the residential sector. Well-prepared sellers are encountering disciplined buyers. Investors with sound financial backing, a clear strategy, and a long-term outlook can unlock significant potential within the market. What matters is not turning a quick profit, but rather the combination of clear priorities and a pragmatic ESG strategy.

Germany’s real estate market offers ample opportunities, not because everything is easy, but because strong demand, a favourable business environment, and a growing knowledge-based economy ensure that the fundamentals remain as robust as ever.

Your
JMS and HFR

A framework for quality – the importance of organisation in housing construction

In the field of construction, discussions surrounding quality frequently focus on materials, standards, and technical specifications. However, these elements merely scratch the surface. The true foundation of quality lies in the organisational structures of construction companies. And this is particularly crucial in the housing sector, where projects frequently operate under stringent cost and time constraints. A well-organised framework is often the linchpin of successful project execution.

Building trust through proximity
This is particularly true for residential projects: quality depends not only on architectural blueprints and construction schedules, but also on the continuity of the people in charge. Anyone who acquires a project at the pre-development stage should remain actively involved throughout the construction phase and not just oversee it from a distance. Establishing a clear and reliable point of contact fosters trust, ensures consistent communication, and mitigates potential problems. Many conflicts arise not from technical deficiencies, but from misunderstandings or the ambiguous allocation of responsibilities.

Quality is a learning process
Quality assurance should begin long before construction kicks off. It needs to be a vital component of every project from the earliest planning stages. A structured approach, guided by experienced colleagues, is essential – particularly when starting sensitive work such as waterproofing. Adopting a proactive strategy helps prevent recurring problems, particularly in multi-story residential buildings. Quality should not be perceived solely as an issue that can wait until the final acceptance inspection; it should be embraced as a continuous learning process. Every project contributes to building knowledge, sharing best practice, and developing the skills of young construction managers and planners.

Regional proximity as a key success factor
Residential construction is inherently local. Anyone building in Mannheim, Munich, or Stuttgart needs to know about the specific local conditions, permit processes, and key contacts. Decentralised structures that empower local teams with autonomy and decision-making authority are often more effective than centralised management. This local expertise boosts efficiency, especially in densely populated urban areas.

Digital tools require clearly defined structures
Digital tools, including Building Information Modelling (BIM) and digital twins, have the potential to enhance the quality of construction projects – but only if they are integrated into effective processes. These tools are no substitute for a sense of responsibility; rather, their true value emerges from the synergy of technology, skilled craftsmanship, and clearly defined organisational structures.

Organisation as the foundation of success
The residential construction industry doesn’t need flashy showcase projects, it needs robust processes. In light of the significant challenges posed by rising costs, time constraints, and regulatory demands, effective organisation transcends mere administration – it is an expression of an overarching approach. By combining skilled craftsmanship, sound business practices, and clear organisational structures, project developers can succeed in creating new housing that provides enduring value.

Liquidity pressure creates new opportunities in the residential real estate sector

Residential real estate remains the most stable asset class, a reflection of housing’s status as a basic human necessity. At the same time, the sector in Germany is under significant pressure. Rising interest rates, new regulatory requirements, and far-reaching energy efficiency mandates are substantially increasing capital requirements, not least to preserve the high standard of the current housing stock.

As a result, the direct transaction market has more or less ground to a halt. While sellers are often still basing their asking prices on outdated valuations, buyers are already increasingly factoring in higher financing costs and renovation risks. This disconnect has led to a standstill in many direct sales and large transactions.

The secondary market, in contrast, offers new opportunities. A growing number of investors are opting to sell their shares in property-owning funds at fairly short notice – and often below market value – in order to generate liquidity. A significant factor driving this trend is demographic change: many investments acquired in the 1990s are now held by investors who are either retiring or facing succession issues. Accordingly, the number of sales is rising.

For buyers, this translates into a liquidity premium. Funds with residential properties in their portfolios, in particular, present attractive entry points. Crucially, price discounts do not necessarily reflect the quality of the properties; rather, they generally signal the seller’s willingness to sell.

This situation is especially appealing for investors on the lookout for residential properties with development potential. Older properties in need of modernisation, vacant units, or those requiring ESG upgrades, offer value-creation opportunities when managed professionally. In this context, a liquidity gap on one side transforms into a compelling value-creation opportunity on the other.

Residential real estate is characterised by its structural stability, with demand remaining robust, particularly in urban centres. Access to the secondary market allows investors to acquire properties efficiently, bypassing the lengthy processes associated with direct acquisitions. At the same time, the current price discounts create a financial cushion for essential renovations and sustainability improvements.

In the United States, a well-established and highly liquid secondary market serves as a model for Germany, which is still in the early stages of development. However, in the current climate of heightened uncertainty, the secondary market presents a significant opportunity for residential real estate investments. My conclusion: The secondary market has evolved beyond a niche phenomenon. For investors with a focus on residential real estate, it currently offers exceptional opportunities, provided they are willing to conduct thorough due diligence and invest in high-quality properties with strong growth potential.

Buyers and sellers are once again on an equal footing

In Germany’s housing markets, no one is selling their real estate assets out of a sense of desperation. If they are selling, they are doing so from a position of strength. And anyone buying is doing so with a plan.

Given the prices many property owners originally paid, they are now ready to take advantage of ten, fifteen, or even twenty years of capital gains. In Germany, private property owners don’t have to pay capital gains tax if they sell after the end of the speculative holding period. Other owners may simply be looking to reduce complexity, transfer ownership in an orderly manner, or generate fresh liquidity for their families. These are all rational decisions, not driven by necessity.

On the other side of the negotiating table, buyers are acting equally rationally. Following the end of the zero-interest rate frenzy, prices are now back to being more in line with fundamental data. In many major German cities, price-to-rent ratios have returned to more sustainable levels. Berlin is a prime example: in the second quarter of 2025, residential and commercial properties in the city were changing hands at an average of €2,286 per square meter; most quarters in the last two years have seen prices hovering between €2,200 and €2,250. Berlin accounts for about 24 per cent of the German real estate market and is therefore an early indicator. These are not bargain prices, but a solid foundation. Anyone who buys now is not entering the market at its peak, but rather at the beginning of a new cycle that will again allow for value growth.

Buyers are taking advantage of the current supply gap
Why is demand so strong when the headlines are all so negative? Because the fundamentals are sound. Many German metropolitan areas are still growing, driven by a range of factors including job creation, prestigious universities, international appeal, rich cultural offerings, and a resilient knowledge economy, all of which are fuelling demand for housing. At the same time, new construction in many cities is failing to keep pace with this demand. Approval processes take too long, construction costs remain high, and numerous projects are being put on ice. This has created a significant supply gap that has helped to stabilise property values and cash flows. Buyers who secure desirable properties today are buying scarcity, a condition that is unlikely to change anytime soon.

Right now, sellers have four main motives for divesting themselves of their properties. First, many sellers are looking to take their profits after long holding periods. Second, life stage transitions – managing a property at 45 is quite different to managing it at 75. Third, succession and inheritance – liquid assets are easier to distribute than properties, which can complicate matters for a group of heirs. Fourth, the growing challenge of decarbonisation. Not every property owner wants to invest the time, capital, and expertise required for energy efficiency upgrades. This creates opportunities for buyers willing to undertake these improvements and unlock additional value.

Growing value with long-term financing
This brings us to the topic of ESG. The initial apprehension surrounding rigid labels is gradually yielding to a pragmatic focus on tangible impact. What truly matters is not merely the rating on the energy performance certificate, but the actual reduction in CO₂ emissions achieved during operation. By adopting technology-agnostic solutions, developing renovation plans centred on impact, and establishing clear priorities, properties can be made future-proof without compromising profitability. Buyers who embrace this mindset are investing with, not against, the trend.

Which leaves the issue of financing. We are no longer in the era of zero interest rates, but we are also not yet in a climate that makes it impossible to invest. Predictable interest rates, conservative leverage, and prudent amortisation strategies create the latitude for viable business plans. Buyers with a focus on long-term ownership rather than a quick flip will sleep more soundly and make more realistic calculations. This approach is precisely what defines the transactions we are now seeing: more substance, less speculation.

Win-win deals
What does this mean for the current market? Buyers and sellers once again find themselves on an equal footing. There is no glut of distressed properties, just plenty of motivated sellers. There are no unrealistic price expectations, but there is room for negotiation. In many cases, this creates exactly what investors are looking for: fair deals that benefit both parties. Sellers can achieve strong returns after extended holding periods, while buyers initiate their own investment cycles, unlocking potential through active management and strategic upgrades.

If you are thinking of buying now, there are three key factors to bear mind: first, location is key; second, your calculations must be realistic (capital expenditure, energy efficiency upgrades, rental income projections, and interest costs all need to be factored in); and third, leverage your network, as so many attractive properties change hands discreetly. And sellers should not underestimate the value of their assets. Good properties achieve good prices when they are marketed effectively, with transparent documentation, a clear history, and without any embellishment or exaggeration. After all, the market rewards quality.

Germany’s real estate market offers ample opportunities, not because everything is easy, but because supply, demand, and discipline are once again in balance.

News

Berlin’s real estate market rebounded in 2024, prices remain stable

Across the whole of Berlin, the real estate market enjoyed a notable recovery in 2024, as detailed in the recently released 2024/2025 real estate market report by the Berlin Appraisal Committee for Real Estate Values. According to the report, 20,780 properties changed hands last year, representing an 18 per cent increase compared to 2023. The total sales volume also saw a substantial rise of approximately 20 per cent, reaching 14.9 billion euros. The increase was particularly pronounced in the residential sector, where the market for apartments and condominiums grew by 19 per cent. However, land values for undeveloped plots zoned for office and retail use declined by between 10 and 30 per cent during the same period. Land for individual single-family homes also experienced a modest decrease of around five per cent. In contrast, land values for multi-family residential buildings remained stable. At the same time, average prices for detached and semi-detached houses, as well as rental apartments, saw slight declines of seven and six percent, respectively, accompanied by a 27 per cent decrease in the number of new apartment completions. Experts cited in the report do not foresee significant price increases in 2025; on the contrary, they see indications that prices are stabilising.

Cologne Institute for Economic Research (IW): Homeownership in Berlin is unaffordable

A recent study conducted by the Cologne Institute for Economic Research (IW) and commissioned by the mortgage broker Interhyp reveals that almost no other German state is as unaffordable for homebuyers relying on mortgages as Berlin. In a comparative analysis of all German states, Berlin ranked second to last for affordability, just ahead of Bavaria. While affordability has improved across all states since April 2023, buying a home in a high-priced region remains a significant challenge. In Berlin, affordability has improved by 14 per cent since April 2023, however, persistent high demand coupled with limited supply continues to drive prices higher, according to Michael Voigtländer of the IW. He explains that a lack of available equity, particularly among young families, is a key factor contributing to declining homeownership rates, and calls for urgent political action. He notes that the situation is even worse in the areas around Berlin, particularly in neighbouring districts in Brandenburg. According to the study, houses in Potsdam are the most unaffordable in the region, while the districts of Potsdam-Mittelmark, Havelland, Dahme-Spreewald, and Oberhavel present even greater challenges for prospective homebuyers than Berlin itself.

Berlin’s state-owned real estate has an eight-billion-euro renovation backlog

During a press briefing in May, Birgit Möhring, Managing Director of Berlin Property Management GmbH (BIM), provided an extensive update on Berlin’s state-owned property portfolio. She estimated that the backlog of essential renovations amounts to around 8.3 billion euros. Möhring also revealed that essential energy efficiency upgrades alone account for 2.7 billion of this backlog. Möhring emphasised that the BMI’s current budget is not large enough to address even the smaller backlog of energy efficiency renovations required to achieve climate neutrality by 2045. According to a special audit conducted by the State Audit Office in 2024 and cited by Möhring, the current construction budget of approximately 305 million euros in 2025 would need to be increased by 154 million euros per year to reach the German government’s climate neutrality targets. Failure to bridge this funding gap could result in drastic measures, including the closure of some facilities, the BIM’s managing director warned. At the same time, Möhring also noted that there is a clear understanding of which buildings are in most urgent need of renovation and should be prioritised. As current budget constraints do not allow for rent increases for state-owned properties used by Berlin’s municipal agencies, Möhring intends to raise revenue by taking out loans.