After an “absolutely exceptional year”
The real estate market is struggling with a decline in sales
09/22/2022, 11:01 am
An analysis by the Gewos Institute shows that the German real estate boom could be coming to an end this year. Rising funding costs and high inflation are hitting the market hard. However, given the persistent demand for housing, there are no signs of a sudden drop in prices.
According to a study, property sales in Germany are likely to fall this year for the first time since the global financial and economic crisis in 2009. After a record year in 2021, market conditions have reversed, according to a new analysis by the Hamburg-based Gewos Institute for Urban, Regional and Housing Research. Sales of apartments, houses, commercial real estate and land should thus fall by seven percent to 313.5 billion euros this year, and the number of purchases will fall below 900,000. Based on data for the first half of the year, a decline in cash turnover on the German real estate market is expected in 2022 for the first time since 2009.
Since May, the number of purchases, sales and especially large transactions has been decreasing compared to the same period last year, says Sebastian Wunsch, head of asset analysis at Gewos. Buying a property is becoming increasingly difficult for owner-occupiers as financing costs rise and high inflation reduces purchasing power. Investors again waited out of uncertainty. For the purposes of the study, Gewos analyzed data on land purchase contracts concluded with expert commissions and related sales.
“Overall decline in prices” unlikely
The residential real estate market, which accounts for almost 80 percent of transactions in Germany, is likely to lighten up a bit this year, according to Gewos. Sales of apartments and houses are likely to fall by 5.6 percent to almost 240 billion euros. However, Gewos does not believe in a drop in prices. Pressure on the German housing market remains high due to strong immigration and new construction is stalling due to high construction and credit costs. A “comprehensive drop in prices, let alone a sudden drop in prices” is not seen.
Gewos expects residential property price growth to slow below three percent. “Regionally and in certain locations and sub-markets – for example in the case of unrenovated existing properties – a drop in prices cannot be ruled out.”
Last year, according to Gewos, real estate sales rose to a record 337 billion euros – up 14.5 percent on the previous year and more than double the amount a decade ago. While the number of purchases fell slightly due to a lack of supply, the prices of houses and apartments shot up by about 13 percent. This was the strongest growth since records began in the 1980s. Wunsch spoke of an “absolutely exceptional year” and referred to the catch-up effects of 2020 and major transactions in cities.