Prices on the German real estate market are falling again for the first time in more than ten years.

The general manager of the Association of German Pfandbrief Banks (VDP), Jens Tolckmitt, spoke to journalists on Monday evening about "clear signs of a trend reversal in real estate prices".

Nevertheless, he does not expect a dramatic development and ruled out a price collapse.

Association President Georg Reutter, who is CEO of DZ Hyp in his main job, classified the rising interest rates as a headwind in the real estate business.

The real estate market has taken a break and the volume of transactions has declined noticeably.

Reutter considers a drop in real estate prices of 15 to 25 percent possible.

Markus Fruehauf

Editor in Business.

  • Follow I follow

The real estate price index of the VDP, to which the most important mortgage banks in Germany belong, showed a decline of 1.0 percent in the third quarter compared to the previous quarter for the first time since 2011.

Compared to the same period last year, however, prices have still risen by 4.7 percent.

Reutter hopes that at the beginning of the second half of 2023 the current congestion on the real estate market will clear up and that there will be more transactions at a then lower market level.

Conservative finance

According to the VDP, real estate prices are likely to continue to fall in the coming quarters.

This also applies to residential real estate, whose prices fell by 0.7 percent in the third quarter.

Compared to the same quarter of the previous year, however, they increased by 6.1 percent.

Tolckmitt does not expect prices to collapse because the demand for living space remains high and the German real estate market has remained robust even in previous economic crises.

He referred to the low proportion of financing in the market value of the property.

According to him, the so-called loan to value (LTV) with a fixed interest rate of 14 years is on average 80 percent.

The Pfandbrief banks are also feeling the correction on the real estate market in their lending business.

In the third quarter, this fell by 21 percent compared to the previous three-month period in residential real estate financing.

In the case of commercial real estate, the decline was 8 percent.

In the first nine months, the Pfandbrief banks committed new loans of over 132 billion euros, which Tolckmitt classified as comparatively high.

Compared to the same period last year, the minus is 1.3 percent.

Last week, VDP President Reutter said that the decline in lending is likely to continue at least until mid-2023.

Tolckmitt referred to the high valuations after the property boom in Germany for many years.

Even a sharp drop in prices of around 20 percent, which some in the industry thought was possible, would only mean 2020 levels.

The willingness to invest in residential real estate remains intact even in the current high-interest environment.

Nonetheless, the interest rate increases mean that home ownership is less affordable at the same prices and demand is falling.