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New housing estate in Soest: demand for construction financing remains low

Photo: Hans Blossey / IMAGO

The decline in prices for houses and apartments continues, according to the most important real estate financiers. According to data from the Association of German Pfandbrief Banks (VDP), residential real estate prices fell by an average of 1.7 percent in the third quarter compared to the second quarter. Compared to the same period last year, the minus is 6.3 percent, reported the association, which represents Deutsche Bank, Commerzbank, state banks and large savings banks, among others.

The figures released on Friday show that the stabilization of the real estate market is taking longer than many expected. With the renewed decline, residential property prices in Germany fell for the fifth quarter in a row, according to VDP data. There were also strong price reductions for commercial real estate. The downward trend from the first half of the year has continued, said VDP Managing Director Jens Tolckmitt. "A market revival is a long time coming."

The real estate price index is based on data on transactions from more than 700 banks and is more meaningful than analyses based solely on advertisements. This is because real estate sales involve negotiations, and deviations from the asking price are common.

Price pressure also in metropolises

The main reason for the price decline is the sharp rise in ancillary purchase costs and interest rates, which make loans more expensive. As a result, demand for construction financing remains low. According to the Federal Statistical Office, residential real estate prices fell surprisingly sharply by almost ten percent in the second quarter compared to the previous year – the largest decline since 2000. Official data for the third quarter is still pending.

In the seven largest cities, where housing is particularly scarce, residential property prices fell by 1.3 percent compared to the previous quarter and 5.7 percent compared to the same period last year, slightly less than the national average. Within a year, there was the sharpest price decline in Frankfurt am Main (9.1 percent) and the smallest in Berlin (4.7 percent). Düsseldorf, Hamburg, Cologne, Munich and Stuttgart were in the range between minus 5.1 and minus 6.8 percent.

Meanwhile, the strong upward pressure on the rental market, to which many people are switching, continued. New lease rents rose by 5.8 percent year-on-year in the third quarter. "The widening housing shortage and the associated excess demand are reflected in further rising rents," said Tolckmitt.

According to VDP calculations, the price declines for commercial real estate were once again particularly large. At 10.6 per cent compared to the same quarter of the previous year, the price of office properties fell more sharply than retail properties for the first time since 2009 (minus 9.3 per cent). The trend towards working from home and stricter energy regulations are weighing on office markets. Retail real estate is also suffering from the trend towards e-commerce and consumer restraint in inflation.