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Everything you need to know is included in our Germany Property Pack
Are you thinking of investing in property in the land of Efficiency? Are you unsure if it's the right time to take action?
Market timing is a topic that elicits various opinions from people. Your German friend living in Berlin might advise you that now is the worst time to buy property, whereas your real estate agent may have a different opinion and recommend taking advantage of the current market.
At Investropa, when we create articles or update our pack of documents related to the real estate market in Germany, we believe in solid evidence and concrete data, not mere opinions or rumors.
We have collected and examined all the official reports and statistics from government websites. Based on this extensive research, we have compiled a complete and reliable database. Here's what we discovered, which can assist you in deciding whether now is the right time to purchase real estate in Germany.
Let's delve in!
How is the property market in Germany now?
Germany is, today, an incredibly stable country
Positive
Stability is a necessary condition when investing in real estate because it minimizes risks and ensures a secure investment environment. It is an information you need as a foreigner looking to buy real estate in Germany.
You probably know it already, Germany is extremely stable. The last Fragile State Index reported for this country is 23.6, which puts it in the top 10 globally.
Germany has a strong economy and a long history of political stability, which has led to a strong and stable government that is well respected in the international community. This stability has been further reinforced by its commitment to democracy, with regular and fair elections, and the protection of civil rights.
First signal is very positive, let's now look at the economic forecast.
Germany is positioned for growth in the coming years
Positive
Second thing to do before investing in Real Estate: check the economic viability of the country.
According to the IMF's estimations, Germany will, in 2023, grow by -0.1%, which is sad to see. For 2024, the experts say 1.1%.
However, the negative growth rates are not here to stay since Germany's economy is expected to increase by 6% during the next 5 years, resulting in an average GDP growth rate of 1.2%.
The moderate growth rate in Germany is a good thing for investors because it provides stability and reduces the risk of a sudden crash in the market. Additionally, it allows investors to plan for a longer-term return on their investment without worrying about sudden market fluctuations.
However, there are other indicators to watch.
German business owners have a neutral outlook towards market conditions
Neutral
GDP growth is great, but it may not capture all the expectations of businesses in property market. Luckily, in Germany there is a designated metric that is regularly reported. We're lucky because this isn't true for every country.
The Business Consumer Index (BCI) is a metric that assesses the confidence of business leaders in the economy's current and future conditions. Surveys and assessments are used to determine it.
The Ifo Institute's data indicates that the Business Confidence Index is currently 0 for Germany. For interpretation, it's quite low.
There hasn't been significant change, considering that the BCI score, 12 months ago, registered at 3.
Business Confidence in Germany is currently facing some challenges. Nevertheless, this does not automatically imply a crash in the property market. A lower confidence score often indicates a temporary period of uncertainty or caution within the business sector, which is a natural part of economic cycles.
Hence, it is crucial to consider additional metrics before deciding whether it's the right time to purchase property in Germany. This is what we will do.
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Germany is dispensing less building permits
Negative
If you're thinking of investing in property in a country, it's worth considering the number of permits issued for construction projects. More building permits being delivered points to a positive market sentiment and favorable conditions.
Unfortunately, the number of building permits issued is declining in Germany.
In the previous 12 months, according to Federal Statistical Office, the number of building permits delivered by the German municipalities fell by 8.4%, from 333,877 to 305,778 units.
Without a doubt, this is a discouraging signal. Let's analyze more data.
But before that, keep in mind that if there is a reduction in building permits, it will result in a diminished supply of real estate. Consequently, there is a higher chance of property prices increasing in Germany in 2024.
Germany's property prices: growth, stabilization, decrease, stabilization
Neutral
Germany's home prices have increased by 45.1% in 5 years according to Europace AG, Germany.
It means that if you had bought a house in Berlin for $625,000 five years ago, then it would now be worth around $907,000.
Property prices went through a long period of interrupted growth before stabilizing, experiencing a subsequent decrease. Now, property prices are stable in Germany: they don't increase or decrease.
How should we interpret this? Does it indicate a favorable time to purchase property in Germany? While some may see it as a potential opportunity to invest at stable prices, others may prefer to adopt a wait-and-see approach, considering further market developments before making a decision.
You can find a more detailed analysis of the real estate prices in our property pack for Germany.
Everything you need to know is included in our Germany Property Pack
Germany's population is getting (a bit) richer
Positive
When you're looking to buy real estate, population growth and GDP per capita deserve careful consideration because:
- a growing population means more people needing homes
- a higher GDP per person means people have more money to spend on housing (which can lead to increased property value over time)
In Germany, the average GDP per capita has changed by 0.2% over the last 5 years. It's not much, but the growth is here.
This means that, if you purchase a trendy loft in Berlin and rent it out, you will find that each year, you'll attract more tenants with sufficient funds to cover the rent.
If you're considering purchasing and renting it out, this trend is a good thing. Then, the demand for rentals is set to increase in German cities like Berlin, Munich, or Hamburg in 2024.
Rental yields are not high in Germany
Neutral
Rental yield is a commonly employed measure in the realm of real estate investing.
It represents the annual rental income generated by a property divided by its purchase price or market value. For instance, if a property in Germany is purchased for €400,000 and generates €24,000 in annual rental income, the rental yield would be 6%.
According to Numbeo, rental properties in Germany offer gross rental yields ranging from 1.3% and 4.0%. You can find a more detailed analysis (by property and areas) in our pack of documents related to the real estate market in Germany.
It means that your investment won't generate significant returns or income.
As we mentioned before, the amount of available real estate will stay the same (and housing prices may be stable), but more wealthy people will be looking to rent properties. Then we can conclude that rental yields might increase in Germany in 2024.
Everything you need to know is included in our Germany Property Pack
In Germany, inflation is expected to be moderate
Neutral
In two words, inflation is when prices rise.
It's when your regular bratwurst sausage in Berlin costs 4.50 euros instead of 4 euros a couple of years ago.
If you're planning to invest in a property, high inflation can offer several benefits:
- Property values often increase over time, leading to potential capital appreciation.
- Inflation can lead to higher rental rates, thereby increasing the cash flow from the property.
- Inflation decreases the real value of debt, making mortgage payments more affordable.
- Real estate can serve as a hedge against inflation, safeguarding the value of the investment.
- Diversifying into real estate provides stability during periods of inflation.
In accordance with IMF projections, over the next 5 years, Germany will have an inflation rate of 12.3%, which gives us an average yearly increase of 2.5%.
This data is suggesting that Germany may face inflation in the near future. In such a situation, buying property now becomes an option to consider.
Is it a good time to buy real estate in Germany then?
Now it's time to draw our conclusions.
Despite some positive and neutral indicators, 2024 might not be the most optimal period for property investment in Germany due to a range of factors. While Germany's exceptional stability is an advantage, other concerning signals should be weighed carefully before making investment decisions.
Germany's growth potential and improving population wealth are encouraging, but the neutral outlook of German business owners towards market conditions should be noted. These sentiments could reflect underlying uncertainties that might impact the investment environment, warranting caution.
The mixed trajectory of Germany's property prices, from growth to stabilization and even decrease, followed by stabilization, suggests market volatility. Combined with lower rental yields and projected moderate inflation, the overall returns from property investment might not be as attractive as anticipated.
Furthermore, the negative signal of decreasing building permits is a significant concern. Fewer building permits indicate a potential slowdown in the real estate development sector, which could impact property supply and future value appreciation. Taking into account the entirety of these signals, investors should carefully assess their risk tolerance and investment goals before considering property investment in Germany in 2024.
We wish this article has been of help!. If you need to know more, you can check our our pack of documents related to the real estate market in Germany.
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This article is for informational purposes only and should not be considered financial advice. Readers are advised to consult with a qualified professional before making any investment decisions. We do not assume any liability for actions taken based on the information provided.
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