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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 24, which puts it in the top 10 globally.
Germany's stability today is largely attributed to its robust social market economy, which combines a strong industrial base with comprehensive social welfare programs, ensuring economic resilience and social cohesion. Additionally, its political system, characterized by a federal structure and a proportional representation electoral system, promotes balanced governance and coalition-building, reducing the likelihood of political extremism.
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 2024, grow by 0.2%, which is somewhat disappointing. If we take 2025, the experts say 1.3%.
However, this low number is just for the short-term, as Germany's economy is expected to increase by 5.1% during the next 5 years, resulting in an average GDP growth rate of 1%.
A moderate growth rate in Germany suggests a stable and resilient economy, which can provide a reliable environment for property investment with less risk of sudden market downturns. Additionally, steady growth often leads to consistent demand for housing, potentially increasing property values and rental income over time.
However, there are other indicators to watch.
German business owners don't have faith in the economy
Negative
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 -13 for Germany. It's a score that can be regarded as "worrisomee.
This is not new, business operators were not confident 12 months ago either. The BCI score, back then, was at -12.
Business Confidence in Germany is currently at a negative level, presenting some challenges. However, this doesn't necessarily mean a crash in the property market is imminent. A negative confidence score often reflects a temporary phase of uncertainty or caution within the business sector, which is a normal aspect of economic cycles. Therefore, it's important to evaluate additional metrics before determining if it's the right time to invest in property in Germany. This is what we will focus on.
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 2025.
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 2025.
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 2025.
Everything you need to know is included in our Germany Property Pack
In Germany, inflation is projected to remain minimal
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 1.0%, which gives us an average yearly increase of 0.2%.
This data is suggesting that Germany is expected to have near-zero inflation then. Unfortunately, buying a property now may not lead to significant price increases or high profits in the future.
Is it a good time to buy real estate in Germany then?
Now it's time to draw our conclusions.
Germany is known for its stability, both politically and economically, which makes it an attractive place for property investment. The country's economy is expected to grow by 5.1% over the next five years, translating to an average GDP growth rate of 1% annually. This moderate growth rate indicates a stable and resilient economy, providing a reliable environment for property investment. With less risk of sudden market downturns, investors can feel more secure about the long-term prospects of their property investments in Germany.
Another factor to consider is the current trend in building permits. Germany is issuing fewer building permits, which could lead to a limited supply of new properties in the market. This scarcity can drive up property values as demand continues to outpace supply. For potential buyers, this means that purchasing property in 2025 could be a strategic move to capitalize on the potential increase in property values over time.
Property prices in Germany have experienced periods of growth, stabilization, and even slight decreases, but they tend to stabilize over time. This pattern suggests that the market is not prone to extreme volatility, making it a safer bet for investors. As the population in Germany becomes slightly wealthier, the demand for housing is likely to remain strong, further supporting property values and rental income potential.
According to Numbeo, rental properties in Germany offer gross rental yields ranging from 1.3% to 4.0%. While these yields may not be the highest globally, they are supported by Germany's minimal inflation projections, which help maintain the real value of rental income. This combination of stable rental yields and low inflation makes 2025 a potentially good time to invest in German property, as investors can expect consistent returns in a stable economic environment.
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.
-Will real estate prices go up in Germany?
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.