Property prices in Germany have balanced, despite the decline in sales

According to Gewos, The Institute for Urban, Regional and Housing Research, the growth phase of the German property market, which lasted more than 10 years in a row, may be coming to an end.

The Institute predicts that sales of apartments, houses, commercial real estate and land in Germany could fall by 7 percent (equivalent to 313.5 billion Euros) in 2022, and the number of transactions will fall below 900 000. In particular, the residential real estate sector, which currently holds almost 80 percent of all real estate transactions in Germany, is expected to shrink by as much as 5.6 percent. If this happens, it could be the first turnover decline in the German real estate market since 2009.

In 2021, turnover in the German real estate sector reached its all-time high of an unprecedented 337 billion Euros – twice as much comparing to a decade earlier. Not counting a slight drop in total transactions (caused by limited supply), real estate prices have risen sharply by an impressive 13 percent, the highest since records began in 1980. Sebastian Wunsch, head of real estate economics at the Gewos Institute, explains that such exceptional growth of the real estate market in 2021 was caused by recovery from the crisis caused by the COVID-19 pandemic.

However, starting from May 2022, there has been a consistent decrease in the number of real estate purchase and sale agreements. This is especially noticeable in the total volume of large-size agreements.

This slowdown can be caused by several factors:

  • Stricter terms for both individual buyers and investors;
  • Higher inflation and interest rates on loans;
  • Increased investor caution in decision-making amid growing uncertainty in the real estate market.

However, despite the fact that real estate sales have fallen, level of prices remained stable. This is the result of combination of factors: low rate of new real estate construction and growing number of immigrants in Germany. “There are no signals of any price drop, let alone a sharp drop,” Wunsch notes, while clarifying that the general possibility of price decline should not be completely ruled out, especially at the regional level or in specific areas and sub-markets in Germany.

In addition, real estate in Germany this year expects a moderate increase in prices. At the same time, the maximum growth rate is projected to be about 3 percent.