Rise in property prices slows down significantly


Lerato Khumalo

Prices for single- and two-family homes have shot up the most in sparsely populated areas. Overall, however, the increase has been slower than it has been for a long time.

Prices for residential properties rose more slowly in the third quarter than they have in seven years. They rose by an average of 4.9 percent from July to September compared to the same period last year, the Federal Statistical Office announced on Thursday. In the second quarter, there was an increase of almost twice as much, at 9.7 percent. Compared to the previous quarter, apartments and single- and two-family houses were on average 0.4 percent cheaper.

The largest increases were in the sparsely populated rural districts: Here, prices for single- and two-family houses rose by 7.8 percent compared to the same period last year, and condominiums by 7.4 percent. In the seven largest cities of Berlin, Hamburg, Munich, Cologne, Frankfurt, Stuttgart and Düsseldorf, prices for single- and two-family houses climbed by an average of 6.2 percent.

The increase in prices for condominiums was 5.0 percent. The weakest price increase was for single- and two-family houses in urban districts: here there was an increase of 1.8 percent, and for apartments it was 4.5 percent.

According to a study by the German Institute for Economic Research (DIW), the risk of strong price corrections is currently increasing. “We are not facing the bursting of a huge real estate price bubble in Germany,” DIW study author Konstantin Kholodilin recently told Reuters.

“But price drops of up to ten percent for condominiums and private homes are certainly possible.” According to the study, prices for private homes and private apartments in the 97 cities examined have risen by an average of eleven percent this year, while rents have only increased by four percent.

The DIW considers it worrying that purchase prices and rents are developing so differently. “Since property purchases are refinanced through rental income – or in the case of owner-occupation through saved rental payments – property prices should develop in line with rents in the long term.” If this is not the case, the suspicion is that properties are being used as speculative objects and that price bubbles could arise.