Why property prices in Germany are likely to rise this year

It's fair to say that it's been a turbulent couple of years on the housing market in Germany. 

Thanks to global uncertainties leading to rocketing inflation, a shaky economy and a significant rise in mortgage interest rates, property prices have generally been declining since 2022. 

But the tide may be starting to turn.

According to a study by real estate platform ImmoScout24, falling interest rates are sparking a desire to buy properties once again in Germany, fuelling demand.

READ ALSO: Germany sees record drop in property prices

People want to buy homes again 

ImmoScout said that asking prices in four out of the eight largest German cities are already above the previous year's level.

"In view of stable interest rates and insufficient rental offers, the topic of buying property is once again coming to the fore," said ImmoScout24 Managing Director Gesa Crockford. "Compared to the previous year, interest in buying property has risen considerably - by as much as 49 percent in the major cities."

It means that the excess supply on the purchase market is decreasing. "We therefore assume that purchase prices will rise in the future," said Crockford. 

After purchase demand peaked in 2021 and experienced a significant dip in 2022, interest in buying property picked up again in 2023 and has since risen again significantly across Germany, according to research. 

The trend is particularly evident in the major cities, where interest in buying - measured by contact enquiries on ImmoScout24 - has increased by 49 percent year-on-year. This trend can also be observed in the areas surrounding cities (up 31 percent), as well as in other cities (up 39 percent) and in rural areas (up 24 percent). Demand in all regions is therefore significantly higher than in the previous year.

What's the picture on house prices?

In the first quarter of 2024, the average asking price for existing flats for sale across Germany rose by 0.6 percent quarter-on-quarter to €2,490 per square metre, according to the research by ImmoScout. That may not seem like a lot but it does signal that things could be starting to increase upwards after recent drops. 

Among the eight large cities, the strongest increase in the first quarter of 2024 compared to last quarter was seen in Cologne where asking prices for flats rose by 1.5 percent and Munich (up 1.3 percent). Prices only fell slightly in Düsseldorf - by 0.1 percent.

However, in general prices are still often lower than in the previous year. Across Germany, an existing flat (not a new-build) is being offered for a price around 2.5 percent cheaper than last year.

The year-on-year price reductions are even greater in Berlin (down 5.1 percent) and Frankfurt am Main (down 5.4 percent). Even in Düsseldorf (down 3.3 percent) and Cologne (down 2.6 percent), prices have not yet returned to the previous year's level.

In contrast, however, asking prices in Leipzig have risen significantly compared to the previous year - by 3.4 percent. Meanwhile, they also rose slightly in Hamburg, Munich and Stuttgart. 

In the first quarter of 2024, asking prices for new-build flats did not recover as strongly as prices for existing flats.

Across Germany, new-build prices fell by 0.5 percent quarter-on-quarter - in Munich by as much as 1.6 percent. Nevertheless, nowhere else in Germany is a square metre of living space as expensive as in the Bavarian capital. The average price for a new-build flat is a whopping €10,481 per square metre - around €3,500 more than in Stuttgart, the second most expensive city, where the price per square metre is €7,014.

READ ALSO: Can you get a mortgage in Germany without permanent residency?

Even in Leipzig, where the price per square metre for new-build flats is cheaper than in any other German large city at €5,003, the price is slightly lower than in the previous quarter (down 0.7 percent). Year-on-year, prices for new-build flats in Leipzig and Cologne rose by 5.3 percent. In Berlin, there was a price hike of 4.8 percent.

Prices for single-family homes in Germany show only minor fluctuations in a quarter-on-quarter comparison, both for existing (down 1 percent) and new builds ( down 0.5 percent). Compared to the previous quarter, Düsseldorf saw the strongest price growth in existing properties (up  0.9 percent), while Berlin saw the strongest growth in new builds (up 1.2 percent).

What's going on in the rental market?

Although the analysis shows there's a weaker price momentum on the rental market, the demand for flats is still high, resulting in a lot of pressure on those looking for a flat to rent in tight housing markets. So the outlook doesn't look good for tenants. "Rental prices will continue to rise," said ImmoScout24 expert Kristian Kehlert, adding: "Too little is being built."

On average, existing flats were 1.7 percent more expensive to let at the beginning of the year than in the previous quarter. According to the figures, the price trend for new-build flats to rent was up 1.6 percent. The average basic rent for a two-bedroom flat with 70 square metres is around €599 per month for existing properties and €833 for new builds.

However, the cost of renting (as is the case with buying) varies considerably depending on the region. 

READ ALSO: Is there any hope for Berlin's strained rental market?

Useful vocabulary:

Desire to buy - (die) Kauflust

Previous year's level - (das) Vorjahresniveau

Price development - (die) Preisentwicklung 

Asking price - (der) Angebotspreis

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