Do rising rents make buying a home in Germany a better option?

For several years, property prices in Germany rose at a much faster pace than rents. Between 2016 and 2022, the average price for apartments climbed by a dramatic 76.5 percent, according to an analysis by real estate company ImmoScout 24. During the same period, rents for flats rose by 26.8 percent.

Experts said this was due to comparatively low interest rates and high buyer demand along with limited supply - all of which caused the property market to explode. 

However, this trend has reversed over the past two years, with rental prices rising significantly more than purchase prices.

According to ImmoScout, falling property prices is a big factor. The price index for apartments fell by 9.4 percent between 2022 and 2024, while rents rose on average by 11.7 percent, reducing the difference in price development from a peak of 39.2 percent in 2022 to 12.9 percent this year.

At the same time, the strong pressure on the rental market has resulted in a considerable financial burden for tenants. An earlier ImmoScout analysis from March showed that rental flats in Germany's 40 largest cities received 21 times more enquiries than owner-occupied flats.

In another study released in summer, real estate experts Jones Lang LaSalle (JLL) found that asking rents for flats in the eight major cities of Berlin, Hamburg, Munich, Cologne, Frankfurt, Düsseldorf, Stuttgart and Leipzig climbed by an average of 6.3 percent in the first half of 2024 compared to the same period last year.

READ ALSO: Rents still rising fast in major German cities

Real estate experts say it means buying a property in Germany has become more attractive.

"The sharp rise in rents in particular is making buying a property as an investment or home more and more attractive," said Dr Gesa Crockford from ImmoScout. 

The index values for renting and buying have converged even more in Germany's five largest cities - Berlin, Frankfurt, Hamburg, Cologne and Munich. 

The purchase price of existing flats rose by 65.5 percent between 2016 and 2021, while the rental price only increased by 21.6 percent. From the peak in 2021, prices for apartments have fallen by 2.1 percent, while rents have continued to rise by 28.9 percent. As a result, the gap in price development since 2016 has shrunk from 36.1 percent (2021) to 3.4 percent (2024).

People looking to rent in major cities are not only facing rising rents, but also fierce competition to snag an affordable place to live. 

"In the metropolises, buying has become increasingly worthwhile over the past two years," said Crockford. "There, the difference between purchase and rental prices has levelled off from 30 percent and more to a low single-digit percentage range."

Is it better to buy a home than rent?

Choosing to buy instead of renting is of course a personal decision and you have to consider several factors - including whether you can afford the mortgage and extra fees associated with house buying.

That said, property prices are expected to increase again slightly after the dip over the last two years.

READ ALSO: Is autumn 2024 the right time to buy a property in Germany?

However, it should also be noted that tenants rights are strong in Germany so renting can be a worthwhile and savvy way to go, if you can find a home that is affordable to you. 

That goes some way to explain why Germany has one of the lowest level of property ownership in the EU, with just over half of the population owning their own home.

Meanwhile, one study released in 2023 by credit insurer Allianz Trade found that buying property in Germany is "significantly more expensive than renting in Germany".

Even if rents were raised by the legal maximum of 20 percent next year compared to 2023, the difference between average mortgage repayments and average rents would still come in at €381 per month, said the insurer. 

However, some buyers may consider a home an investment in the long term and rely on the value going up over time - though this, of course, is not guaranteed. 

READ ALSO: How the cost of renting in Germany compares to home ownership