Germany Real Estate Market is Going through a Difficult Phase

The real estate market in Germany is going through a difficult phase, with the decline in real estate prices failing to support the struggling housing market.

The real estate market in Germany is going through a difficult phase, with the decline in real estate prices failing to support the struggling housing market. The situation is made worse by the significant financial loss suffered by real estate companies and a real shortage of affordable housing. In the first quarter of 2023 alone, German real estate prices decreased by 3.3% compared to the previous quarter, causing a significant blow.

Even though real estate prices have fallen, most property in Germany remains expensive due to years of climbing prices. As per reports by the Sparda Bankers Association, housing prices in 2022 were more than twice their 2005 levels. The decline in real estate prices has put increasing pressure on real estate companies. Major players like LEG Immobilien and Vonovia have reported significant losses as property portfolios fall.

The situation has been fuelled by the current imbalance between supply and demand in the housing market. According to the German Association of Pfandbrief Banks (VDP), the demand for housing is high, while the supply remains small. This has led to a continuous rise in rent prices, which increased by 3.5% in the first quarter of 2023.

In an effort to address the housing crisis, the German government had proposed the construction of 400,000 homes per year. However, the construction schedule is falling behind due to rising interest rates and material costs. The number of new homes built in the country is down by approximately 20% compared to the previous year.

The dip in real estate prices had initially offered hope for people seeking affordable housing in Germany. Still, it has led to significant losses for real estate companies and failed to fix the housing crisis. Simultaneously, the imbalance of supply and demand in the housing market continues to push rent prices up, making it increasingly difficult for low-income families to find affordable housing.