Overcrowded and overpriced – the city is losing its attraction

Inner courtyard in Berlin-Mitte

Living in the center of a big city loses its charm.

(Foto: picture alliance / imageBROKER)

Düsseldorf All experts agree: the corona crisis has so far not harmed the German residential real estate market. Neither rents nor prices have collapsed. On the contrary: Homes, condominiums and apartment buildings have become more expensive in the first three quarters of 2020 than in the same period of the previous year, shows the vdp property price index. “The situation in November 2020 does not appear any different than in November 2019,” says vdp Research Director Franz Eilers.

So everything is the same as before? Not quite. The experts are concerned with two observations. For one thing, the fear of market overheating is returning. Second, there are signs that customer interests are changing due to the Corona experience.

The Federal Statistical Office recently announced that house prices in Germany rose by an average of 7.8 percent from July to September compared to the previous year. That was as much as “last in the fourth quarter of 2016”, added the statisticians. At that time the increase was 8.4 percent. “The risk of overvaluation increases – especially in metropolitan areas,” warned the scientific director of the union-related Institute for Macroeconomics and Business Cycle Research (IMK), Sebastian Dullien. According to data from the research institute Empirica from October, ten of twelve major German cities have a “rather high” risk of bubbles.

A majority of Germans continue to expect this price trend: 56 percent expect higher property prices for the next twelve months, according to a recently published survey by ING Bank among around 1000 consumers.

The expectation of rising prices as well as rents in combination with continued low interest rates make buying their own four walls “extremely attractive” for many Germans, says vdp Research Director Eilers. It does not matter that the average disposable income in 2020 tended to decrease as a result of the corona crisis. “In the end it is not the average that counts, but the personal income development,” says Eilers. And this is still good for many private households.

Larger apartments in demand

But buyers are clearly seeing the overheated price level in some cities – and are turning around. “Since the turn of the millennium, we have seen a trend towards inner-city living. Corona, on the other hand, makes suburban locations more interesting again, ”observes Volker Eichener, university professor at Düsseldorf University of Applied Sciences.

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Kai Enders, board member of the real estate broker Engel & Völkers, confirms this observation: “In times of Corona, people want to move more and more into the countryside, but at the same time not miss the advantages of urban life and the security of first-class medical care.” Small towns in particular benefited from this in the vicinity of the metropolitan areas.

A joint study by the Sparda banks and the Institute for the German Economy (IW) shows what this means for prices. For example, prices in the area around Berlin, Hamburg, Cologne, Munich and Stuttgart have risen faster than in the core city since 2017.

The experience of the corona crisis will make rural areas even more attractive to buyers. Most market observers are convinced of this. “In recent months, for many people, their own apartment has been the place where their private and professional life has taken place,” says Eilers, describing the situation.

The focus is already shifting not only with families or couples, but also with younger singles, says Engel & Völkers: Instead of an apartment in a central location, younger buyers are now also looking for an apartment with an additional room.

More: The real estate industry is starting the new year with confidence.

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