Real estate market: Real estate prices rise to record highs

D.The increase in prices on the German real estate market continues at an unchanged pace. As reported Tuesday by the Association of German Banks Pfandbrief (VDP), property prices rose 8.8% in the first quarter of 2022 compared to the first quarter of 2021. The association’s real estate price index, at which the most important real estate lenders belong, reached 190.8 points again a new high (base year 2010 = 100 points). The increase in prices thus accelerated again from 8.4 per cent measured in the last quarter of 2021.

The index is based on a quarterly assessment of real estate transaction data from over 700 credit institutions by the VDP. “The real estate market in Germany is still recovering, even though the pandemic is not over yet and Russia’s aggressive war against Ukraine has been a very worrying exogenous shock,” said VDP CEO Jens Tolckmitt. While there are currently no effects on the local housing market, it remains to be seen to what extent the effects of the second and third rounds will materialize in the coming quarters, he added.

Residential ownership is the most expensive

Residential real estate once again recorded the strongest growth in the first three months, increasing by 10.7% across Germany. Commercial property prices increased for the second consecutive time, by 1.8%. The drivers of this development were office property prices, which increased by 3.9% in the first quarter of 2022 compared to the same quarter of the previous year. In contrast, retail property prices fell 3.2 percent from the same period last year.

At the annual press conference two weeks ago, VDP President Louis Hagen said property prices should continue to rise over the next few years, albeit with a leveling off. The subsequent rise in interest rates and the resulting lower affordability of residential properties would have an inhibiting effect on real estate demand, he said. A weaker economy could weigh on the commercial real estate market. Evident effects on the residential real estate market, on the other hand, are foreseeable only in the presence of a massive increase in unemployment.

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