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For years, those interested in real estate have struggled with high prices for houses and apartments in German cities. And they likely will continue to do so: Even the economic crisis triggered by the corona pandemic has so far had little impact on the residential property market. Although the market was practically inactive during the first spring close, the so-called recovery effects followed: the offers expected from the spring were offset in the summer.
According to the »Risk-Return-Ranking 2020« by real estate service provider Dr. Lübke & Kelber, prices for existing owner-occupied apartments in Germany increased by an average of almost ten percent last year, and the of the new apartments by seven percent. This means that prices went up even more than the previous year. “The German residential investment market could post its second best result after 2015 by the end of the year,” says Marc Sahling, CEO of Dr. Lübke and Kelber.
Rents are hardly increasing any more
By contrast, rents in German cities are hardly increasing. They tend to develop sideways. For investors, this means that the relationship between purchase prices and rents has become so far apart that, especially in metropolises, it is almost impossible to make more money buying new properties.
Analysts at Dr. Lübke & Kelber have investigated in which German cities it is still worth making a purchase. To do this, the experts used extensive data from the real estate market to assess both risk and return for each city and then compared where the expected actual return far exceeded the minimum return to be achieved in light of risk.
The assessment is primarily aimed at professional real estate investors, but individuals can also see if a property in their city is still worth buying. You also have to wonder if your investment will still pay off if you want or have to rent the property, for example if you move to another city.
The result: in good locations, existing properties are roughly reduced Pforzheim, Kaiserslautern Y Lüneburg the best. In intermediate locations with existing properties, mostly Bamberg, Flensburg Y Kaiserslautern the best risk-return ratios. However, that does not mean that houses and apartments in these cities are likely to generate the highest returns in the future; only the risk-return ratio is better there, according to the analysis.
They are in good locations for new build properties. Landshut, Fürth Y Bamberg front. With the middle locations in this class of building, Kempten (Allgäu) is also worth checking out.
“The winners of the crisis are university cities and mid-size metropolises,” says Sahling. As more and more people work from home, they also accept longer trips – you don’t have to travel as often anymore. In previous years, smaller cities fared better in real estate experts’ reviews. The trend is now likely to accelerate due to Corona that potential buyers are increasingly looking around in so-called “B cities.”
In Berlin, Frankfurt, Düsseldorf and Cologne, on the other hand, real estate is already so expensive that expected returns are sometimes only slightly higher than the minimum returns recommended by experts. On the other hand, the risks of real estate investments are also very low.
Of the seven largest German cities, Stuttgart remains the most attractive for existing properties. “The properties there are quite expensive, but the bottom line is that the returns are relatively high due to the high rent,” says Sahling.
Dr. Lübke & Kelber has been conducting the study for several years, and the achievable returns decrease every year. But even in 2020 there will be no city with a negative ratio. The bottom line is that real estate is still suitable as a profitable form of investment.
Buy or rent: which is cheaper where?
The review house also examined where a condo is worth buying versus renting. Experts have calculated how much a property is burdened by the average family budget for the purchase of a property, and they have compared it to the burden of rental expenses.
In cities like Munich, Berlin or Hamburg, buying a property is so expensive that the rent is more than worth it. Cities like Münster, Augsburg and Freiburg also fall into this category. On the other hand, according to the study, buying an apartment pays off in structurally weak cities like Dessau-Roßlau, Gelsenkirchen or Bochum. Here renting leads to a lower ongoing charge compared to buying.
In only 35 of the 111 cities analyzed, it is cheaper to have yours in the long term Existing condo finance (including all ancillary expenses) to live to rent. The number of cities where buying existing condos still pays off is falling rapidly. For comparison: in 2017, buying was more profitable than renting in 87 out of 110 cities.
TO New construction apartments Is it even more extreme? Only in five cities is it cheaper to buy a new apartment than to rent one. This is true for Cottbus, Frankfurt (Oder), Dessau-Roßlau, Wolfsburg Y Bremerhaven. In 106 other German cities, by contrast, buying a new apartment is now so expensive that it is easier to rent.
