Germany’s real estate sector continues to face difficulties due to a long period of high interest rates and economic downturn.
In the third quarter (Q3) of 2023, residential and commercial property prices in Europe’s largest economy fell by an average of 1.7 percent compared to Q2, according to a quarterly report published by the Association of German Pfandbrief Banks (vdp) on Friday.
In a year-on-year comparison, prices declined by 7.1 percent in Q3, according to the vdp index, which is based on the analysis of real estate transaction data from more than 700 credit institutions.
“A market recovery has yet to materialize,” said vdp Chief Executive Jens Tolckmitt, adding that prices have decreased in all asset classes, “although to a much lesser extent for residential property than for commercial property.”
Yet, lower prices have not resulted in more transactions. The Kiel Institute for the World Economy (IfW Kiel) said on Thursday that the number of real estate properties sold in Q3 fell by around a third year-on-year, while compared to the average for 2019, 2020 and 2021, the decline was 50 percent.
“The crisis on the German real estate market continues,” said IfW President Moritz Schularick, stressing that “few sellers and buyers are coming together at current prices.”
Germany’s largest housing company, Vonovia, whose core business is renting, relies on selling real estate properties to reduce its debt. Sometimes, however, properties are sold below book value, as was the case with the recent 357 million-euro (382 million U.S. dollars) deal with U.S. investment firm CBRE Investment Management.
Due to this trend, Vonovia — which acquired its largest competitor, Deutsche Wohnen, two years ago — made a loss of 2 billion euros in Q2.
Meanwhile, the construction sector is in a deep crisis caused by a shrinking pool of new projects, with more than one in five companies reporting cancellations, according to a recent survey by the ifo Institute for Economic Research.
“The growing housing shortage and the associated excess demand is reflected in further increases in rents,” Tolckmitt said. “If construction (projects) in Germany do not restart quickly, there is a risk that the housing shortage will further increase.” (1 euro = 1.07 U.S. dollar)