EBN – Residential property prices in Germany have experienced their most significant decline since data tracking commenced in 2000.
According to government statistics, the German housing market faced its most substantial drop in the second quarter.
Furthermore, elevated interest rates and surging materials expenses left their mark on Europe’s largest economy.
The federal statistics office reported that residential property prices plummeted by a staggering 9.9% yearly.
This marked the sharpest decline since the inception of data collection over two decades ago.
This decline extended to a 1.5% drop on a quarterly basis, with more densely populated urban centres witnessing noticeable decreases.
Additionally, cities such as Berlin, Hamburg, and Munich experienced a hit, with apartment prices in these locations declining by 9.8%.
Single and two-family house prices were not spared either, recording a significant 12.6% year-on-year decline.
Struggling Real Estate Sector
For the past decade, Germany has seen a property boom fuelled by low interest rates in Europe’s largest real estate market.
However, a sharp surge in interest rates and the rising construction costs have brought this run to an abrupt halt.
This has led to a series of developers facing insolvency as real estate transactions froze, and property values decreased.
Building permits for apartments in Germany saw a decline of 31.5% in July compared to the same month in 2022. Furthermore, construction prices escalated by nearly 9% year-on-year.
Despite ambitious targets to construct 400,000 apartments annually, Germany has struggled to meet this goal.
The German Housing Industry Association GdW has sounded the alarm, emphasising the urgent need for government support for construction firms.
GdW represents approximately 3,000 housing companies nationwide. It has called for a reduction in value-added tax (VAT) from the current 19% to 7% for affordable rentals.
Moreover, it has advocated for government-funded loans at a minimal 1% interest rate to bolster these companies.
Government to Support Property Prices
The government has scheduled a summit with industry stakeholders to address the escalating construction crisis.
However, both GdW and the Haus&Grund owner’s association have boycotted the summit, citing limited influence over its agenda.
To tackle this challenging situation, the German cabinet intends to announce an aid package for the industry by month-end.
This package will focus on promoting the construction sector, including streamlining regulatory and bureaucratic requirements.
