• Inflation protection and value retention levels of German residential real estate remain high

• Residential property values more stable in value than real estate in other European countries and in other real estate investment products

• Owner-occupancy more affordable than renting in 328 out of 401 districts in Germany (by an average of 8 percent)

• Interest rate reversal appears within reach, as inflation rates are expected to slow by mid-year 2023

• Cost advantages for owner-occupiers may start increasing by year-end 2023

Berlin, 15 June 2023 – Despite the accelerated inflation rate, residential real estate in Germany continues to show a high degree of value retention. At the same time, residential real estate remains an effective inflation hedge. These are among the findings of this year’s ACCENTRO Housing Cost Report that the company compiled in collaboration with the German Economic Institute (IW). In addition, the survey’s authors measures the cost advantage of living in an ownership apartment rather than in a comparable rental flat. According to the survey, owner-occupiers pay less for housing than tenants in 328 out of 401 districts in Germany, including in four of the seven largest German cities. They pay an average of 10.04 euros per square metre compared to an average new-tenancy rent of 10.90 euros per square metre for a comparable apartment. Their cost advantage thus averages 8.0 percent. The survey’s authors assume that interest rates will start easing once the inflation slows down, which in turn would increase the cost advantages for owner-occupiers.

Despite Inflation, German Residential Real Estate is very Stable in Value – Inflation Protection Intact

“The question how effective direct real estate investments are as inflation hedge has been subject to much discussion. Yet we have demonstrated the positive correlation of the returns of real estate investments, especially direct ones, with the inflation rate. Among the various property classes, residential real estate must be credited with the most effective inflation protection because its rents are easiest to adjust to the inflation rate,” explained Prof. Michael Voigtländer of the German Economic Institute. “In addition, the German housing market has proven resilient against sudden fluctuations in value, while a conservative real estate financing culture with long fixing periods and high transaction costs has a calming effect on the transactions market.”

The analyses show that the standard deviation from the real-money apartment prices in Germany is 3.1 percent, which means that the price volatility is lower than in other European countries (UK: 9.6 %, NL: 8.2 %, FR: 4.9 %).

“German residential real estate is one of the most stable-valued asset classes any way you look at it. Particularly in times of high inflation rates, buyers seek security. We have noted that the motives for buying property are gradually shifting, with capital preservation and safety moving into focus for buyers whereas speculative investors hoping for fast price growth are pulling out of the market. The trend toward a long-term investment horizon is stronger than ever before,” explained Lars Schriewer, CEO of ACCENTRO. “Buyers are currently exercising restraint in response to the sudden interest rate reversal, but as soon as the inflation slows down and in turn brings down interest rates, we will get to see a catch-up effect.”

Interest Rate Reversal Likely – Growing Cost Advantages for Homeowners within Reach

The authors of the Housing Cost Report assume that inflation rates will slow significantly during the second half of 2023. The probable downstream effect of this is an initial interest rate cut within six months after the final interest rate hike. The authors developed three scenarios to measure the effects on the cost advantage of owner occupancy. The “swift recovery” and the “average recovery” scenarios predict initial interest rate cuts in late 2023 or during the first quarter of 2024. In response, the costs of owner-occupancy, relative to renting, are expected to decline significantly. The “stagnation” scenario assumes that interest rates will not change despite the slowdown in inflation. In this case, the cost advantages of homeowners as a result of rising rents would not kick in before the end of 2024.

“Despite the rise in interest rates, buying is still more affordable than renting. The inflation will also cause rents to keep going up. The foreseeable decline in interest rates will probably give an extra boost to the already strong appeal of an owner-occupied home,” explained Schriewer.

“Especially in major cities, an interest rate cut would quickly bring down the owner-occupied housing costs. Overall, we have noted the persistent cost advantage of owner occupancy in the majority of German districts, if subject to significant regional differences,” added Prof. Voigtländer.

328 out of 401 Rural and Urban Districts Deliver Cost Advantages to Homeowners

Buying is more affordable than renting in 328 of Germany’s 401 rural and urban districts. On average, this cost advantage amounts to 8.0 percent. Compared to last year’s report, owner-occupier admittedly have to dig deeper into their pockets, paying 10.04 euros instead of 4.23 euros per square metre and month, but tenants still pay more at 10.90 euros (2021: 10.30 euros). The development is almost entirely attributable to the rise in interest on borrowed capital, whereas the 8.9 percent price growth and the 5.8 percent rise in new-tenancy rents are more or less on the same level.

“The scenario that owner-occupiers dreaded most did not happen. Even though interest expenses doubled, buying is still more affordable than renting on average. Our outlook for this year is that rising rent rates will coincide with slightly fluctuating selling prices,” said Schriewer. “Buyers who bring plenty of equity capital to the table can expect to find buying opportunities here and there.”

“We noted the highest cost advantages in the suburban regions of metropolises and major cities but also in the countryside. Especially in the greater Berlin area, several districts stood out with cost advantages of more than 20 percent,” added Prof. Voigtländer.

Great Cost Advantages on the Periphery of Berlin and Other Major Cities

The districts of Oder-Spree (47.4 %), Dahme-Spreewald (41.3 %), Oberhavel (37.2 %), Barnim (35.8 %), Märkisch-Oderland (34.8 %), Havelland (34.0 %), Teltow-Fläming (24.3 %) and Potsdam-Mittelmark (19.9 %), which border directly on Berlin, all show comparatively strong cost advantage of owner occupancy. Even the city of Potsdam, also located just outside Berlin, returned a cost advantage of 11.0 percent for owner-occupiers despite the price growth of recent years.

The greatest cost advantages of owner occupancy were registered in the rural districts of Sömmerda (59.0 %), Jerichower Land (49.0 %), Oder-Spree (47.7 %), Bautzen (45,9 %) and Altmarkkreis-Salzwedel (42.5 %). The urban districts where owner-occupancy is most cost-advantageous are Trier (34.3 %), Hof (33.5 %), Passau (33.4 %) and Wolfsburg (33.2 %). The lowest cost advantages of owner occupancy were measured in Hassberge (-88.7 %) and the urban district of Hagen (-72.3 %).

In the German metropolises, which have always been known for lower cost advantages of owner-occupancy than rural areas, the survey returned stark cost differences. Here, the cost advantages of owner-occupiers over tenants ranged from 19 percent in Cologne, 17 percent in Düsseldorf, 13 percent in Frankfurt am Main and 3 percent in Stuttgart to -8 percent in Munich, -11 percent in Hamburg and all the way to -26 percent in Berlin.

“Despite their high owner-occupied housing costs, the metropolises should not be underrated. Investors credit them with a particularly bright outlook because their markets promise a more dynamic long-term future growth of rents and prices than many other regions. In short, they have seen particularly brisk price hikes in the past because of the extremely wide gap between demand and supply,” elaborated Schriewer. “The regions surrounding the metropolises and major cities benefit from this dynamic, and they continue to have a larger supply in homes available for sale, while simultaneously the housing costs are far lower for owners than they are for tenants.”

“Negative owner-occupied housing costs are limited to very few metropolises and districts. On average, even the major cities show cost advantages for homeowners versus tenants,” added Prof. Voigtländer. “Although we did note that rental costs and owner-occupied housing costs closed in on each other last year, homeownership will probably regain its appeal, and significantly so, once the interest and inflationary environment calms down.”

Socio-Demographic and Economic Metrics Becoming more Important

The survey’s authors assume that the housing market in regions with a bright outlook will regain their momentum after minor market corrections.

“Buyers will increasingly have to factor economic and socio-demographic trends into their purchase decisions – as automatic price growth can no longer be expected. The key now is to find the right property in the right location,” elaborated Schriewer. “Especially equity-rich investors should now scan the market supply, because there are many interesting properties on the market and fewer rival buyers.”

“The German real estate market has already demonstrated that it offers more stable yield rates than other markets. However, the interest rate reversal has constrained the access to homeownership,” explained Prof. Voigtländer.

“Lawmakers could relieve private home buyers, especially young families, by waiving some of the incidental acquisition costs, and perhaps make subordinated government loans available to help with the financing,” Schriewer added.

“Younger buyers in particular tend to subject their homes to energetic upgrades. In the context of the energy policy shift in the building sector, it is particularly desirable to enable first-time buyers to finance homeownership,” Prof. Voigtländer concluded.

Methodology:

For the purpose of the Housing Cost Report, now in its eighth edition, the IW Economic Institute compares the housing costs paid by owner-occupiers with those paid by tenants; the rents and owner-occupiers’ housing costs were analysed for all 401 of the country’s rural and urban districts.The calculation is based on the net base rent versus the owner-occupancy costs which break down into the purchase price, the incidental acquisition costs, the mortgage interest and the loss of interest (opportunity interest) on the equity employed, along with reinstatement costs and depreciation.

To download the (German version of the) ACCENTRO Housing Cost Report, click here:

https://accentro.de/en/housing-cost-report

About ACCENTRO Real Estate AG

ACCENTRO Real Estate AG is Germany’s market leader in housing privatizations. In addition to its home market of Berlin, the company focuses on auspicious metro regions such as Hamburg, Rhine-Ruhr and Leipzig. In its Privatization business unit, ACCENTRO retails condominiums from its proprietary portfolio to owner-occupiers and buy-to-let investors or – bundled into portfolios – to institutional investors. In its Services & Ventures business unit, ACCENTRO sells apartments on behalf of investors and property developers – including through equity investments in its own right within the framework of joint ventures. ACCENTRO Real Estate AG is listed on the Prime Standard segment of the Frankfurt Stock Exchange (German securities code number WKN: A0KFKB, ISIN: DE000A0KFKB3). investors.accentro.de

About the German Economic Institute (IW)

The Cologne Institute for Economic Research (IW) is a private economic research institute committed to a liberal economic and social order. Among the members of the registered association are about 110 German industry and employers’ associations as well as individual companies. Project partners include foundations, industry associations and public-sector institutions above all.

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