Germany’s housing market in hardship

Falling real estate purchase prices in Germany have put increasing pressure on real estate companies but did not provide any relief to the housing market in hardship.

Remarkable financial loss of real estate companies, still expensive properties and a real shortage of housing have been plaguing the sector.

In the first quarter (Q1) of 2023, German real estate prices resumed a downward trend, declining 3.3 percent from the previous quarter, according to recent analysis by the Association of German Pfandbrief Banks (vdp), one of the five associations that make up the German Banking Industry Committee.

“The entire real estate market has been in upheaval since mid-2022,” vdp CEO Jens Tolckmitt said. This is “particularly evident in real estate prices,” which have been negatively affected by high inflation, rising interest rates and uncertainty.

Real estate companies are already devaluing their housing stock; LEG Immobilien, a large German property company, announced on Wednesday that it expects “the value of real estate assets to decline (…) in the first half of 2023.”

Germany’s real estate industry leader Vonovia also felt the pinch. Easrlier this month, the company posted a loss of around 2 billion euros (2.18 billion U.S. dollars) in Q1, a result of the devaluation of its real estate portfolio by more than 3 billion euros.

Despite the falling prices, most properties in Germany remain expensive, as property prices have been climbing for decades. Compared with 2005 levels, prices were still more than twice as high in 2022, according to a study published Wednesday by the Association of Sparda Banks.

The German government wants 400,000 homes to be built each year, but is currently well behind schedule.

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