For many years, prices and rents in the real estate market have risen, prices even faster than rents. That’s over – that’s why Jürgen Michael Schick, President of the real estate association IVD, talks about a “turning point”. Rainer Zitelmann spoke to him.
Rainer Zitelmann: Mr. Schick, you speak of a “turning point in the real estate market”. What exactly do you mean by that?
Jürgen Michael Schick: We have a long phase behind us in which prices have risen constantly, often faster than rents. That has caused yields to decline year after year. We are now observing that prices are falling almost everywhere. And the special thing about it is that when we used to have periods of falling prices, this was often associated with problems such as an oversupply of houses or vacancies. These problems do not exist today. Germany is not shrinking, but growing, we have a million more inhabitants than a year ago – and a correspondingly high demand for living space.
Rainer Zitelmann has a doctorate in history, sociology and has been a member of the FDP for 28 years. He is also the author of the book “Psychology of the Super-Rich”.
Prices are going down but are still quite high.
Schick: Some of the prices for apartment buildings have already fallen by 20 percent or more. But rents are not falling; in some cities they are actually rising, albeit moderately on average. We can also observe a drop in prices for condominiums, at least for used ones. In the case of new apartments, however, we have to reckon with rising prices due to inflation and higher construction costs. Today it is once again possible to buy used condominiums, sometimes at 50 percent of the cost of buying a new building. That’s attractive.
Apparently not everyone sees it that way. Many institutional investors are holding back because of the uncertain framework conditions.
Chic: That’s right. And that is exactly the opportunity for private buyers, who often did not get a chance because the institutional investors bought everything away. This is an opportunity, especially for buyers with strong equity.
However, banks are now demanding more equity.
Schick: Yes, where 10 to 15 percent equity was sufficient in the past, today you have to bring double or even triple that. Of course not everyone can do that. As a result, some groups of buyers are eliminated. At the same time, the supply is much larger, which means: after years of a seller’s market, we finally have a buyer’s market again. We honestly have to tell our sellers today that the extreme prices they were able to achieve two years ago are no longer realistic.
In some cities, such as Hamburg, there were hardly any offers for apartment buildings for a while. How much has the supply increased?
Schick: In most cities, brokers have 50 to 100 percent more properties on offer than they were a year or two ago. There were times when the question wasn’t how much do you have to pay? The question was: Is there a house that you can buy at all? The market was empty because there were far more buyers than sellers. Hence the rising prices. All of that has changed.
However, interest rates have also changed. A few years ago I was able to agree interest rates of less than 1 percent with the bank, now it’s almost four.
Schick: If you’ve only been on the market for a few years, four percent seems like a lot, but by historical standards, that’s low interest rates.
It’s correct. I still remember when I was very proud when I bought my first apartment that I got a ten-year loan with a 7 in front of the decimal point. Back then, in 1996, I thought that was sensationally low.
Schick: And there are many indications that interest rates will continue to rise over the next few years rather than fall. Of course, that speaks in favor of buying now. And there is a special opportunity because you can currently get loans for 20 or even 30 years with a similar interest rate as for 10 years.
What role does inflation play?
Schick: This is a huge issue, especially for people who have high liquidity. When someone gets their life insurance paid off or inherits a large sum of money, they can’t just leave the money lying around. He is forced to act. And real estate is of course an obvious option. And remember what I said: the buyers in particular who bring a lot of equity are in an excellent position right now because the buyers who were extremely heavily leveraged just a few years ago have been pushed out of the market.
Jürgen Michael Schick will say more about this topic at this event on January 17th.