The real estate market in Germany seems to be slowly getting going. Prices have recently fallen more sharply again, but at the same time banks have once again granted more real estate loans in the summer quarter. This is shown by current figures from the Association of Pfandbrief Banks (VDP). For the survey, the newly granted real estate loans from more than 700 German credit institutions in Germany were evaluated. The result: Compared to the previous quarter, it was the third increase in a row; financing for both residential and commercial real estate increased. Compared to the previous year, however, the decline was still more than 20 percent.
Overall, the real estate financing business is “still at a subdued level,” said VDP managing director Jens Tolckmitt. The foreseeable end of the rise in interest rates apparently gives private individuals and professionals “increasingly more planning security again”. In October, the European Central Bank paused its interest rate hikes – the first in more than a year and ten hikes in a row. And for private developers and property buyers credit costs have recently fallen even slightly, for a loan with a ten-year fixed interest rate, for example, from an average of 4.2 to just under four percent.
Professionals in particular need money again, private individuals remain cautious
However, the market remains deeply divided: While banks’ business with private individuals only increased slightly by almost seven percent compared to the spring, demand for loans for multi-family homes shot up by more than 40 percent. This means that it has apparently been mainly professional property developers and investors who have recently returned to the market, while house builders and buyers remain rather cautious. Prices are trending down, but apparently not far enough to compensate for the significantly increased financing costs. “So far, the price declines have not adequately reflected the rise in interest rates,” said real estate expert Tobias Just from the University of Regensburg. And even in business with professionals, the total volume of new loans granted was still below the value from the third quarter of 2022.
The crisis in housing construction is by no means over. By September, around 77,000 fewer apartments had been approved than in the same period last year. In addition, many construction companies are complaining about a wave of cancellations of older orders. The business climate in the industry has recently fallen to new lows.
According to the VDP, business with offices in particular continued to collapse in commercial real estate. A good ten percent fewer new loans were granted here in the third quarter than in the spring – and more than a third less than in the previous year. Since the corona pandemic emptied offices and canteens, many employees have not actually returned to their companies. The trend towards mobile working and home offices continues unabated. The vacancy rate is already increasing, and many observers assume that fewer and fewer offices will be needed in the long term.