Housing: Pfandbrief banks: real estate boom is likely to flatten out

Pfandbrief banks: real estate boom is likely to flatten out

Apartment buildings near Berlin’s Alexanderplatz. Photo: Christoph Soeder/dpa

© dpa-infocom GmbH

The prices for apartments and houses have recently risen rapidly. Real estate financiers are now expecting a little less impetus – also because of rising interest rates.

According to the Pfandbrief banks, the real estate boom in Germany could flatten out in the coming years. The Association of German Pfandbrief Banks (vdp) announced on Monday in Frankfurt that prices are likely to continue to rise, but at a somewhat slower pace.

The reason is the strong demand from investors for real estate, the lack of rental apartments and rising construction prices. Higher interest rates, on the other hand, would weigh on demand because it would make real estate less affordable, said vdp President Louis Hagen. Real estate loans have become much more expensive recently.

However, the association’s prognosis depends on the war in Ukraine – the vdp restricted it, for example, to whether this would continue. Stagnation in the economy in Germany coupled with high inflation or even a recession would have a negative impact on commercial real estate. Noticeable effects on the residential real estate market, on the other hand, are to be expected “only if there is a massive increase in unemployment”.

Hagen said he does not share the concerns of the Deutsche Bundesbank, which has been warning of excessive real estate prices for years. Banks would continue to cautiously grant real estate loans.

According to their own statements, Pfandbrief banks are the most important providers of real estate financing in Germany. In 2021 they promised loans with a volume of 175 billion euros, a strong increase of 9.5 percent over the previous year. Financing for residential real estate made up the lion’s share at a good 118 billion euros (plus 11.2 percent).

Price increases of 11 percent more in 2021

The real estate boom in Germany accelerated last year: According to the Federal Statistical Office, the prices for apartments and houses rose by an average of 11 percent.

The vdp criticized the stricter regulations of the financial supervisors for banks, which are intended to curb overheating in the real estate market. Higher risk buffers for residential real estate loans would burden banks with an additional need for equity in the billions. The regulations would limit bank lending, complained vdp CEO Jens Tolckmitt. The measures taken by the financial regulator Bafin cannot be justified in their severity.

According to an analysis by the association, the proportion of outside capital in financing has recently fallen to an average of 80 percent. The credit burden ratio for buyers – i.e. the proportion of buyers’ expenses for interest and repayment measured in terms of disposable household income – has fallen slightly to 25 percent. That is less than the burden on the housing costs of many tenants.


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