The prices that tenants and buyers pay for housing are drifting further and further apart in Germany, at least in certain regions. This is confirmed by an analysis of a bank.
In many places, real estate purchase prices depend on regional rents. Across Germany, the range now extends from eleven to 72 annual rents that prospective buyers have to put on the table for residential property, as a recent study by a bank makes clear.
The "Wohnatlas 2020" is an annual, multi-part series of studies by Postbank, a brand of Deutsche Bank AG, which deals with the local rents and purchase prices of residential properties. The analysis, which examines the German real estate market under various aspects regionally down to the district level, was currently commissioned by the Hamburg Institute of International Economics (HWWI) for 401 independent cities and districts.
One result of the recently published study is that in 158 of the 401 regions, housing prices are still comparatively moderate, but in major cities they are rising at an above-average rate. As a measuring instrument to calculate the ratio of rents to purchase prices of real estate, the authors of the Housing Atlas use the so-called "multiplier". It shows how many annual rents, on average, it costs to buy a condo in the same region or city. Prices and rents of 2019 were included in the calculations.
Buyers pay between eleven and 72 annual rents for property
With a multiplier of less than 22.5, experts say the purchase price is moderate compared to local rents. "When the purchase price is in this range, buyers often fare more favorably than renters: The low interest rates then allow monthly installments that do not exceed a standard local rent. At the same time, buyers are building up assets. Your own four walls are also a good retirement provision," explains Eva Grunwald, Head of Postbank's Real Estate Business.
Nationwide, the range extends from eleven annual net rents in the Burgenland district in Saxony-Anhalt to just under 72 in North Friesland on the North Sea, which includes the sought-after locations on the islands of Sylt, Föhr and Amrum.
Across the analyzed counties and independent cities, the multiplier averaged 24 in 2019, according to Wohnatlas. For comparison, in 2018, buyers had to put "only" just under 23 annual net cold rents for their own four walls on the table. The conclusion: The purchase prices rise thus more strongly than the rents.
Expensive and cheap regions
There are particularly many regions with a multiplier of only 11.0 to 17.5 in Thuringia, Saxony and Saxony-Anhalt. Likewise favorable districts and counties, where the multiplier is between 17.5 and 22.5, are often found in central and northern Germany. According to the residential atlas, however, a particularly large number of areas with a multiplier of 30 to 72 are located in Bavaria and the coastal regions.
Some major cities such as Kiel, Hamburg, Düsseldorf, Cologne, Berlin, Leipzig, Dresden, Frankfurt, Stuttgart and Munich also have a high multiplier of 27.5 to 72. In Berlin and Hamburg, buyers will have to pay around 36, and in Munich as much as 37, annual net rents. Real estate prices in Hamburg and Berlin have climbed particularly steeply in relation to rents: in the previous year, buyers had to pay an average of just under three years' rent less.
Whether one can already speak of a real estate bubble in the German metropolises, the authors of the housing atlas do not answer in their current evaluation.
24 German cities offer moderate purchase prices
Prospective buyers should take a differentiated look at the supply in cities with more than 100.000 inhabitants, the experts advise. On average, the multiplier here is just under 25 annual rents. More than 30 years' rent is payable for the purchase of an apartment in Rostock, Potsdam, Regensburg and Lübeck, for example.
Buyers will find favorable real estate prices compared to regional rents in the following cities, for example: Gelsenkirchen (multiplier 15.9), Salzgitter (16.7), Bremerhaven (17.5), Duisburg (18.1) or Herne (18.3). "In a total of 24 cities with more than 100.000 inhabitants, the multiplier is below 22.5 and thus below the value that experts regard as the threshold for moderate prices," says the Housing Atlas.
Overall, the study makes clear: Buying real estate is particularly expensive on the coasts and in the Alps; by contrast, good deals offering moderate prices compared to local rents are available in the center of Germany and in some mid-sized cities in the north and in the Ruhr region.
Buying real estate with the help of life insurance
Incidentally, the experts do not believe that the Corona crisis will "lead to major shifts in the ratio of prices to each other" in the coming months. In the long term, there could be adjustments in economically particularly affected and weaker regions. Because this factor could weaken demand for real estate.
By the way, life insurance can be doubly useful for a homebuyer. Here's how it can be used to finance a home. Many life insurers also offer, for example, a home financing loan based on a life insurance policy with a fixed interest rate for a term of 10, 15, 20 or even 30 years. Particularly long terms with fixed interest rates are an advantage in the long term when mortgage rates are low, as they are currently still being offered.
Life insurance, for example in the form of residual debt insurance, can also serve as a safeguard for family members if the borrower dies during the term of the home loan. For example, term life insurance can be structured so that in the event of the borrower's death, there is still enough money for reasonable survivor coverage for the family even after the remaining loan has been repaid.