Crisis in the German real estate market: The sharpest decline in history

Commercial real estate prices in Germany fell 12.1 percent year-on-year in the last quarter of 2023, the sharpest decline since records have been kept. According to experts, affordable housing in big cities will remain in short supply in the coming years and the social problem of not being able to find "apartments for rent" will grow

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Crisis in the German real estate market: The sharpest decline in history

The Association of German Mortgage Banks (VDP), which provides mortgage financing in Germany, announced house price data for the whole of last year and the last quarter.

According to this, the end of the crisis in the German real estate market is still not in sight. House prices fell by an average of 1.6 percent in the fourth quarter of 2023 compared to the previous quarter. Compared to the same period in 2022, there was a decline of 6.1 percent.

German commercial real estate prices fell 4.9 percent quarter-on-quarter and 12.1 percent year-on-year in the last quarter, the sharpest decline since records have been kept. This was recorded as a 16.5 percent drop in prices, which peaked in the second quarter of 2022.

Jens Tolckmitt, Chief Executive Officer of VDP, said, “Despite frequent public speculation, a trend reversal in real estate prices is not yet visible. The situation will continue to be difficult in 2024.”

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“The social problem of not finding apartments for rent will grow”
For many years, the real estate sector in Germany has been boosted by falling interest rates and rising demand. However, the European Central Bank’s (ECB) fight against high inflation with rising interest rates is having a negative impact on the real estate sector. High interest rates make investments in construction and other sectors more expensive, causing problems in the economy.

Material costs have risen significantly, making many projects unprofitable for builders. Difficult financial conditions and canceled or held up construction contracts have also pushed some construction companies into bankruptcy.

The Association of Real Estate and Housing Companies (BFW) is demanding measures from the German federal government due to the crisis.

According to experts, this will lead to a shortage of affordable housing, especially in big cities, for years to come and the social problem of not being able to find “apartments for rent” will grow.
On the other hand, the crisis in the construction sector is also straining the German economy. Last year, the German economy contracted by 0.3 percent compared to the previous year due to high inflation affecting purchasing power, high energy prices, weak foreign demand and high interest rates.

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The economic outlook for Germany this year remains uncertain as the economy struggles to emerge from the ongoing recession.


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