New heights, consolidation or dropping prices?
Quo vadis pretium
Currently there can be observed some kind of camp formation in the real estate sector. Still most players and/or stake holders draw an optimistic picture of a persistently positive price development for Berlin. Those voices still prevail. At the same time an increasing number of analysts seem to believe that a drop in prices is waiting to happen.
What are the scenarios against a trend change in Berlin?
The housing market in Berlin has a vacancy rate which is virtually zero. The demand for housing is unbroken, so far.
- Most demographic forecasts for Berlin estimate a strong population growth even in pessimistic scenarios.
- Berlin is pushing ahead a demand-bow of about 40,000 apartments, which would be necessary to cover the current demand.
- Low interest rates on the capital markets offer few alternatives to investment in real estate.
- Long-term financing is low in risk
Even if there were a downturn in demand on the Berlin real estate market, this would at least partly be cushioned by the strong demand from abroad. The Senate of berlin is not interested in permanently (over-)regulating the market. The consequence would be a declining construction activity, resulting in fewer available apartments and consequently to further rents and purchase prices.
What if the skeptics are right?
After a more than 5-year phase of the boom in the Berlin real estate market there are increasingly critical voices whose scenarios range from a weakening of the price increase over a consolidation to heavy price corrections. The stakeholders attention has mainly been aroused by a study of the empirica institute. The authors, headed by Prof. Dr. Simons, expect the housing market in Berlin to cool down. In addition to the current market economy mechanisms and real estate cycles, the study, which can be found here in detail, is skeptical regarding the demographic development.
- In the top 7 cities, the purchase prices have risen more than the rents for new contracts, with negative consequences for the return on investment.
- Rising plot prices, new or tighter legislation and municipal requirements as well as increased additional purchasing costs would only be compensated by further increases in rents, the authors argue.
- At the same time, the migration gain, for example in Berlin, has been declining for years if the numbers are adjusted by the immigration from abroad. Simons assumes that the "swarm moves forward - into more favorable cities". Favorable means: cheaper.
- The number of building permits is steadily growing, while the number of realized projects still lags behind. A large number of bigger to big projects are expected to be launched soon, leading to an increased price pressure for new rental contract deals. According to the study, yield expectations are no sustainable.
In the bottom line, the study anticipates a break in the trend of purchase prices for new residential constructions. The analysts do not predict numbers, but point to the declines during the last cycle by 1/4 to 1/3.