Record Drop in Prices
Residential property prices in Germany have endured a continued decline, plummeting by 10.2% in the third quarter of this year compared to the same period last year. This concerning data, revealed on Friday, highlights the grim state of Europe’s largest economy’s real estate sector. It marks the fourth consecutive quarter of declines and the most significant drop since Germany’s statistics office began tracking records in the year 2000.
A Bubble Burst
Konstantin Kholodilin, from the macroeconomics department of the German Institute for Economic Research (DIW), stated that there had been a speculative price bubble in Germany until 2022, which was one of the most substantial in the past 50 years. This bubble was fueled by low interest rates and strong demand, leading to a property sector boom not only in Germany but also across Europe.
However, a sharp increase in interest rates and expenses has abruptly ended this prosperous period. As a result, developers find themselves facing insolvency as bank financing dries up and deal activity seizes.
City Homes and Apartment Prices
The decline in prices is particularly notable for single- and two-family homes, with a staggering drop of 12.7% in major German cities during the third quarter. Additionally, apartment prices fell by 9.1%.
According to additional data released on Friday, the construction industry faced a seasonally adjusted decline of 6.3% in October compared to the previous month. This downturn in orders exacerbates the challenges faced by the sector.
Signs of Insolvency
The impact of the property crisis continues to make headlines, with Austrian property giant Signa recently filing for insolvency. Signa, which holds substantial investments in Germany, is the largest casualty so far in the ongoing regional property crisis.
In conclusion, residential property prices in Germany have experienced significant declines, signaling a deepening real estate crisis. The bursting of the speculative price bubble, driven by low interest rates and strong demand, has led to insolvencies among developers. The market downturn has affected both city homes and apartment prices. Furthermore, the construction industry is facing mounting challenges, with a decline in orders observed.