Property transactions slow in Germany but it represents good opportunity for investors

Property transaction volume low because of pricing issues

Property transactions in the German real estate market are significantly low with a lack of clarity when it comes to pricing, according to the latest analysis of the country.

Also, a weakening of sentiment towards German real estate has resulted in a continual reappraisal of German residential property prices, says a new report from Jones Lang LaSalle.

‘Many transactions that are occurring involve vendors who are more compelled to sell, or purchasers who will only buy at discounted prices. In addition, prices agreed during negotiations are frequently reduced prior to exchange of contracts as purchasers bring to bear their greater negotiating position and ability to complete transactions in the current uncertain market,’ the report says.

‘In this environment, prices and values are going through a period of heightened volatility whilst the market absorbs the various issues and reaches its conclusions. As a result, there is less certainty with regard to valuations so market values can change rapidly in the current market conditions,’ it adds.

As in the UK, the market is suffering from a continued reluctance of banks to offer financing and the need for buyers to have bigger deposits. The analysts predict this could get worse as banks in the coming years are forced to drastically reduce their commitment to property due to a very low level of new business.

Some type of property will do better than others. For example, they expect strong demand will still be around for properties built in 1995 or later in top locations such as Hamburg, Munich or Frankfurt. ‘In this market segment, regardless of the economic environment, only few or no price changes can be noted,’ they say.

Though there is less demand for non-modernised property that dates from the 1950s and 1960s that is located in structurally-weak regions and with a considerable maintenance backlog. ‘These properties will not become more attractive to investors in the future,’ the report points out.

Overal,l the analysis is upbeat. ‘Between 2004 and 2007 demand for real estate was generated by the financing culture at the time which led to an extreme rise in property prices. The financial crisis has triggered a painful recovery process in which real estate is once again coming to the fore,’ it says.

‘The German residential property market, the largest housing market in Europe, continues to be of interest for both national and international investors. Compared to competing investments (fixed-interest securities, stocks or commodities) the residential property in Germany represents an opportunity with an exceptionally attractive chance-risk profile,’ it concludes.

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