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Corona crisis could turn the real estate market

2020-03-26T10:36:23.060Z

The corona crisis also affects the housing market: visits are no longer taking place, buyers are likely to be reluctant to worry about their jobs and income. Are steep rises and purchase prices history?



The corona crisis also affects the housing market: visits are no longer taking place, buyers are likely to be reluctant to worry about their jobs and income. Are steep rises and purchase prices history?

Frankfurt / Main (dpa) - According to economists, the corona crisis should dampen the rise in rents and property prices. Even an end to the ten-year real estate boom in Germany would be conceivable if the crisis dragged on for months and people's everyday lives remained severely restricted.

This would give air to tenants and property buyers after the rapid increases in recent years. Given the uncertainty about the consequences of the pandemic and the exit restrictions, the housing market is likely to come to a standstill in the next two months, said Michael Voigtländer, real estate expert at the German Economic Institute (IW).

Decline in property searches

"Visits rarely take place, and many buyers are reluctant to worry about their jobs or expect shrinking incomes." With Google searches for buying, renting or living, declines can already be observed, which Voigtländer sees as an indicator. Brokers of home finance such as Hüttig & Rompf have also recently seen a decline in customer inquiries.

He expects property prices to stagnate or see a slight decline, said Voigtländer. "I doubt that the ambitious prices for new buildings, for example, can currently still be achieved." The real estate market cannot escape a slump in the economy, as economists predict. Economists at Landesbank Helaba also believe that all property cycles in Germany have ended in recession in the past decades.

Tightened tenant protection

The potential for rent increases is also limited, said Voigtländer, because incomes are likely to rise less than before the crisis. In addition, new regulations on tenant protection in the event of late payment also put a strain on landlords: they may no longer give tenants notice because they cannot pay the rent due to the Corona crisis. This should initially apply to rent debts from April to the end of June, as the Federal Cabinet decided on Monday.

Large housing groups have already made concessions to tenants: For example, LEG Immobilien is foregoing rent increases or layoffs in connection with the Corona crisis. Vonovia also refrains from increasing rents until further notice due to the pandemic, and Deutsche Wohnen has promised to defer payments.

"The rosy times for landlords are over and the scope for negotiation for tenants could grow again," said Voigtländer. "Many landlords should only be happy if they don't lose reliable tenants."

Less financial leeway

Günter Vornholz, Professor of Real Estate Economics at the EBZ Business School in Bochum, sees the situation in a similar way. "If you don't have to, you won't buy real estate in the crisis or postpone moving to a larger apartment," he said. An increase in unemployment and short-time work reduces the financial scope that households have for renting. "Some contracts could be too expensive for tenants."

In the case of property buyers, people with equity assets had lost a lot of money in the recent stock market crash - this is now missing for buying a home. The pressure on property prices is growing, according to Vornholz. Real estate remained attractive for large investors. But it is unclear whether they will pay the high prices if there is uncertainty about the rental income. An end to the long real estate boom is also conceivable, says Vornholz. "If the corona crisis lasts long and the restrictions remain in everyday life, that could mean a change."

However, IW expert Voigtländer does not see a drop in rents and purchase prices. Price reductions of 30 percent, as some observers have already predicted, are unlikely. "The housing shortage in the cities remains, interest rates for financing are low, and many people have large fortunes." With their interest rate cuts in the Corona crisis, central banks have recently cemented low interest rates.

Even the housing shortage in many cities is unlikely to change that quickly. Because the corona crisis also affects the construction industry. In some places there are delays. "Large construction companies have problems because subcontractors lack foreign workers," reports the Central Association of the German Building Industry (ZDB). Construction continued in the country, albeit with increased precautionary measures. "The workers have to keep their distance and, if necessary, work in shift shifts."

No relaxation on the real estate market yet

So far, houses and apartments have become increasingly expensive - both in metropolitan areas and in the country. In the fourth quarter of 2019, prices for residential real estate were on average 5.7 percent higher than a year earlier, as the Federal Statistical Office calculated.

According to the Wiesbaden authorities, prices rose particularly sharply in the seven largest cities in the republic. In Berlin, Hamburg, Munich, Cologne, Frankfurt am Main, Stuttgart and Düsseldorf, condominiums rose by 9.5 percent within a year. Buyers had to pay 6.5 percent more for one- and two-family houses in these cities.

But property prices also rose in sparsely populated rural regions - if not quite as strongly: there the prices for houses rose by 5.0 percent, condominiums rose by 0.6 percent.

According to the new calculation, the price increase in the third quarter of 2019 was somewhat more moderate: Between July and September inclusive, prices for houses and apartments in Germany rose by an average of 4.8 percent. Initially, the statisticians had calculated a value of 4.9 percent for this period.

Historically low interest rates have been causing booming demand for houses and apartments for some time. In addition, building land is scarce and therefore expensive, especially in metropolitan areas, and builders often have to pay more for handicraft services because companies have full order books. All of this drives prices up.

LEG real estate announcement

Communication from Deutsche Wohnen

Vonovia Communication

Source: merkur

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