Real estate: In which regions buying is worthwhile compared to renting

Created: 07/07/2022, 16:57

By: Lisa Mayerhofer

Housing costs in Germany have been rising for years – for tenants and buyers alike.

(Symbol photo) © Jan Woitas/dpa-Zentralbild/dpa-tmn

Residential property prices have seen record increases over the past year.

An analysis shows in which regions of Germany it is better to buy than to rent.

Berlin – Housing costs in Germany have been rising for years – for tenants and buyers alike.

In 2021, residential real estate prices saw a record increase.

According to a current analysis, there is still no end in sight to the general real estate boom, but there are increasing signs of this in some regions.

In fewer and fewer German regions, a real estate purchase can be financed

Where exactly is it worth buying an apartment or house - and where is it better to live for rent?

For the Postbank Wohnatlas, the Hamburg Institute of International Economics (HWWI) has calculated how high the average income share is that has to be paid for the net cold rent or the loan payment in individual German regions.

The respective income share was calculated on the basis of the average regionally available household income for a 70 square meter apartment.

For the financing of a property, the HWWI assumed an interest rate of 1.6 percent, an initial repayment of 3 percent, notary fees of 2 percent and 20 percent equity.

Additional costs such as real estate transfer tax or conversions are not taken into account.

According to a rule of thumb, housing should not cost more than 30 percent of disposable household income.

Since this also includes the increased ancillary housing costs, tenants and buyers should orientate themselves more towards the 25 percent line when it comes to net cold rent and annuities.

According to this, the purchase of a 70 square meter apartment for an average household would have been affordable in 2021 in 367 of 401 rural districts and urban districts, according to the housing atlas.

A year earlier there were 378 districts and cities.

In which regions residential real estate is most expensive

Every fifth German household lives in one of the 111 regions in which less than 12.5 percent of the disposable household income is sufficient to finance the current loan payment for a 70 square meter condominium.

In contrast, property owners in twelve regions have to spend more than 30 percent of the average regional household income on ongoing loan payments.

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This includes the major cities of Munich, Berlin, Hamburg, Frankfurt, Potsdam, Freiburg and Heidelberg.

However, the district of North Friesland, which also includes the North Sea islands of Föhr, Amrum and Sylt, is the leader with 46.3 percent.

The Bavarian districts of Miesbach and Garmisch-Patenkirchen, the Lower Saxony district of Aurich with the islands of Baltrum, Juist and Norderney, and the district of Western Pomerania-Rügen also exceed the 30 percent mark.

Net cold rents: These cities are close to the threshold

With the exception of the Bavarian state capital Munich (26.8 percent), the proportional average income burden for net cold rents remains below the 25 percent threshold.

However, they come relatively close to this in Freiburg, Heidelberg and Frankfurt with at least 24 percent.

In Berlin, the share of income for the net cold rent of a 70 square meter apartment increased by 0.3 percentage points to 23.4 percent compared to the previous year.

The HWWI model calculation shows that the share of income for rental expenses has stagnated on average across all rural districts and urban districts compared to the previous year.

Since net rents did not rise faster than incomes on average, as in the previous year, citizens had to spend 14.2 percent of the regionally available household income on net rents.

The situation is different when it comes to financing condominiums.

Since purchase prices increased more strongly than income on average, owners had to budget for a higher proportion of their income at 16.3 percent for a 70 square meter apartment in 2021 than in the previous year (14.7 percent).

Income burdens for real estate buyers are increasing

“Even in the third year of the pandemic, home ownership is still in high demand.

In the past year, purchase prices again rose significantly faster than rental prices,” says Eva Grunwald, Head of Real Estate at Postbank.

An end to the general real estate boom is not yet in sight, but there are increasing signs in some regions.

Grunwald warns: “Anyone who decides to buy usually has to accept higher monthly income burdens than in the past.

In addition, inflation, higher energy costs or the consequences of a pandemic can cause additional expenses or the income situation can change.

Interested parties should check carefully whether they can still manage the financing in the long term if their financial situation should change. "