German Property Market unaffected by Financial Crisis?

The German newspaper FAZ (Frankfurter Allgemeine Zeitung) referred in its Friday 20 Feb. 2009 Immobilien Property section to a recent study done by the Deutsche Städtetag (German council of Cities) where they did a research on sales prices of real estate houses and apartments in 2008. (The full study can be viewed online on their website as PDF-file in German.)*

The net result was that no major drops in prices have been noticed, on the contrary even price increases in some regions. The conclusion was the financial crisis does not seem to have much of an effect on the German property market – which we can confirm by our experience. Per my own evaluation, three major reasons can be quoted for that: the best and safest investment for a German is Real Estate Property. Germans, that is nothing new, never were close friends with speculative or even highly risky investments, and the German property market was not a speculative market for high value increases. But conservative and stable perspectives on a long-term range, yes, that’s what German thinking is all about. So one reason is the security they feel a property investment is.

The second reason is that the interest rates are very low at present; even under 4% on a five years fixed interest term, or around 4.25-4.5% on a ten or more years interest fix.

The third reason is the most important, as we think: for prices to go low there must be a seller who is desperate. And because Germans normally have done financings not beyond 80% or less of the initial property purchase price and seldom – like it happened in other countries – put other loans on top of them, based on assumed value increases, their property seldom comes into real big trouble. They may want to sell for various reasons, like age, relocation or needing funds for another investment, but seldom will go below a certain limit price which they have set, and beyond which they rather keep the property and rent it out and have a rental income.

This is not to say that there are no bargains possible, and that there are no occasional price dumps in certain locations. But one thing is for sure: it won’t be the good locations, and it won’t be the locations with good value and stable rental income.

All in all for 2009 the Deutsche Städtetag research comes to the conclusion that prices will remain stable. Which for us means: if you want to invest, do it now for the very reason that the interest rates are really on a historical low.

And after all the calamities on the financial markets, where will the Investment Funds put their money? Its been predicted that a large part of it will be into real estate property and that German property will play a good role in this.