Amid declining interest rates and rising rental prices, more investors are gravitating towards the real estate market, favoring financing options over outright purchases. Demand for real estate investments has surged, particularly in multi-family housing, with a notable increase in construction financing. Although property prices saw a correction after a previous surge, the current market is stabilizing. High rents continue to attract both individual and larger investors, while homeownership remains increasingly out of reach for many.
Investors Flock to the Real Estate Market Amid Falling Interest Rates
As interest rates continue to decline and rental prices soar, a growing number of investors are turning their attention towards the real estate sector. Credit brokers report a noticeable shift, with individuals keen on investing in properties increasingly opting for financing options rather than purchasing homes outright. Financial institutions are also witnessing a resurgence of significant investors, a trend that is driving up property values, particularly in the multi-family housing segment.
According to Interhyp, a credit broker based in Munich, there is a marked increase in the demand for real estate investments. CEO Jorg Utecht notes, “Our statistics indicate that investor interest surged last year, surpassing that of owner-occupiers.” In fact, by 2024, capital investments accounted for 25% of all financings completed by Interhyp, an uptick from 22% the previous year.
Real Estate Market Stabilizes Amid Rising Prices
The real estate market in Germany experienced a historic price surge fueled by low interest rates, but a sharp rise in rates led to a significant price correction starting in 2022. Since then, with interest rates on a downward trend, the market is showing signs of stabilization. The demand for consumer real estate loans is gradually increasing, albeit from a lower baseline.
Mr. Utecht emphasizes that the combination of reduced interest rates compared to 2023 and climbing property values presents an enticing opportunity for investors. Additionally, the consistent growth in rental prices enhances the potential for returns.
Hüttig & Rompf, a Frankfurt-based credit broker, echoes these sentiments, reporting a 27% increase in construction financing from capital investors in 2024. This trend indicates that these investors are now participating in the real estate market at nearly twice the rate of owner-occupiers.
As for rental prices, the Association of German Mortgage Banks (VDP) reported a 4.6% increase in rents for new leases in multi-family homes over the past year. This upward trend in rents is not only attracting individual investors but also encouraging larger investors to re-enter the market. The VDP’s data shows that prices for multi-family housing have risen by 2.9% in the fourth quarter compared to the same timeframe last year, which is notably higher than the 1.2% increase seen for owner-occupied housing.
Market research expert Stephan Kippes from the Southern Germany real estate association views the influx of large investors as a “sign of fragile recovery,” noting that while the rental market remains robust, a significant boom in purchase prices is not anticipated unless interest rates drop significantly. With ongoing population growth in major cities like Munich and Stuttgart, the demand for housing continues to climb, further intensifying the pressure on rental prices.
Ultimately, as Mr. Tolckmitt from the VDP points out, many individuals are finding homeownership increasingly unaffordable, leading them to seek rental options instead. This trend is likely to sustain the upward trajectory of rental prices in the most desirable urban areas.