Piston seizure

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Rental excluded!

Laut Guthmann market report the median asking price for Berlin real estate for sale as of May 02.05.2022nd, 5.370 is around 0,8 euros/sqm. With 2% interest and 150,36% repayment, an apartment could be financed for 12,53 euros/sqm per year = 100 euros/sqm per month. A 1.253 square meter apartment therefore costs a monthly loan installment of 100 euros. The money was relatively easy to get, XNUMX% financing was also possible, and the result was not so far off the Berlin rent index that renting out would have been mathematically impossible, at least for the lower segment of the market.

That has changed in recent weeks, and significantly so. With 80% financing, the interest rate is currently around 3%, 100% financing – if you still get it at all – around 4%. With a 2% repayment, this leads to monthly credit costs per square meter of 26,85 euros. Renting for this amount is out of the question, it would be a pure loss-making transaction. At best, in new buildings, where the rental price brake does not apply, this would be legally permissible at all. In the new construction segment, however, the median asking price is different, at 8.110 euros. This leads to monthly square meter credit costs at 4% interest and 2% repayment of 40,55 euros. If you want to repay more conservatively with 4%, that increases to 54,07 euros. A 100 sqm new apartment then costs a monthly loan installment of 5.407 euros.

This has one consequence: anyone who buys an apartment in Berlin today cannot rent it out or have it rented out. Mathematically it is simply impossible. It may be different for the really big market participants, who can buy apartment packages with a lot of their own funds and at lower average square meter prices. But they are constantly told that they are not wanted here (today's example here ).

The consequence of the mathematical impossibility of renting is that condominiums are no longer suitable for renting, but only for self-use. If they are sold, they are unattractive as an investment. The buyer will want to move in themselves because someone else won't buy them. Any tenants then have to move out and there is one less rented apartment in the city. Of course, the tenant who moves out has to live somewhere. Either he moves away or the pressure on the housing market in the city increases, which means that the incentive to buy an apartment when moving to Berlin does not decrease but increases further. If you can't rent, you have to buy, otherwise you can't live here. It is therefore not to be expected that the purchase prices will fall.

What are the next steps?

The interest rate level, which has risen rapidly in recent weeks, is not a Berlin specialty, but applies nationwide. This will put corresponding pressure on all housing markets in all cities, and renting will become less profitable throughout Germany. This can only change in three ways: through rising rents, through falling purchase prices or through interest rates falling again.

It is not to be expected that purchase or construction prices will fall sufficiently sharply. The reasons are varied. Three weeks ago, a property developer client told me on the sidelines of a court hearing that his current attic conversion was standing still. The reason is that he hasn't been able to get any nails wholesale for weeks. nails! Another client told me something similar with roof battens. Supply chain problems, the price of CO2, energy retrofitting requirements for insulation or heating, a shortage of craftsmen, general inflation, increased legal and administrative costs due to the regulatory framework - all of this makes it more expensive than cheaper. Even the public sector can no longer build at reasonable rents and is therefore discussing cross-subsidization through the construction and sale of condominiums (see here ). In addition, nobody wants to sell at a loss, and the demand is still there, namely from everyone who wants to live and cannot rent.

I think it is unlikely that rents will rise sufficiently. Politicians are currently moving in the opposite direction, and which average tenant could also afford an apartment rent of 40 euros/sqm net cold plus operating and heating costs? That's more than four times the presumed current level. Until that happens, Germany will first have to go through an inflation that will at least quadruple the general price level for goods and services as well as for wages.

I don't think it's out of the question that interest rates will fall below 1% again, if the current exchange rate causes too much disruption and monetary policy is once again expansive. For the moment, however, I don't see that.

If all three ways out are not realistic, it is most likely that things will remain as they are at the moment. With consumer price inflation rates around 7 to 8% as they are now, the runaway asset prices will be caught up by the general price level in a few years. However, if asset prices also continue to rise, i.e. the gap remains, the rental housing market will shrink over time.