What do US government bonds have to do with the German real estate market?

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What different markets are there?

Everywhere the press writes that the real estate boom of the last few years is over and single-family houses or condominiums are becoming unaffordable. Almost every broker tells me that owners willing to sell have not yet understood what the increased financing interest means for the sales prices and are still asking for the prices of two years ago.

From what I see in my legal and notarial practice, we have to differentiate between three markets: that of owner-occupiers, that of small investors at the level of individual condominiums, and that of larger investors, for apartment buildings or entire portfolios.

For owner occupier a return calculation is not relevant, but a) that you need an apartment/a house for yourself and b) whether you can finance it, i.e. bring the necessary equity for the purchase and your monthly household bill with the credit burden works.

For small investors a yield calculation is relevant insofar as the question is whether the relationship between the purchase price and the yield allows long-term capital accumulation.

For bigger Investors the security of the investment and its return calculation is relevant, not only in relation to the individual property, but also in relation to other asset classes. You don't have to invest in real estate in Germany, there are other things, for example the stock market or US government bonds.

Current interest rates on US government bonds

After the Bond finder from Comdirect US government bonds with a remaining term of less than 2 years are yielding more than 5% today. Over 20% are available for cross-country skiers aged 4 and over. If you have USD 10 million left and want to invest, you get a risk-free return of over USD 400.000 annually - without loss of rent, without maintenance costs or costs for energy modernization, without administration costs and without the political risk that we have had in Germany for a whole number of years in the rental sector - up to the current expropriation discussion in Berlin for (currently) large investors.

Calculation of a rental yield

A property has to have a very decent income situation in order to be able to keep up. The aforementioned costs and risks are added here. Loss of rent (and related legal costs) can be priced in at perhaps 1-2% across a broad portfolio. This could increase in the future – inflation reduces the population's financial resilience, Creditreform expects more payment defaults in private households in the coming year. The maintenance effort must be set at at least 1%, the administration costs as well. One (not So, realistically, a 4% return (risk-free) can be achieved by making a 7-8% gross return in a good location. Poor locations are calculated differently, since demographic aspects must also be taken into account over the term.

Development potential of both variants

If you look at the investment over a long period of time, the US government bond yields a constant return over the entire term, while a property can be developed. It is therefore mathematically justifiable not to achieve 7-8% right at the beginning, but less if this can be increased afterwards. For real estate, that means increasing the rent.

This, in turn, is becoming increasingly difficult. The cap on rent increases was reduced from 30% in 2 years to 20% in 3 years to 15% and politicians are currently discussing lowering it further or even suspending it. At the same time, the second cap of the local comparative rent level is kept low through the design of rent indexes. Modernization charges are reduced by all possible deductions and have been reduced from 14% to 11% to 8% to a maximum of 2 to 3 euros per 6 years, here too a further reduction, suspension or abolition is required. The rental price brake does not allow any jumps in the case of new rentals, in order to at least create a balance. After all, the protection against dismissal is now so strong that there are hardly any new rentals anyway. These measures significantly limit the possibility of increasing the return on property – even over longer periods of time. It could even decrease, for example because of the burden on landlords of CO2 taxes (since January 01.01.2023st, XNUMX) or similar changes. The fact that property taxes will rise and that politicians are demanding that these should no longer be passed on to tenants is just one of several examples.

If rent adjustments in the current portfolio do not work, then at least a good exit could still ensure profitability, ie a good selling price. In the case of rental properties, this depends on the rent level (and the interest rate level), so it is no longer developing positively. The possibility of dividing the houses and selling them to owner-occupiers, for whom a return calculation is not relevant, was abolished with § 250 BauGB.

If the initial return on a house cannot be meaningfully increased over a longer period of time, it must still be high enough for the investment to make sense.


Let's be clear: 4% US government bonds correspond to maybe 7% gross income from an apartment building in a good location in Germany, as long as it is not expropriated and no energy renovation is pending. That's a buy at (100 / 7 =) 14,3x. A house with a rental income of EUR 400.000 may then cost EUR 5,72 million including incidental purchase costs; if it is more, US government bonds are more profitable.

If you don't want to/can't pay for the purchase entirely with your own capital, but finance it as much as possible, you currently have to reckon with around 4% bank interest. Assuming a typical 80% financing, a 4% return on equity requires a total return of 0,8%. However, this only applies to the comparability of net returns. The 3-4% additional expenses for maintenance, loss of rent, etc. plus the 4% interest on the debt share are on top of that. Overall, the necessary yield increases slightly, to maybe 8%. This allows a purchase at (100 / 8 =) 12,5 times, in the example above 5 million.

I didn't take taxes etc. into account here, since it depends on the structures in which the system is held.

What has changed?

The calculation is significantly different than two years ago, when US government bonds yielded no or only very little interest. You could finance the purchase of a property with a mortgage interest rate of 1% or less. 1% interest and 3% gross yield are 4%, that is a purchase for (100 / 4 =) 25 times - in the above example 10 million, with the rest being development potential that real estate still has. US Treasury bonds, on the other hand, yielded little or no income. An investment in real estate made a lot of sense in comparison!


The number of transactions in the apartment building sector has fallen massively as a result of the rise in interest rates. The overvaluation is from the Bundesbank with 20-30% scheduled. I think this estimate results more from a statistical view of the markets, ie from above, while the investor's view of the meaningfulness of the individual investment, ie from below, is currently somewhat more critical - at least that's my perception from my Berlin island perspective.

If transactions are currently taking place, the area visible to me is traded 18 to 20 times as much. This is significantly higher, as suggested by the sober calculation above. In terms of background, I see the need for a diversification of the asset classes, a no longer entirely uncritical attitude towards the USD and the stability of future exchange rates against the background of the global political situation and - in individual cases - a special development potential recognized in the specific property. The sale of an apartment building at such prices is not a sure-fire success, at least not at the moment, as several brokers tell me.

What are the next steps?

The Fed announced yesterday that it would even hike interest rates faster and further than before to continue. So it won't stay at 4-5%. Also the ECB announces further hikes in the run-up to its rate meeting next week. For real estate, this means that the factors continue to fall. It is not to be expected that the regulatory framework in Germany will be reversed, i.e. the ban on apportionment, the rental price brake and the cap limits for increases will be abolished and the plans for energy renovations, the ban on gas heating and so on will be dropped without replacement.