Escalating property prices entice real estate investors - Growing housing market costs entice investors
Investing in an apartment? With rents on the rise and interest rates taking a slight dip, real estate is once again attracting the attention of investors. This shift is having a noticeable impact on the housing market. The falling interest rates and soaring rents are luring capital investors back to the real estate scene, according to financial advisors. As a result, more and more private individuals are opting for mortgages rather than buying their own properties. Banks are also welcoming back big-time developers, as demonstrated by the rising real estate prices, particularly for multi-unit residences.
For instance, the Munich-based financial advisory firm Interhyp is observing a surge in interest for real estate investment opportunities. CEO Jörg Utecht reports that in 2024, 25% of the mortgage deals finalized through Interhyp were for investment purposes (up from 22% the previous year). In the final quarter of 2024, this figure rose to 26%, reaching nearly the 27% peak seen in 2021, just before the real estate market's peak.
Rising Prices - Market Stabilization
Historically low interest rates had led to a significant increase in apartment prices in Germany. However, when interest rates surged sharply, prices started to drop. With interest rates dropping again, the market has regained its stability. The demand for mortgages for homeownership is on the rise, albeit from a minimal starting point.
For investors, the combination of lower interest rates compared to 2023 and rising property prices is appealing, explains Interhyp CEO Utecht. Additionally, rents are on the up, improving potential yields.
Similarly, the Frankfurt-based financial advisory firm Hüttig & Rompf is noticing a similar trend. In 2024, the number of mortgages for investors increased by 27%. As a result, investors are almost twice as likely to re-enter the real estate market as homeowners.
The reason for this influx is the temporary dip in interest rates, it was suggested. "Given this context, we expect an environment of further rising rents and thus favorable yield prospects for real estate investors," they stated. Moreover, housing remains scarce.
"Big Investors are Returning to the Market"
The pressure on rents is evident in recent figures from the German Pfandbrief Bank Association (VDP) for the fourth quarter of 2024. According to these, new lease rents for multi-unit residences increased by 4.6% year-over-year.
Rising rents are not only making real estate appealing for private individuals, but also for large investors. The VDP, which represents around 50 real estate financiers, is also observing increased interest from large investors. Prices for multi-unit residences increased by an above-average 2.9% year-over-year in the fourth quarter.
"This indicates that some large investors are returning to the market," says CEO Jens Tolckmitt. In contrast, prices for self-occupied properties, which include single-family homes and condos, increased by just 1.2% year-over-year.
"No End to Rent Increases"
The Real Estate Association Germany South views the activities of large investors as a promising sign of life, according to market researcher Stephan Kippes. "This is not yet a significant boost," he adds. However, Kippes also predicts that rents are set to continue rising. On the one hand, residential construction has lagged, but the demand for housing in major cities like Munich or Stuttgart continues to grow. "We still have population growth."
"Many people can no longer afford to own a home," says VDP Managing Director Tolckmitt. Therefore, many are flocking to the rental market, further boosting pressure there. "There is no end in sight to the rise in rents in popular cities." However, he does not foresee a new boom in purchase prices. "For that, interest rates would need to plummet significantly."
- According to Interhyp CEO Jörg Utecht, a significant shift was observed in 2024, with 25% of their mortgage deals being for investment purposes in the real estate sector, a notable increase from the previous year's 22%.
- Large investors are also showing interest in the residential market, as evidenced by the German Pfandbrief Bank Association's figures, which indicate an above-average 2.9% year-over-year increase in prices for multi-unit residences in the fourth quarter of 2024.
- In the financial sector, firms like Interhyp and Hüttig & Rompf are noticing a significant rise in mortgage requests for investment purposes, leading to a surge in interest for real estate investment opportunities, such as multi-unit residences, which are particularly appealing due to rising property prices and soaring rents.
