German housing costs to stabilize in 2018: report

BERLIN, Feb. 20 (Xinhua) -- German housing costs will stabilize in 2018 after several years of rising prices, according to the closely-watched "spring report" published on Tuesday by the German Property Federation (ZIA).

According to the report, there was "practically no chance of further disproportionate increases in national purchase prices".

Instead the ZIA expects costs in Berlin, Munich and Stuttgart to fall by between a quarter and a third in the next five years while rental costs there remain stagnant.

ZIA welcomed the stabilization of housing costs and described the steep price growth experienced in past years as a "worrisome" development.

"After now eight years of historically-low interest rates and rising prices, the expectation has taken hold among market participants that housing costs can only ever rise, or that they at least cannot fall. This is not the case," the report read.

ZIA attributed the recent boom period to unusually low interest rates and predicted that housing costs would return to a normal level once major central banks began to shift away from their current ultra-loose monetary policy stance.

The effects of this change would be "particularly noticeable" in rural areas which had experienced large population outflows, but also in urban centers were prices had grown fastest.

As recently as 2017, the average cost of new rental contracts rose by 4.3 percent on average, while purchase prices for private property soared by 7.9 percent. ZIA highlighted three concrete signs that this trend was now coming to an end.

Firstly, rental prices have been growing much slower since 2009 (26 percent for newly-entered contracts on average) compared to purchase prices (61 percent). This discrepancy was even more marked for seven so-called "A-list" cities including Hamburg, Cologne, Frankfurt, Stuttgart and Duesseldorf, which was indicative of a real-estate bubble which was about to burst.

For example, in Munich private property costs soared by 143 percent since 2009 compared to a 43-percent increase for rental costs. The greater the gap, the harder it was for investors to achieve satisfactory returns from real estate, ZIA explained.

Secondly, and related to this divergence in rental and purchase costs, there was mounting evidence that demand for housing was already falling in some cities. In many A-list cities, price growth was mainly driven by foreign, rather than domestic arrivals.

Additionally, as urban centers like Berlin, once famously-described as "poor but sexy" by its mayor, gentrified, younger individuals who were more footloose and had lower income on average were more likely were likely to opt for different locations to build a career where their quality of life was higher.

As a third and final point, ZIA emphasized the rising pace of new housing construction, especially in the most expensive A-list cities. Whereas only 19,000 apartments had been completed in all of the seven cities in 2009, the annual figure of new housing construction had risen to 41,200 by 2016.

Given inherent lag features in the construction sector, this upward development was likely to last and lower pressure on prices in the housing market, it added. Enditem