A Matter of Opinion. A Huge Demand for Country Houses in Germany: for How Long?
October 05, 2020
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A remote working format and a picturesque view from the window of a private house is a great idea that came to everyone's mind. Experience has shown, more and more Germans prefer suburban real estate to urban apartments. Is this trend temporary? Should we invest our assets outside of the cities? The investment adviser, member of the Royal Institution of Chartered Surveyors (RICS), Managing Partner at IIG Real Estate Consulting GmbH Olga Muller has answers to this questions.
The recently lifted quarantine measures and the self-isolation regime experienced in the spring have significantly changed the attitude of Germans to suburban realty. The data from ImmobilienScout24, the largest local online real estate aggregator, shows a sharp jump in demand in the apartment market outside of cities. The interest of potential buyers to suburban lots increased by 50% compared to the same period last year.
Even though interest in this category of real estate declined by 9% in September 2020, the current figures are still much higher than they were 9-12 months ago.
At the same time, the resort regions of the North and Baltic sea coasts, the lake districts of Brandenburg and Bavaria, as well as the mountain settlements of the Harz and the Bavarian Alps are in particular demand among German residents. According to the portal, the demand for real estate in these parts of the country has increased three to five times, and direct investment has significantly increased the capitalization of this market segment.
A зrime example of this boom is the suburb of the Bavarian city of Coburg, where demand for private homes has jumped by as much as 450% last summer.
An additional boost in the suburban real estate market is provided by the unexpected development of domestic tourism. The reasons are the temporary closure of borders with a number of neighboring countries and the introduction of restrictions on visiting tourist destinations beloved by Germans. In other words, residents are increasingly spending their holidays at home, enjoying numerous natural attractions, and looking for opportunities to relax outside of the hotel walls.
Thanks to this trend, investing in suburban real estate is not just a profitable investment, but an opportunity to get instant income due to rise of the tourist demand. A special role is played by real estate located in all-year-round popular areas. For example, mountain regions attract hikers in the summer and winter sports enthusiasts at the end of the year.
Low interest rates provided to potential investors by regional banks stimulate demand for suburban properties. For instanse, the program of soft loans of the investment bank KfW, the interest on which varies in the range of 0.75% – 0.77%. When making a loan for a period of up to 25 years, the financial institution releases the borrower from repayment of the loan for a period of one to three years.
Similar programs are available in other German banks, where the loan interest rate is higher, but is still stable at the level of 1-2% per annum. In turn, an experienced investor can get a loan for a shorter period at an average rate of less than 0.75% per annum.
In mid-March, at the peak of the pandemic the record low point of 0.68% per annum on loans up to ten years was reached in Germany. With the re-introduction of quarantine restrictions, many banks may again reach this level, and with a high probability it will become even lower.
Risks and Prospects
More than 18 million Germans (which is one in four) live outside of megalopolises. Such data at the end of 2019 was provided by the German statistical agency Statista GmbH. In addition, rural residents are characterized by "attachment to the place", and the number of Germans moving to urbanized areas is proportionally replenished by reverse immigration from the metropolitan areas.
This pattern ensures the stability of this market in quiet times, while in a crisis, the process of reverse immigration increases, creating additional financial opportunities for an experienced investor.
The return of the suburban market to its pre-crisis state is also not critical for investors, and the decline in domestic tourism and a slight decline in demand are offset by the constant price growth characteristic of both urban and suburban real estate. Therefore, a countryside villa purchased at the right time becomes a useful asset under any circumstances. A potential investor only needs to take the first confident step.
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Comfortable villa with 4 bedrooms, large living room and kitchenwaiting for its new owners!The plot area is 5800 m2.The house has 3 garages, a large Parking lot, the territory of the plot is fenced, there are automatic gates.The territory has its own pond with carp, as well as many fruit and fruit trees.The house has modern gas heating,...
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Villa in Frankfurt-am-Main, Germany
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