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Crisis Continues in the German Real Estate Market

Commercial real estate prices in Germany experienced the most significant decline on a year-on-year basis in the last quarter of 2023, dropping by 12.1%, marking the sharpest downturn ever recorded since data has been kept.

The Association of German Mortgage Banks (VDP), which provides mortgage financing for residential properties in Germany, released housing price data for the entire last year and the last quarter.

According to the data, the end of the crisis is still not in sight in the German real estate market. Residential property prices declined by an average of 1.6% in the fourth quarter of 2023 compared to the previous quarter. When compared to the same period in 2022, there was a 6.1% decrease.

Commercial real estate prices in Germany recorded the most significant decline ever seen since records began, dropping by 4.9% compared to the previous quarter and 12.1% on an annual basis in the last quarter of 2023. This marks a 16.5% decrease from the peak prices reached in the second quarter of 2022.

Jens Tolckmitt, the President of the VDP Executive Board, stated, “Contrary to speculations frequently made in the public, a reversal of the trend in property prices is not yet visible. The situation will continue to be challenging in 2024.”

The real estate sector in Germany has gained momentum for many years due to low-interest rates and increased demand. However, the European Central Bank’s struggle against high inflation with rising interest rates is adversely affecting the real estate sector. Higher interest rates are making investments in construction and other sectors more expensive, leading to economic problems.

The substantial increase in material costs is making many projects unprofitable for builders. The tightening of financial conditions and the cancellation or delay of construction contracts are pushing some construction companies towards bankruptcy.

The Association of Real Estate and Housing Companies (BFW) is calling for measures from the German federal government due to the crisis.

According to experts, this crisis, especially in major cities, will cause a shortage of affordable housing in the coming years, exacerbating the social problem of being unable to find rental apartments.

On the other hand, the crisis in the construction sector is also challenging the German economy. The German economy contracted by 0.3% compared to the previous year due to high inflation affecting purchasing power unusually, high energy prices, weak external demand, and high-interest rates.

Germany, struggling to emerge from the ongoing contraction in the economy, maintains economic uncertainty for this year.

source: / prepared by Melisa Beğiç

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