- Majority of Loans for Pre-owned Real Estate Property by Interhyp
Revitalized Housing Market in Germany, Yet New Construction Lags Behind
The housing market in Germany has shown promising signs of recovery, as per Interhyp's annual data. In 2024, over 123,000 customers took out loans totaling 22.4 billion euros for housing, representing a substantial increase of over 5 billion euros compared to the previous year. This uptrend is a testament to the revitalized market, as stated by Interhyp's CEO, Jörg Utecht.
Buying Preference for Existing Properties
Interestingly, most of these loans were allocated for the acquisition of existing properties. Only 12% of new financing agreements last year were for new construction projects, indicating a prevailing preference for existing properties. This trend is also reflected in Interhyp's nationwide market share of around 11% in the mediation of real estate loans.
Decreasing Interest Rates and Rent Increase
The decrease in interest rates since 2023 has contributed to this trend, with the current average interest rate for a 10-year standard loan currently at 3.4%, down from 4.2% a year ago. Additionally, the surge in rents due to the housing shortage has made property ownership more appealing. Jörg Utecht asserts that this rising rent trend is significantly adding to the increased demand for property ownership.
While the housing market has seen improvements, it is not without challenges. High construction costs, inflation, and interest rate hikes continue to pose significant challenges to the residential sector.
When considering the factors influencing real estate loans in Germany, market stabilization and slight tightening of lending standards are noteworthy. The commercial real estate sector, however, is faced with significant risks due to high interest rates and loan defaults, with banks increasing provisioning for these loans.
Policy Initiatives and Future Outlook
Government initiatives aim to make homeownership more accessible by simplifying construction processes and reducing regulatory barriers. Subsidies for affordable housing and energy-efficient renovations are also part of these efforts.
Expectedly, the residential construction sector is projected to grow in the medium to long term, driven by public and private investment. However, renting will continue to dominate the market, with about 55% of properties expected to be rented in 2025. Upcoming elections and policy changes could significantly impact the housing market by addressing issues such as rent control and construction costs.
Enrichment data:
- Prefabricated Homes: Approximately 26% of new single and dual-family homes are prefabricated. Prefabrication, with its advantages of lower costs and faster construction time, has seen an increase in market share.
- Housing Shortage: The German government consistently falls short of its target of constructing 400,000 new units annually, with only 295,000 units completed in 2023.
- Economic Challenges: High construction costs, inflation, and interest rate hikes pose significant challenges to the residential sector.
- Energy Efficiency: There is growing demand for energy-efficient homes, driven by consumer preferences for sustainability and regulations like the Gebäude-Energie-Gesetz (GEG).
- Despite the strong demand for existing properties, the average loan amount for buying a prefabricated home in 2023 was significantly lower than for traditional houses, reflecting the lower construction costs associated with prefabrication.
- The evident preference for existing properties in the real estate market has led to a noticeable decrease in the number of loans granted for new construction projects in 2023, resulting in a 12% market share for new construction projects.
- With the average interest rate for a 10-year standard loan decreasing from 4.2% in 2022 to 3.4% in 2023, it has become evident that the lower interest rates have contributed to the increasing preferences for property ownership in the real estate market, which is projected to continue into 2023 and beyond.
