The Economist has regularly published reports on how property prices are developing in different countries, and it has been very frustrating for us to see that while in the last 25 years, the average price of a house in the UK has increased from £23 000 to £158 000 (a factor of over six times), property prices in Germany have remained stagnant. (If you live in Germany, you might find that a little difficult to believe, but you can download an Excel sheet of UK prices since 1952 from the Nationwide Building Society and check the UK figures yourself). In fact, when we sold an apartment we bought in Munich in 1982 a couple of years ago, we sold it for 20% less than we paid for it. If only we’d kept our money invested in property in the UK, instead of transfering it to Germany…
What I haven’t understood until now was why the German market was performing so abysmally, when the USA, Australia and most European countries have been behaving like the UK market. However, this week the Wirtschaftswoche published an article (WiWo Nr. 27, 2006-07-03: Konjunkturkommentar – Kräftig durchluften) pushing for deregulation of the German property market and things became a little clearer.
What is different between Germany and the rest of those countries where the market has boomed for 25 years or more?
- Germany built up massive over-capacity in the building industry during the reconstruction of East Germany after the reunification in 1990, which has only shrunk to match demand in the last year or two
(Although that doesn’t explain why prices didn’t increase in the 1980′s, it certainly explains why prices haven’t risen in the last 15 years) - The German market for financing lending to buy property is one of the most conservative in the world, and one of the few where it isn’t possible to borrow more than 60% of the value of the house, meaning that first time buyers need to acquire a huge amount of capital before they can apply for a mortgage for the rest of the price of their property
(I don’t think that is quite true; we financed a much larger chunk of the purchase price on our first house in Germany, but we paid higher interest for the top-up loans and also borrowed some money from family, resulting in us borrowing over 90% of the price – we didn’t sleep particularly well for the first few years after setting up the financing, I can tell you…) - At the same time, German lenders won’t let you top up a mortgage to a higher value if your house increases in value
(I can’t say we have tried that, so I can’t confirm that one. On the other hand, it’s a bit of a chicken and egg situation – since property prices haven’t risen, there hasn’t been any chance to ask our lenders if they would like to increase our mortage sum!) - Real Estate Investment Trusts (Reits) have still not been licensed to be listed on German stock exchanges, thus limiting the interest that foreign investors would have in investing in the German property market.
Unfortunately, despite the current Große Koalition, there seems to be little chance that things will change in the near future. The Government has just this week announced that an ineffectual fiddling with the finances of the health insurance system here, which makes no real effort to get costs under control, amounts to the largest overhaul of the system there has ever been. Not encouraging, to have such an inept government in times when major restructuring of the social framework is needed.
I was in the USA last two weeks June or so. Whereas the nightly TV entertainment in Germany offers not
much more than naked ladies & mobile telephone downloads, the US offers quick methods of loosing
weight (true – they need that) and making money (usually in Real estate)..
I saw one program which seemed to have grains of truth. The guy was saying that houses dont go
up in value – its the currency that goes DOWN.
I also wonder why the German building industry is in poor state – one often hears of builders
going bust during construction of friend’s houses & also having to come back to fix things.
The only house I have seen with a badly leaking roof was in Hamburg (& it wasnt old).
Houses here DO look more solid than most of UK housing…….
We too borrowed more that 60% (was about 70% I recall) but its paid back
German finance market is well closed-up: witness fact that banks charge for
everything & I never paid anything for my Uk account for normal usage.
We were lucky – we had a friend as bank manager who organised the loan……..
I think the building quality thing is fairly recent – we had zero defects with our house in Munich, which we bought new.
Here in Frankfurt we bought a two year old house, thinking all the little bugs would have been ironed out. Big mistake – the quality is abysmal. The hall/landing lights wired up wrong, walls out of plumb, door frames mounted out of alignment, second-quality tiles used on the stairs, leaks in the roof of an alcove in the lounge and in the bedroom, and, and, and. Really ‘Jerry built’. It’s surprising what we missed when we looked round originally, having bought and sold 3 houses in the UK before we came here. We found out after we had moved in, that the builders had gone bust and disappeared, so we never had any of the things fixed at their expense either… Next time if we buy a used house, it gets a full survey, even if it’s only a few months old!
The house-with-leaking-roof story was from about 20 years ago (it wasnt ours – it was a house rented by a friend….).
When we bought out house in 1989 it was 10 years old. We didnt want to build a new house having the perception that the costs can get out of control & builders go bust….. It seems that you have to “project manage” the whole thing yourself – and my wife wasnt prepared to do that with a young baby in her arms. Now this “baby” is 17 years old & almost as tall as I
Aprt from a crack in wall which hasnt changed as long as we have been here the house ssems OK (touching Holz as they say).
Having assisted on several occasions I must say the the walls are astonishingly true….
My wife does the decorating
“despite the current Große Koalition, there seems to be little chance that things will change in the near future”
replace “despite” with “because of” and it makes more sense…
So the previous lot did better?
haha, no! not at all.