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Continued moderate price increase for owner-occupied housing in Germany

The office market is also showing a positive performance 

 

In the second quarter of 2011, prices for single-family homes and condominiums in Germany saw another slight increase. Compared with the first quarter, the price index published by the Association of German Pfandbrief Banks (Verband deutscher Pfandbriefbanken, vdp) for owner-occupied housing grew by 0.4 percent to currently 109.7 points (2003 = 100).  The index gained by 2.3 % compared with the second quarter of 2010. 

 

Like in the first quarter, the upward trend for owner-occupied housing is primarily driven by the market for condominiums. The vdp price index for condominiums rose to 110.6 points which is equivalent to a growth rate of 1.4 % compared with the previous quarter. Measured against the corresponding quarter one year earlier, the index moved up by 5.3 %. This was particularly due to rising demand in metropolitan areas. However, the trend for single-family homes was more restrained. At 109.4 points, the vdp price index for single-family homes was only 0.1% ahead of the previous quarter. This is equivalent to a 1.3 % increase compared with the second quarter of 2010. 

 

The German office markets, too, performed well in the second quarter. The vdp Capital Value Index for Office Buildings rose by 4.1 percent to 110.2 points (again, the baseline being 2003 = 100). Measured against the corresponding quarter one year earlier, growth was at 2.1 %. This marked rise is sustained by both indices that constitute the basis of the commercial property index (Rent Index and Capital Value Index). 

 

The rising market demand for office space saw the vdp Rent Index for new rental contracts advance to 98.2 points which is a 1.3% increase compared with the previous quarter. This positive effect was amplified by the investment market where also additional demand from abroad led to rising prices. Since yields/cap rates went down as a result, the vdp Cap Rate Index for Office Buildings declined by 2.6 % compared with the previous quarter. At 89.1 it is also up 4.1 % versus the same quarter last year. 

 

“The favourable state of the economy in the first half of 2011 has stimulated demand for both owner-occupied housing and for office buildings. More likely than not, this trend was influenced by the fact that investors were vying for safe haven investments. We may assume that the current trends will continue if the macroeconomic outlook in Germany stays positive,” said Jens Tolckmitt, General Manager of the vdp. The German property and mortgage credit markets are geared to the long term, Tolckmitt pointed out, adding that this has brought stability in the past. 

 

The vdp price index for owner-occupied homes comprises two hedonic price indices for owner-occupied single-family houses and for condominiums respectively; these are weighted according to the total number of single-family houses and condominiums in existence. The two sub-indices of the vdp’s Capital Value Index for Office Buildings (Rent Index and Cap Rate Index) are calculated on the basis of hedonic processes too. The calculations of all indices are made on a quarterly basis by vpd Research GmbH, a vdp subsidiary, using the vdp transaction database, which contains systematically compiled data on prices and value-determining factors of properties going back to 2003.  This information is gathered in connection with properties bought with finance provided by vdp member banks. Today, the database has over 645,000 transaction- and property-related data records made available by 21 credit institutions.

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