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vdp extends index family: New indices introduced for the German multifamily housing market and overall index for the housing stock in Germany

      

·         A further contribution to enhancing transparency in the German real estate market

·         Market for residential properties now fully covered

·         Prices and rents for multifamily houses follow slightly upward-sloping path on the whole since 2003   

  
   

The Association of German Pfandbrief Banks (vdp) is adding new indices to its index family which reflect the development of rents and capital values of commercial residential properties in Germany. As a result, the vdp’s real estate price indices now cover the market for residential properties in its entirety. Back in February 2010, the vdp began publishing the performance of its price indices for owner occupied housing on a quarterly basis. The index for housing will be calculated from the two sub-indices for rented apartments and owner occupied residential properties, tracking the aggregate development of the entire German housing stock; it, too, will be published every three months. All of these indices are calculated by the vdp’s subsidiary vdpResearch on the basis of real transaction data which are recorded as part of the Pfandbrief banks’ mortgage lending activities.

“The Pfandbrief banks which together make up the vdp are major providers of finance for rental multifamily housing in Germany, and the large number of transactions they finance gives them a very deep insight into this market segment,“ said Jens Tolckmitt, Chief Executive of the vdp. The Association pools this expertise and makes its bundled knowledge available to its own members as well as to political institutions and other interested market participants through its real estate indices. “Following the indices for owner occupied housing and the office property indices, our indices for multifamily houses are a further important contribution by the vdp to enhancing transparency in the German real estate market,” Tolckmitt commented.

Indices show a slightly positive development in the German markets for multifamily dwellings

The vdp capital value index for multifamily houses is composed of the index for rents in new contracts and the cap rate index. Across the entire nine-year period covered by the vdp’s database, this index has followed a slightly upwards sloping path. Whereas a sideways movement was observed between 2003 and 2010, a clear increase in capital values was recorded from the second quarter of 2011 onwards (+ 5.1% in the second quarter of 2012, year on year). This is probably due to the fact that, given the sovereign debt crisis, domestic and German investors have increasingly focused on German rental multifamily houses as investment properties. Accordingly, the index that tracks the empirical cap rate reflects the growing interest shown in real estate as a stable investment.

In the second quarter of 2012, the index for rents in new contracts stood at 111.1 points (base value 2003 = 100). The rise in rents is mainly attributable to the metropolitan markets, which are benefiting from demographic developments that are comparatively positive at present. All in all, the performance of the rent index corresponds to a moderate average annual growth rate of 1.2%.

“Notwithstanding the slight acceleration in prices that was observed of late in the market for commercial residential houses, the long-term development of the index provides further evidence of the high level of stability and attractiveness of the German real estate market. The Pfandbrief banks with their long-term financing and refinancing activities play an important part in this respect,” said Tolckmitt.

Analyses for individual regional sub-markets possible

One of the main strengths of the vdp indices is that they are based on anonymized data – going back to the year 2003 – on purchase prices and rental contracts of multifamily houses that were actually bought or let. Moreover, this property database makes it possible to observe the development of rents, prices and capital values for the German real estate market, broken down into individual regional sub-markets.

This sophisticated form of analysis calls for large quantities of property-related information with details on rental contracts, purchase prices and value-determining factors such as year of construction and location. The vdp’s database currently contains approximately 130,000 rental contracts to calculate the rent index for multifamily houses and around 48,000 transactions involving multifamily houses to calculate the capital value index for multifamily houses. In addition, the database contains differentiated information on rent- and price-determining factors such as the date on which a purchase was made or a rental contract was concluded as well as the location and quality of the apartments. Using established statistical procedures it is possible with these data to chart purely the value development for this market segment.

“Only few indices for multifamily houses worldwide match ours for quality with regard to methodology and database,” remarked Reiner Lux, Managing Director of vdpResearch. “We plan to complete our index family with indices for retail properties in the first half of 2013. The overall index consisting of the four categories “owner occupied housing”, “multifamily houses”, “offices” and “retail premises” will then cover more than 90 percent of transactions in the real estate market in Germany. It therefore looks set to become a key indicator of the development of prices in the German property market in the years ahead,” Lux concluded.


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