Slight increase in prices for owner occupied dwellings in Germany

Positive development in office property markets continues


Prices for owner occupied houses and condominiums in Germany continued to rise in the fourth quarter of 2011. During this period, the Price Index for Owner Occupied Housing published by the Association of German Pfandbrief Banks (vdp) advanced by 0.2 percent to 111.1 points to reach its highest point since the index value was first calculated in 2003. Compared with the fourth quarter of 2010, the index gained 2.3 percent.


Also in the final quarter of 2011, the development of the entire market was largely influenced by price increases for condominiums. The index for this type of residential property went up in the fourth quarter of 2011 by 3.2 percent year-on-year. With an increase of 1.8 percent year-on-year, growth in the market for single-family and semi-detached houses was somewhat more restrained. Compared to the previous quarter, prices for the two categories moved roughly in step, edging up by 0.2 and 0.1 percent respectively.


The market for German office properties continued its positive performance in the last three months of 2011. The vdp Capital Value Index for Office Buildings posted a 3.1 percent increase of 114.7 points on the previous quarter. Growth was recorded of 3.9 percent compared with the corresponding quarter one year earlier and was driven by an upward trend in new rental contracts. This is a reflection of the rising interest both of domestic and increasingly, again, of foreign investors. The vdp Rent Index for Office Buildings was 1.1 percent higher quarter-on-quarter and 3.5 percent up on the year. At the same time, the empirical Cap Rate Index was 2 percent down on the previous quarter and 0.5 percent lower than in the fourth quarter of 2010.


All in all, the indices for the residential and commercial property markets in Germany are on a stable, slightly upwards-pointing path. This is attributable, amongst other things, to the continuing positive economic development in Germany which, together with rising household incomes and still favorable financing conditions, is stimulating demand for residential property. On the commercial property market, the stronger demand for office space, low new construction activity and the attendant drop in vacancy rates contributed to the increase in new rental contracts.


“It can be seen that the long-term demand both for owner occupied housing and for office properties is roughly following economic developments. However, the uncertainties on the financial markets persist in view, above all, of the debt crisis. Against this backdrop, real estate continues to benefit markedly from the fact that investors consider it a comparatively safe investment. We therefore expect prices for German properties to continue their, on the whole, stable development,” said Jens Tolckmitt, General Manager of the vdp.


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 700,000 transaction- and property-related data records made available by 21 credit institutions.


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