May 15, 2023, 3:10 am | Read time: 5 minutes
Rising interest rates and potential climate protection regulations are unsettling real estate buyers. According to a study, those who are still buying are increasingly doing so in the suburbs. It also shows where this is most worthwhile.
Idyllic and affordable in the countryside or hip and expensive in the big city–young families often have no choice in this matter. Because living in some metropolises is hardly affordable anymore, they are moving to the commuter belt. However, even around Berlin or Munich, buying property is becoming more expensive, as a recent study shows. So expensive that commuters are accepting longer distances. How much cheaper are properties in the countryside compared to the city?
Properties in the Countryside Significantly Cheaper
Everywhere with good public transport or highway access to the city, the suburbs are booming, says real estate economist Pekka Sagner from the German Economic Institute.
The IW, together with the Allensbach Institute on behalf of the Sparda banks, has compiled data and assessments on housing in Germany. Another finding: The sharply increased interest rates and uncertainty surrounding climate protection renovations are making many potential buyers indecisive. Banks are observing a wait-and-see attitude and are calling on politicians to speak clearly.
Countryside Versus City
According to the study, consumers save more than a third of the purchase price when buying a house or condominium if they move to the countryside instead of the city. In cities, the average price is 4,180 euros, while in the countryside it is 2,806 euros per square meter. In the seven metropolises, the largest cities, the average price is even 6,038 euros per square meter.
Overall, square meter prices in cities, metropolises, and the countryside have risen by more than a fifth on average over the past two years. The gap between cheap and expensive regions continues to widen.
Metropolises Losing Young Families
All seven metropolises are losing population aged 30 to 50, especially Frankfurt, Stuttgart, Munich, and Cologne. Researchers conclude that young families are more likely to move to the suburbs and countryside, where property is cheaper.
The Berlin suburbs, such as the district of Dahme-Spreewald directly bordering the capital, are gaining the most in this age group. Young people under 30, on the other hand, continue to be drawn to large and university cities like Munich and Berlin, but also Regensburg, Leipzig, or Erlangen.
The result: In the suburbs of six of the seven metropolises, prices have risen more sharply since 2017 than in the city itself. This is most evident in Berlin and Hamburg. Only in Frankfurt/Main is the trend balanced.
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Where Moving to the Suburbs Pays Off the Most
According to the study, moving from the metropolis to the suburbs is particularly worthwhile in Düsseldorf, Frankfurt, and Hamburg, where properties in the countryside are still 40 to 45 percent cheaper than in the city. In the Berlin and Cologne suburbs, you save about a third. Around Stuttgart and Munich, however, houses and condominiums are now so expensive that you save less than a fifth.
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The Price of a Home–and How It’s Financed
On average, a buyer in Germany pays 388,000 euros for a condominium or house. That’s 7.8 years of net income. Depending on the location, this buys varying amounts of living space: from an apartment with 44 square meters in Munich to a house with 451 square meters in the Kyffhäuserkreis in Thuringia. In none of the seven metropolises can you get more than 90 square meters of living space, with the most being in Cologne at around 81 square meters.
To finance this, buyers take out loans averaging 328,000 euros. They contribute 60,000 euros in equity, which is just over 15 percent.
A slight relief comes from the decline in real estate prices. In the first quarter, houses and apartments became 2.1 percent cheaper on average compared to the previous year, according to data from the Association of German Pfandbrief Banks (vdp). This continues the trend of falling prices from recent months–albeit from a high level after more than a decade of a real estate boom.
Even in the sought-after seven metropolises, real estate was slightly cheaper in the first quarter, according to the vdp. Here, prices fell by 1.4 percent year-on-year. Only in Berlin did apartments and houses become 1.0 percent more expensive compared to the previous year. The sharpest drop in real estate prices was in Frankfurt, with a decrease of 6.4 percent. Hamburg, Düsseldorf, Cologne, Stuttgart, and Munich saw declines of 2.3 to 3.8 percent year-on-year.
Buy or Rent?
About 48 percent of Germans live in their own house or apartment. According to the study, this is strongly linked to monthly income and the size of the city in which one lives. Nationwide, the homeownership rate has stagnated for twelve years, making Germany the laggard in the EU. For Sagner, this is “a missed opportunity in retrospect of the historical interest rate phase,” as many citizens dreamed of owning property.
In fact, according to the survey, only 12 percent of more than 1,000 respondents have seriously considered buying a property in the past two to three years. Eight percent have bought, while for three-quarters it was not an issue.
Among potential buyers, almost half are currently undecided and waiting. According to the scientists, this is strongly related to the uncertain interest rate situation, but also to political decisions. Additional purchase costs such as the real estate transfer tax and costs for notary and land registry entry are becoming increasingly significant hurdles.
The chairman of the board of the Sparda banks, Florian Rentsch, observes increased uncertainty among people. “Especially the issue of energy-efficient renovation and the obligations I may incur when buying an existing property play a role,” he says. Do I have to invest in a heat pump, renovate the roof, or insulate it in the foreseeable future? Politically, it must be clearly stated what is coming for property owners.
with material from dpa