Real estate is still seen in Germany as an opportunity to build up assets with little risk. But the consequences of the corona pandemic will not stop at the real estate market either, according to a study by Deutsche Bank.
The transaction volume on the German housing market has decreased significantly in recent weeks. In addition, the announcement that several large retail chains are ceasing their rental payments for closed shops is causing great excitement. An end to the corona pandemic is still not in sight, making a more precise forecast difficult.
The main reasons for a downturn
In addition to a long-lasting corona crisis, according to Deutsche Bank, there are two other reasons that speak for a downturn in the real estate market. On the one hand, the stricter rent policy is mentioned, and on the other hand, after the Corona crisis, the “macroprudential headwind will increase after the countercyclical capital buffer has been reduced to zero due to the crisis.” This includes measures to improve the resilience of the financial system during the Corona crisis. Pandemic should increase.
Furthermore, the current situation places a special burden on the office market. In addition to an expected decrease in the number of employees, it remains to be seen how extensive the work habits will lead to a change due to new home office regulations, the study says. Accordingly, office property prices in metropolitan areas could drop temporarily.
The new building stalls in a corona crisis
Especially in the first half of the year, the number of completions threatens to drop. In addition to sparse building authorities and the crisis-related lack of skilled workers, the interruption of supply chains should also send a negative impetus to the residential property market, as the report shows.
Due to the uncertainty, the demand for housing and thus the demand for mortgage loans is also likely to decline sharply. Deutsche Bank expects “new business to decline by around three billion euros per month with each additional month of crisis”.
Shortage of living space still gives hope
Deutsche Bank also anticipates a strong economic recovery phase in the second half of 2020. The analysts derive this assessment from the shortage of living space. Nevertheless, the study also points out that “the situation has become significantly more complex”. The high price dynamics should lead to overvaluations in some regions and sub-markets. In addition, changes in both residential demand and the regulatory environment can cause the forecasts to be distorted.
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