Real Estate

Are rents increasing more slowly in the Corona crisis?

Because people are unsettled by the Corona crisis, interest in real estate and moving is declining. This also affects the prices. This could be good news for tenants.

According to economists, the corona crisis should dampen the rise in rents and property prices. Even an end to the ten-year real estate boom in Germany would be conceivable if the crisis dragged on for months and people’s everyday lives remained severely restricted. This would give air to tenants and property buyers after the rapid increases in recent years. In 2019, apartments and houses again rose by more than 5 percent, according to figures from the Federal Statistical Office.

In view of the uncertainty about the consequences of the pandemic and the exit restrictions, the housing market should now come to a standstill in the next two months, says Michael Voigtländer, real estate expert at the Institute for German Business (IW): “Visits rarely take place and many buyers hold themselves back because they fear for their jobs or expect shrinking incomes. “

With Google searches for buying, renting or living, declines can already be observed, which Voigtländer sees as an indicator. Brokers of home finance such as Hüttig & Rompf have also recently seen a decline in customer inquiries.

Limited potential for rent increases

He expects property prices to stagnate or decline slightly, said Voigtländer. “I doubt that the ambitious prices for new buildings, for example, can currently still be achieved.” The real estate market cannot avoid a slump in the economy, as economists predict. Economists at Landesbank Helaba also believe that all property cycles in Germany have ended in recession in the past decades.

The potential for rent increases is also limited, said Voigtländer, because incomes are likely to rise less than before the crisis. In addition, new regulations on tenant protection in the event of late payment also put a strain on landlords: they may no longer give tenants notice if they cannot pay the rent due to the Corona crisis. This should initially apply to rent debts from April to the end of June, as the Federal Cabinet decided on Monday.

Large housing groups have already made concessions to tenants: For example, LEG Immobilien is foregoing rent increases or layoffs in connection with the Corona crisis. Vonovia also refrains from increasing rents until further notice due to the pandemic, and Deutsche Wohnen has promised to defer payments.

“Negotiating room for tenants could grow”

“The rosy times for landlords are over and the scope for negotiation for tenants could grow again,” says Voigtländer. “Many landlords should only be happy if they don’t lose reliable tenants.”

Günter Vornholz, professor of real estate economics at the EBZ Business School in Bochum, sees the situation in a similar way. “If you do not have to, you will not buy property during the crisis or postpone moving to a larger apartment,” he said. An increase in unemployment and short-time work reduces the financial scope that households have for renting. “Some contracts could be too expensive for tenants.”

In the case of property buyers, people with equity assets had lost a lot of money in the recent stock market crash – this is now missing for buying a home. The pressure on property prices is growing, according to Vornholz. Real estate remained attractive for large investors. But it is unclear whether they will pay the high prices if there is uncertainty about the rental income. An end to the long real estate boom is also conceivable, says Vornholz. “If the Corona crisis lasts long and the restrictions remain in everyday life, that could mean a change.”

No drop in rents and purchase prices

The Institute for Urban, Regional and Housing Research (Gewos) also anticipates “severe and long-term distortions” on the housing market. Loss of rent and liquidity shortages are likely to hit private landlords and smaller owners in particular. The researchers believe that the real estate market will suffer more from the corona crisis than from the global financial crisis. In 2008, purchases slumped by 12 percent and then recovered only slowly. The pandemic could now shrink the German economy more than the financial crisis and broader sections of society, Gewos argued.

However, IW expert Voigtländer does not see a drop in rents and purchase prices. Price reductions of 30 percent, as some observers have already predicted, are unlikely. “The housing shortage in the cities remains, interest rates for financing are low, and many people have large fortunes.” With interest rate cuts in the corona crisis, central banks have recently cemented low interest rates.

The shortage of housing in the cities also speaks against falling prices and rents across the board. Nothing should change that quickly. Because the corona crisis also affects the construction industry. There are delays in some places. “Large construction companies have problems because subcontractors lack foreign workers,” reports the Central Association of the German Building Industry. Construction continued, albeit with more precautions. “The workers have to keep their distance and, if necessary, work in shift shifts.”

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