2020 will be the 30th anniversary of German reunification. What has changed in the real estate market since then? A current study shows how serious the differences are between the East and West German real estate markets.
German Unity Day was celebrated for the first time on October 3, 1990. Much has changed since then in order to bring the new federal states up to the level of the West Germans. But the differences are still noticeable in eastern Germany. This applies to the real estate market, as a study by the German Institute for Economic Research (DIW) on behalf of the “Forum for a New Economy” initiative shows.
The proportion of property owners has increased
Although the rate of property owners in eastern Germany has risen from 25 to around 40 percent over the last 30 years, the east is still lagging behind federal states such as Schleswig-Holstein and Baden-Württemberg, which can boast an owner rate of almost 60 percent .
One reason for this, as study author Charlotte Bartels explains to Spiegel, is that wages in East Germany are still lower in comparison than in West Germany. In some cases, considerable start-up capital is required to buy a property, and households in eastern Germany rarely have access to it.
This is also one of the reasons for the increasing wealth inequality in Germany, because high earners from East and West Germany usually not only own their own home, but also buy other real estate in order to rent it out. But here, too, there is a gap between the east and the west. While in the western German federal states an average of 16 percent of households have rental income, the proportion in the east of Germany is only six to 8.4 percent.
Real estate wealth in the west is significantly higher
Although the costs of building or buying a property in East Germany are lower, the market values of the properties are also well below the West German level. The average net real estate assets in Bavaria and Hamburg are between 350,000 and 500,000 euros, whereas in the new federal states it is only between 100,000 and 150,000 euros.
In particularly popular regions, real estate prices have doubled over the past ten years. The building land has also become significantly more expensive in some large cities, which can be explained by the large influx of people from rural regions.
According to DIW, risks for a real estate bubble are low
According to DIW assessments, the relationship between apartment prices and rents could be an indication of an “overvaluation of a speculative nature”. Rents have increased significantly in recent years, but not to the same extent as the purchase prices for real estate. Nevertheless, the experts consider the risks of a speculative bubble on the German real estate market to be low, since the volume of housing loans in relation to the gross domestic product has also remained stable.
Due to a lack of valid data, no conclusions could be drawn about the effects of the corona crisis in the present study by DIW. However, it can be assumed that the loss of income in private households and the associated loss of purchasing power could reduce demand for real estate. However, the extensive government intervention and the persistently low interest rates speak against this.
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