Where Are Properties In Germany Still Affordable?

Key Takeaways

  • German mass media is suggesting for many years that properties in Germany are not affordable anymore
  • The real estate association of Germany (IVD) is creating a German real estate affordability index every quarter
  • IVD is looking at different locations: Average German locations vs. the top 7 German cities (A locations)
  • As well as different property types in order to get the most objective view possible of the affordability of German real estate

The German Real Estate Affordability Index

When reading about German real estate in the German media, you get the impression that property prices are not affordable anymore and the real estate market in Germany is about to crash. Headlines like the ones below make you wonder: Is real estate in Germany still affordable? And if so, where are properties still affordable?

The “Immobilienverband Deutschland (IVD)” is answering the question of how affordable properties in Germany are every quarter with their affordability index coming to different conclusions than the headlines above. In order to get the most objective view of German property prices possible, IVD is having a scientific approach when compiling its German real estate affordability index:

  • Location: Germany is split into average locations & the top 7 cities (also called A locations)
  • Property types: “Real estate” is divided into 4 different types: Existing flats, new flats, townhouses, and single-family houses
  • Mortgage rate: Current realistic interest rate for a mortgage that is paid back fully in 30 years
  • Closing costs: Mandatory notary fees & ground purchasing taxes for transferring a property (not for tokenized real estate)
  • Income: Net household income consisting of 1,75 full-time workers with the average German salary

The IVD is doing an incredible job in compiling their Geman real estate affordability index every quarter since the year 2010. They compile different property types in up to 285 different German locations to come up with property prices and affordability percentages (below 25% is considered affordable for IVD). See the 8 different results for yourself here:

  1. Existing flats in the average German location vs. the top 7 cities
  2. New flats in the average German location vs. the top 7 cities
  3. Townhouses in the average German location vs. the top 7 cities
  4. Single-family houses in the average German location vs. the top 7 cities

Affordability Of Existing Flats In Average Germany

Prices of average existing flats:

Property prices in the average German location went straight up since IVD started to publish its affordability index in 2010. Existing flats that cost around 90.000€ back in 2010, are costing 230.588€ today (= increase of 156%).

Affordability of average existing flats:

While 230.588€ is a lot of money for an existing flat, the question is how much money that really is compared to people’s income. Despite the increase in property prices, the IVD affordability index is still 13,3% (= people spend 13,3% of their net income on the mortgage).

Affordability Of Existing Flats In The Top 7 Cities

Prices of top 7 existing flats:

Property prices in the top 7 cities are much higher than in the average German location and increased much more as well over the years. Existing flats range from 275.616€ in Berlin up to 583.025€ in Munich. That is why the top 7 cities are considered A locations.

Affordability of top 7 existing flats:

Even though real estate in the top 7 cities is much more expensive than in the average German location, the IVD affordability index is still below 25% for all cities except Munich with 31,2%. Düsseldorf is the most affordable with 19,1% among the top 7 German cities.

The affordability of real estate in Düsseldorf is why FiveRocks started to develop Welcome Home close to Düsseldorf that you can invest in.

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Affordability Of New Flats In Average Germany

Prices of average new flats:

Property prices for new flats are significantly higher than prices for existing flats. The difference in the average German location is 230.588€ (existing) vs 335.156€ (new). Consequently, the question “Should I buy a new flat or an existing flat?” is probably a personal budget question when talking about a 105.000€ difference.

Affordability of average new flats:

New flats in the average German location are still quite affordable with an index of 19,9%. At the end of 2015, the affordability index was around 16% (= increase of 24,4% over just 6 years). If the trend continues, new flats in the average German location might soon reach the 25% limit of the IVD.

Affordability Of New Flats In The Top 7 Cities

Prices of top 7 new flats:

Property prices in the top 7 German cities are mostly far away from the average location (except Düsseldorf with 361.506€). The most expensive cities for new flats are Stuttgart with 517.190€ and Munich with 721.008€ (where flats in the city center cost sometimes up to 20.000€/sqm).

Affordability of top 7 new flats:

Newly built flats in 6 out of the top 7 German cities break the 25% barrier of the IVD. Only Düsseldorf, which has the strongest upwards trend, is below the threshold with 22,8%. Munich is again the most expensive German city with an affordability index of 38,6%.

“No matter which type of property you are looking at, Munich is by far the most expensive city to buy real estate in Germany.”

Affordability Of Townhouses In Average Germany

Prices of average townhouses:

Property prices for townhouses in the average German location are surprisingly cheap compared to newly built flats (only 67.000€ more for a house than a flat). The prices for townhouses more than doubled from around 200.000€ to 401.955€ (a little over half the price of a new flat in Munich 🫠).

Affordability of average townhouses:

Because of the incredible return of townhouses in the average German location, their affordability index is very close to the IVD threshold at 23,8%. If the price increase continues for just another year or two, townhouses will be not affordable anymore (according to the IVD).

Affordability Of Townhouses In The Top 7 Cities

Prices of top 7 townhouses:

While townhouses in the average German location cost 401.955€ only, townhouses in Munich cost almost 1 million €. The majority of the top 7 cities are about 50% more expensive than the average location with around 600.000€ (Cologne, Düsseldorf, Frankfurt).

Affordability of top 7 townhouses:

For the first time on this list, all 7 top cities break the 25% affordability barrier of the IVD (all above 30%). Cologne & Frankfurt are around 40% affordability and Munich is the most expensive with 52,7%, meaning the average earning household spends 52,7% of the net income just on the mortgage.

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Affordability Of Single-Family Houses In Average Germany

Prices of average single-family houses:

Property prices for single-family houses are by far the most expensive type of property in Germany. In the average German location, a single-family house costs 514.905€, almost 115.000€ more than a townhouse in the average location.

Affordability of average single-family houses:

For the first and only time on this list, the affordability of the average German location breaks through the 25% barrier of the IVD. Single-family houses cost the average earning household exactly 30% of their net income (just for the mortgage).

Affordability Of Single-Family Houses In The Top 7 Cities

Prices of top 7 single-family houses:

While single-family houses are the most expensive property type in Germany, Berlin is the exception of the top 7 cities. Single-family houses in Berlin at 469.710€ are cheaper than single-family houses in the average German location (at 514.905€).

Given this statistic, we might publish single-family houses on our primary market for you guys to invest in. 🤔

Affordability of top 7 single-family houses:

Like townhouses, single-family houses in the top 7 cities are not affordable anymore for the average earning household. Berlin is the “cheapest” with 37,4% (+12,4% above the IVD barrier), and Munich is again the most expensive with an affordability index of 73,6%.

Including other housing costs (electricity, water, GEZ, insurance, etc) the average household would spend way over 80% for their home in Munich.

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