Buying real estate is a task that requires careful attention and market analysis. In 2024, real estate in Germany remains an attractive investment, but is it the right time to buy? Find out more about the features of the real estate market in Germany in 2024

After a turbulent year, the German housing market shows few signs of recovery. According to experts, market trends may only worsen in 2024. Deutsche Bank already predicted in 2021 that the boom in the German real estate market would end by 2024. After the pandemic and the energy crisis, their forecast became more accurate. Looking to the future, the predicted volatility could affect price movements and overall market dynamics, making it important to carefully consider the situation before investing in real estate in 2024. Traditionally, real estate in Germany is most often purchased by citizens of the United States, Canada, France, Italy and Hungary.

Real estate market in Germany in 2024

On the verge of transitioning from a technical recession to a real one, Germany is facing challenges in the housing market. The construction sector is experiencing a significant decline, with the Ifo Institute for Economic Research reporting a record number of canceled construction projects in October. In recent months, 22% of companies have abandoned projects. 

Klaus Wolrabe, head of research at Ifo, emphasizes that the situation is worsening due to rising interest rates and increased construction costs. These difficulties may affect the housing market, and investors should closely monitor the dynamics and make informed decisions before investing in real estate.

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Rising key rate for real estate in Germany

Due to the rapid growth of inflation in the eurozone, the European Central Bank (ECB) has raised its key interest rate from zero to 4.5% over the past year. This has led to additional costs that have become a heavy burden for the construction sector. Many construction projects that were previously profitable have now become unviable. As the German government has not met its target of building 400,000 new homes in 2022 and 2023, renters are becoming the main victims of the crisis.

The problem is particularly acute in cities such as Berlin, where demand for affordable housing is growing sharply and more than 99% of available housing is already occupied. A report by the German Association for Real Estate Investment (DAVE) indicates that base rents in 25 cities rose from five to 12% last year, mainly due to excess demand and low supply.

Although house prices look different on paper, with an average drop of 2.8% in 2024, the main culprit is the ECB's interest rate hike, which is bringing the era of cheap mortgages to an end. This jeopardizes the ability of more and more people to buy real estate, driving almost half of potential buyers off the market.

Real estate sales in Germany have already halved in the first half of 2023, reaching their lowest level since 2012. Analysts warn of rising costs for homeowners due to the constant increase in heating, electricity and municipal fees.

Prospects for buying real estate in Germany in 2024

Although the situation in the German real estate sector and the economy as a whole remains tense, some analysts see the possibility of a recovery in 2024. The lobby group DAVE and the IVD Association believe that the market may emerge from the "consolidation phase" in early 2024, in particular due to slowing inflation and normalization of prices for construction materials.

Guido Strake, head of DAVE, sees the possibility of a market recovery, but notes that it will depend on inflation and price trends for construction materials. The optimistic outlook for a recovery in early 2024 looks doubtful, given the data from the Federal Statistical Office, which indicates a significant increase in prices for construction materials.

IVD also shares a positive outlook for the market recovery, but not before the fourth quarter of 2024. IVD President Dirk Wolthorf emphasizes that developments and prospects for the real estate market are better than the current investment climate.

The Empirica research institute does not foresee a sharp decline in demand in the real estate market in 2024. According to Empirica's head Rainer Brown, the "lock-in effect" will be activated, when tenants refrain from entering into new contracts with high rents, and rental prices for new tenants will rise rapidly. This could lead to an even worse distribution of limited housing.

In general, it is difficult to predict the exact outcome of the situation, and the indicator will be to monitor the dynamics of inflation, prices for construction materials and the reaction of the real estate market to these factors in the future.

Is it worth buying real estate in Germany in 2024?

Even with the positive aspects, 2024 could be a challenge for real estate investment in Germany due to a number of factors. While the country's stability remains a significant advantage, investors should carefully analyze certain red flags before making decisions.

Despite the prospects for growth and improved prosperity, the neutral attitude of German business owners towards market conditions may indicate deep uncertainty. This sentiment reflects concerns that could affect the investment environment, requiring caution.

The varied dynamics of real estate prices - from growth to stabilization and even decline followed by stabilization - indicates market volatility. Coupled with declining rental rates and expected moderate inflation, the overall return on real estate investments may not be as attractive as expected.

Another concern is the negative signal of a decline in the number of construction permits. This may indicate a possible slowdown in the real estate sector, which could affect the supply of real estate and its further growth in value. Summarizing all of these aspects, it is important for investors to carefully assess their risk appetite and investment objectives before making a choice to invest in real estate in Germany in 2024.

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The editors of Visit World recommend using the Travel Guide for Germany for a comfortable and safe trip.

The guide is a detailed written document that contains basic advice on obtaining a visa, crossing the border, getting a job, citizenship, and much more. More details at the link.

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Products from Visit World for a comfortable trip:

Checklist for obtaining a visa and necessary documents in Germany;

Legal advice on immigration in Germany;

Travel insurance for foreigners in Germany;

Medical insurance all over the world.

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