Although property prices have dropped, people are increasingly forced to rent because they don't have the funds to buy their own home due to the steeply rising loan interest rates and construction costs. Rent prices skyrocketed last year and will remain sky-high in the coming months, with a growing number of citizens wanting to rent and more and more refugees arriving in the country.

A unique and long-unseen situation has evolved in Germany’s property market. After more than a decade of rising real estate prices, it appeared recently that the has reversed somewhat, with experts expecting a price drop this year. Data released by the Federal Statistical Office for the third quarter of 2022 show that the prices of residential properties decreased by an average of 0.4 per cent compared to the previous quarter. Housing prices also continued to fall slightly in the last quarter, experts say.

The trend is likely to accelerate this year. The German Institute for Economic Research projects a possible price drop of up to ten per cent in 2023. DZ Bank expects a slightly lower drop of four to six per cent at most.

There are several reasons for this trend. One is the declining number of development projects due to rising construction costs, with builders reporting that many projects have been canceled throughout 2022. The federal government’s since-abandoned target of building 400,000 new properties a year now sounds rather utopian, with the construction industry association ZDB forecasting 245,000 new homes in 2023, and that too is an optimistic estimate. Matthias Frederichs, head of the German Building Materials Association, previously warned that Chancellor Olaf Scholz must use all available energy sources during the looming gas shortage, otherwise Germany faces the threat of a series of bankruptcies and emigration. According to the signs, the government does not intend to move in this direction, as Federal Economy Minister Robert Habeck, on behalf of the cabinet, recently agreed with the energy industry company RWE that coal mining will be phased out by 2030, eight years earlier than planned.

Returning to the housing market, despite the downward trend of prices, people are increasingly forced to sublease because they do not have the money to pay for their own apartment due to the drastic increase in loan interest rates and construction costs. It’s no wonder that rental costs skyrocketed last year, which will continue in the coming months a growing number of people want to live in rental properties, as more and more refugees arrive in the country.

This affects many people in Germany, as almost half the population – more than in any other European country – already live in sublet accommodations. According to the Federal Statistics Office, the ownership rate is 46.5 per cent. The most expensive city is Berlin, which attracts investors like a magnet, since more than eighty per cent of the capital’s residents lives in rented properties.