“2023 Saw the Sharpest Fall in German Property Prices in 23 years.” Extensive Interview with an Expert on the German Market

Which cities in Germany have the most expensive and cheapest apartments for sale? What kind of German real estate has become popular to invest in recently? How have home prices changed over the past 10 years, and how will these dynamics change in 2023? The answers to these questions with numbers and details are in our expert material.

Iren Verhovetskaia, general manager of Estate-Service24, told us about the sharpest drop in prices in Germany, interest rates, and property values in the big seven German cities.

About the Dynamics of Real Estate Prices in Germany

— 2023 was an unusually difficult year for the real estate industry: passivity in the field of financing, stagnation in transactions, further increases in construction costs, “freezing” of projects, a wave of bankruptcies of real estate companies, etc.

Real estate prices in Germany have been growing steadily in recent years by 8-10% until the end of 2022. Since 2023, demand for residential real estate, which was several times higher than supply, has decreased slightly due to factors such as an increase in interest rates from 1% to 4%, inflation, tightening lending criteria and changes in building energy requirements. However, it cannot be said that prices have dropped significantly.

While prices in prestigious areas continue to remain stable, starting from 2023 there has been a slight decrease in prices — an average of 10%-15% for apartments in certain areas (especially for real estate (apartments and houses) that require renovation).

Now interest rates have dropped to 3.5%. This suggests that the situation has stabilized and a further decline in residential property prices, especially in large cities in Western Germany, should not be expected. Firstly, this is due to the constant influx of the working population and the lack of sites for the construction of residential buildings. Accordingly, real estate prices will rise in the long term.

Those wishing to purchase secondary real estate can count on a certain discount, but the costs of repairs should be taken into account here—currently, it is approximately 500 euros per square meter of living space.

— How were real estate prices developing in 2023?

— According to the Federal Statistical Office, 2023 saw the steepest fall in German property prices in 23 years, falling 10.2% in the third quarter of 2023 compared to the previous year.
On average, houses fell in price by 12.7%, and apartments by 9.1%.

In Munich, apartment prices in the 3rd quarter of 2023 decreased by—15.25% compared to the same period last year, slightly behind Hannover (-14.02%) and Stuttgart (-13.78%).

For private houses, prices in Munich decreased by -10.84% in the 3rd quarter of 2023. This indicator is followed by Hamburg (-9.77%) and Düsseldorf (-8.55%). House prices fell the least strongly in Dresden (-3.22%).

Hamburg, Germany

About the Cost of Apartments and Houses in German Cities

— The cheapest accommodation can be found in Dortmund. There, real estate costs an average of 2300 euros per square meter.

The most expensive, as before, is in Munich—here you have to pay an average of 8400 euros per square meter.

It means that for a 2-room apartment with an area of 60 square meters, you will pay 138,000 euros in Dortmund, while in Munich an apartment of the same area will cost 504,000 euros.

Below we present prices for residential real estate in the TOP 7 cities in Germany. The cities in Germany that are most important to the real estate industry are called the “Big Seven”.

Munich

For apartments in Munich, the current price per square meter is on average 8400 euros, for a house — on average 8000 euros.

Frankfurt am Main

The price order in Frankfurt am Main is now as follows: when buying an apartment, the price per sq.m. averages 5800 euros, in the case of purchasing a house — about 5,100 euros per square meter.

Berlin

For apartments in Berlin, the current price per square meter is on average 5100 euros, and for a house—about 5130 euros.

Hamburg

The cost per square meter in Hamburg currently averages 5800 euros if you buy an apartment, and approximately 5000 euros if you buy a house.

Stuttgart

For apartments in Stuttgart the current price per 1 sq.m. is about 4800 euros, for a house—an average of 5200 euros.

Dusseldorf

When buying an apartment in Düsseldorf, you will need to pay an average of 4500 euros per square meter, and when purchasing a house—about 4600 euros per 1 sq.m.

Cologne

In Cologne, a square meter costs 4,700 euros when buying an apartment, and 4,400 euros when buying a house.

The location and condition of a property are critical factors in accurately assessing the price of a property.

About the Location Classification

— There are location classifications in Germany:

Category A includes the above megacities with a very high demand for real estate and very high prices.

Cities with location B: large cities of great national and regional significance with a population of 250 to 600 thousand people.

They are usually located near the top seven cities. They include, for example, Leipzig, Nuremberg, Mannheim, Wiesbaden, Hannover, and others.

Cities with location C are cities of limited national but large regional importance, with a population of 100,000 to 250,000 people. These include Wuppertal, Kiel, Mainz, Freiburg, Augsburg, etc.

Some experts criticize this classification because it underestimates the unique advantages of the residential real estate markets of small and medium-sized cities.

For example, there are cities that fall into the same category but are still difficult to compare because they are in different regions. As we said, real estate is less liquid in East Germany—there is a large outflow of the working population from small towns, which cannot be said about the cities and villages of West Germany.

Frankfurt, Deutschland

About the Purchase of Real Estate by Foreigners

— How can a foreigner buy real estate in Germany? What difficulties may arise?

— In general, the process of buying property in Germany for foreigners is not difficult. Foreigners are not restricted in anything when buying local real estate, both in choosing the type of property and the location. This distinguishes Germany from countries such as, for example, Austria or Switzerland, where it is necessary to obtain permission from a special commission for the allocation of land. The main requirement in the German market is proof of the origin of funds.

In order to buy property in Germany, the following documents are required from the buyer:

• A copy of a document proving the identity of the potential buyer, or copies of an extract from the company's commercial register (in the case of purchasing a property by a legal entity);
• A reference from the bank account, which will confirm the seriousness of your intentions in acquiring the property, must be presented when reserving an object.

However, citizens of Russia and Belarus now have to face more difficulties when buying property in Europe, in particular in Germany. It is possible under certain conditions:

1) If you do not have a residence permit in Europe (Italy, Greece, Spain, etc.), but have already opened an account in a European bank and it has enough money to pay the cost of real estate and purchase costs, you can buy a private or commercial property in Germany. The client can dispose of any amount of its money that was already in the account (if it is not included in the sanctions list of citizens whose accounts are frozen).

2) If you have an EU residence permit (unlimited in time), you have the right: to transfer an unlimited amount to your account; to get a loan from a German bank; to invest money in shares; in other words, to perform any transaction on a par with citizens of Germany.

3) If you have an account in a non-EU country (Turkey, Georgia, and others), banks are unlikely to want to open an account for you in Germany, as thorough verification of the origin of funds is a time-consuming process that Germans are currently wary of to avoid risks. But if Russians and Belarusians have enough money and a transparent history of their origin, the probability of opening a bank account in a German bank is 50/50.

Citizens of other CIS countries (Georgia, Kazakhstan, etc.) are not restricted in opening accounts and transferring money from other countries if the obligatory condition of confirmation of the origin of funds is met. For citizens of Ukraine, there is a problem with the withdrawal of money from Ukrainian banks.

About Real Estate That is in Special Demand

— Residential real estate has always been and is in high demand in Germany, both for own use and for renting. This is primarily apartments, condos, or detached houses (depending on the budget).

Why residential? It should be understood that Germany is an economically developed country with a high standard of living and, accordingly, a high cost of real estate. On the one hand, residential real estate generates less income than commercial real estate (about 3.5% vs. 5–6%), but it also increases in value faster.

Another reason why investors prefer to invest in residential real estate in Germany is that this type of property is always available on the market. Yes, the number of new buildings in central areas has noticeably decreased over the past 3–4 years, as there are fewer and fewer vacant lots in large cities. Nevertheless, there is a certain selection of apartments, which cannot be said about commercial real estate. Sometimes our clients wait for about a year for a suitable property if they are planning to buy the desired type of commercial property in a particular location.

In addition to residential real estate, commercial properties with long-term lease agreements and reliable tenants are in constant demand. This can be an office building in large cities and their suburbs, or a chain supermarket in a small German town.

As you know, in Germany, the entire infrastructure is decentralized: each village has its own shopping centers, swimming pools, educational institutions, and clinics; i.e., the local population enjoys all the benefits of “civilization”. The main thing to do when choosing an investment property in a small town is to analyze the economic situation of the region.

In general, it can be said that the new federal lands (East Germany) are not so reliable for investments. In these regions, there is an outflow of the working population, and there is a risk that when the tenant leaves, the building will be empty.

— In which sectors has it become popular to invest only recently?

— In recent years, social real estate (apartments and nursing homes) has been in particular demand. Germany is a country with a very well-developed social system, on which the state spends about 25% of its GDP annually. Thus, nursing homes offer the possibility of a stable, guaranteed income with good growth prospects.

The market for social real estate investments is currently on the rise, mainly due to demographic changes in Germany that will continue in the coming decades. Forecasts show that despite a rise in the birth rate in Germany in recent years, the population is noticeably “aging,” which means that buying an apartment or home for the elderly is a sure way to preserve capital.