Buying vs renting in Germany: Which is cheaper where?
Renting is far from cheap in Germany - but buying a house is even more expensive! Despite the coronavirus pandemic, the prices of apartments and houses continue to rise, so much so that, according to a new study, renting actually works out cheaper in most German cities.
Property prices in Germany shot up in 2020
Meteoric house prices are nothing new in Germany. But, concerningly, the increase shows no signs of slowing down: even the economic crisis triggered by coronavirus has so far had little impact on the housing market.
According to the latest “Risk-Return-Ranking”, put together by the real estate service provider Dr. Lübke & Kelber, prices for existing apartments in Germany have risen by almost 10 percent this year, and the prices of new apartments by seven percent - the biggest yearly increase seen since 2015.
In contrast, however, rents in Germany’s cities have hardly risen, tending instead to “develop sideways”. According to Dr. Lübke & Kelber, this means that the ratio of purchase prices to rents has drifted so far apart that, especially in metropolises, it is making less and less financial sense to buy rather than rent. Although the ranking is targeted towards property investors, its main takeaway should be of interest to potential homebuyers in Germany as well.
Where does buying real estate in Germany still make financial sense?
The analysts at Dr. Lübke & Kelber therefore set about investigating where in Germany a real estate purchase is still worthwhile. To do this, they examined numerous datasets from the real estate market to assess both the risk and the return for a property purchase in each city. In a nutshell, this tells us whether an investment in property is likely to pay off in the long term, considering average rents in the area.
According to their analysis, property purchases still make sense in cities such as Pforzheim, Kaiserslautern, Lüneberg, Bamberg and Flensberg. Landshut, Fürth and Kempten (Allgäu) also performed well in the ranking when it came to new-build apartments.
“The winners of the [housing] crisis are medium-sized and university towns around the metropolises,” said Marc Sahling, Managing Director at Dr. Lübke & Kelber. Since people are increasingly working from home, they are no less worried about commuting distances and prepared to move further away from city centres. Coronavirus is only going to accelerate this trend of buyers increasingly looking to so-called “B-cities”.
The death of the big city?
In cities like Munich, Berlin or Hamburg, on the other hand, buying property is so expensive that, according to experts, renting is more worthwhile. Cities like Münster, Augsburg and Freiburg also fall into this category.
Overall, in only 35 of the 111 cities analysed did Dr. Lübke & Kelber find that it is cheaper in the long-term to buy your own apartment than to rent it. Added to which, the number of cities in which buying existing property still pays off is falling rapidly. For comparison: in 2017, buying was more profitable than renting in 87 of 110 cities.
And when it comes to new-build properties, the situation is even more extreme: it is only cheaper to buy a new apartment than to rent it in five cities in Germany: Cottbus, Frankfurt (Oder), Dessau-Roßlau, Wolfsburg and Bremerhaven. In the other 106 cities examined, buying a new apartment is so expensive that it’s easier to just stick to renting.
Of the seven largest cities in Germany, Stuttgart is still the most attractive when it comes to investing in existing properties, according to Dr. Lübke & Kelber. “Properties there are quite expensive, but the bottom line is that the yields are relatively high due to the high rent level,” said Sahling.