FRANKFURT (dpa-AFX) - After more than twelve years of a real estate boom in Germany, experts expect prices to fall but rents to rise increasingly. That's because with rising interest rates on loans and high construction costs, many people can no longer afford to own property or are backing out of construction projects. Many are switching to rental apartments, so rents are climbing more sharply again. This affects many people in Germany, as only around half of the population lives in property - more than in almost any other country in Europe.

It is an unusual picture: After more than a decade of rising prices, houses and apartments are once again somewhat cheaper to buy, even in sought-after cities. The position of prospective buyers has improved somewhat. "We are currently seeing more offers on the real estate market and greater scope for price negotiation," says Mirjam Mohr, private customer board member at loan broker Interhyp.

In the third quarter, prices for residential properties fell by an average of 0.4 percent compared to the previous quarter, according to the Federal Statistical Office. The Association of German Pfandbrief Banks (VDP) observed a decline of 0.7 percent - the first minus since 2010. Measured against the same quarter of the previous year, prices rose, albeit at a subdued pace.

According to experts, the trend is likely to accelerate. The German Institute for Economic Research (DIW) believes that real estate prices could fall by up to ten percent in 2023. In a study of 97 cities, the researchers observe that prices have further decoupled from rents - a sign of "speculative exaggerations". A property had recently cost as much as 28 years' rent in major cities - a record since the mid-1990s. The DIW sees an increased risk of price corrections.

DZ Bank does not go quite that far, expecting prices to fall by a maximum of four to six percent in 2023. "The decline is likely to be somewhat weaker for residential property, and somewhat more pronounced for multi-family houses," writes analyst Thorsten Lange. However, real estate prices have roughly doubled within ten years. Even a sharp decline of around 20 percent, which some in the industry thought possible, would only mean the level of 2020, said VDP CEO Jens Tolckmitt.

Experts also doubt that Germany is on the verge of a real estate bubble bursting. The housing market is considered robust even in economic crises, because real estate is often financed conservatively and long-term - an advantage in the rise in interest rates. Thus, many buyers had secured low interest rates for 10 or 15 years.

"This is different in countries with variable loans such as the United Kingdom or Spain, where rising interest rates have an immediate impact on the loan burden," according to a study by the Institute of the German Economy (IW). When interest rates climbed in the mid-2000s, it overwhelmed many Americans - the housing bubble burst and triggered the global financial crisis.

Another argument against a price collapse in Germany is that transaction costs, for example for brokers, are high and discourage short-term sales. Price declines are seen primarily in properties in poor locations or with high energy consumption, says IW real estate expert Michael Voigtländer. "If the energy balance is high or decent, I don't see much potential for correction."

In addition, apartments remain in short supply: for months, the Ifo Institute has been observing a wave of cancellations in residential construction. Demand for construction financing and building permits have also slumped. Since the beginning of the year, interest rates for ten-year loans have more than tripled. Together with high construction prices, the burden is too great for many people. The German government's now-cancelled target of 400,000 new homes a year was considered utopian: the ZDB construction association expects 245,000 in the coming year.

"But when high demand for housing meets a shortage of supply, that supports prices," explains IW expert Voigtländer. In addition, immigration from abroad, which plummeted during the pandemic, is likely to increase, boosting demand for housing, especially in cities.

But what if real estate prices do not fall sharply and loans have become more expensive? "For equity-rich buyers, the market environment offers opportunities," says Lange of DZ Bank. Prospective buyers with few savings, on the other hand, would have to have a high income in order not to fail due to the much higher loan installments.

Remains often only evasion: Demand will partly shift to the rental housing market and increase the pressure there, according to a study by Landesbank Helaba. After a phase with relatively low markups, new contract rents recently picked up again more strongly with a plus of five percent, observes DZ Bank.

"There is decent pressure on the rental market," says analyst Lange. There, the strong demand for affordable housing meets falling vacancy rates in the cities. The bottleneck will not change in the new year, says Lange, also with a view to the immigration of war refugees from Ukraine. With the high material prices and significantly increased financing costs, housing companies are under pressure to pass on the costs to the rent.

IW expert Voigtländer believes it is conceivable that the trend that has lasted for years will turn around and that property prices will no longer outpace rents. According to IW data, asking rents already rose by 5.8 percent year-on-year in the third quarter. In all German states, the increases were above the third-quarter average of the past three years, Voigtländer observed. "We may now be entering a phase in which rents are growing faster than prices."/als/DP/zb