Prices of housing in Berlin fall after interest rates rise
Rising interest rates in the European Union have led to a decline in property market activity in European countries, including Germany. After the authorities raised the lending rate, house prices in Berlin started to fall in Q4 2022. However, this trend did not last long, and at the beginning of Q2 2023, the value of properties continued to rise, reaching 0.8%. A square metre of residential space in the German capital now costs €6093. Compared to the market 7 years ago, the increase was 100%.
Before the fall at the end of 2022, residential property in the country had been rising rapidly for 10 years. This boom ended when the EU’s central bank started to raise interest rates, pushing up the cost of mortgages. In less than a year, interest rates more than doubled, and demand for credit fell sharply. As a result, house prices in Germany began to fall for the first time in a decade. According to Immobilien Scout, the cost of apartments in Berlin fell in the first two quarters of this year, but only slightly – by 0.3%. By comparison, prices fell by 5.3% in the fourth quarter of 2022. Such trends suggest that the market will soon return to its stable state of steady growth.
Housing in Berlin price dynamics
The Europace index, which analyses the price dynamics of German real estate, showed a slight improvement in February 2023. This interrupted the decline in the market that began in July 2022.
The main factor holding back housing values in the German capital is the acute housing shortage. Analysts estimate that more than 100,000 new flats need to be built in Berlin to meet demand in this sector.
Tighter mortgage rules have forced many potential buyers to put off buying their own homes. And the increase in interest rates has affected not only consumers but also developers. A number of them are forced to abandon new projects in order to wait out the economic instability. The combination of these factors has contributed to an increase in demand in the rental sector, leading to a rise in prices. The situation is exacerbated by the fact that around 50% of the population in Germany rents flats and houses and refuses to buy them. The country leads the rest of the EU in this respect. In 2023, the demand for rentals has increased significantly, as have the prices. Experts predict that rental prices will continue to rise until the end of the period. In this case, an influx of immigrants influences the situation.