05.09.2023 • 4 min. reading time
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Purchase-rent price trend drifts further apart
After many years of continuous increases, real estate prices are now experiencing a phase of cooling for the first time, but this could open up new opportunities for buyers and investors. Rising inflation, exacerbated by the war in Ukraine, has led to a change in the interest rate policy of central banks, which inevitably caused mortgage rates to rise. Prospective buyers had to recalculate as a result. Demand for real estate declined as a result of the higher interest rates, while at the same time the rental market picked up and rents rose - especially in major German cities. The VON POLL IMMOBILIEN experts analyzed the extent to which average purchase and rental prices1 diverged in Munich for apartments in the 25 districts of the Bavarian capital for the first half of 2023 compared with the first half of 2022.
Daniel Ritter, managing partner at VON POLL IMMOBILIEN:
"Currently, rents are rising in almost all metropolitan areas, while purchase prices for real estate are falling - the trend is also clear in Munich. The markets are diverging. Will buying therefore become more attractive again? There are many arguments in favor of this. Prospective buyers are factoring in the new interest rate level. In addition, they have a larger range of properties to choose from, marketing times have lengthened and their negotiating leeway has increased. Prospective buyers should take advantage of this opportunity. Ultimately, it is uncertain how long the situation will remain this way - and it won't be for long. Further interest rate hikes by the European Central Bank are possible. In all 25 Munich districts, purchase prices for condominiums fell in the first half of 2023 compared with the first half of 2022 - in 20 districts even by double-digit percentages. The rental prices, on the other hand, rose in 24 districts of the Bavarian capital - in almost half of the districts between about 5 percent and 9 percent."
The purchase-rent price gap opens most strongly in the quiet residential district of Moosach, Altstadt-Lehel with the popular Marienplatz as a focal point and in Milbertshofen-Am Hart with the Olympic Park and well-known Olympic Stadium. In Moosach, prices per square meter for condominiums fell by -14.7 percent (purchase: €7,503/m2), and in Altstadt-Lehel and Milbertshofen-Am Hart by -13.5 percent each (purchase: €12,654/m2 and €8,190/m2, respectively). In contrast, rents for apartments rose by 6.8 percent year-on-year in Moosach (rent: €20.52/m2), by 7.4 percent in Altstadt-Lehel (rent: €27.65/m2) and by 7.2 percent in Milbertshofen-Am Hart (rent: €22.60/m2) in the first half of 2023.
Volker Stich, office manager at VON POLL IMMOBILIEN Munich:
"The rental market is an early indicator for the buyer's market. Prospective buyers should now take advantage of the lower price level. Real estate is still a good protection against inflation and rent-free living is the best retirement provision. Properties in the city center or with a central location and a high price level remain in great demand - because Munich is worth it to people. Overall, the supply of real estate has increased significantly and exaggerations have disappeared from the market. These are some signs that real estate purchases will pick up again in the long term."
Fig. 1: Purchase and rental price development in the Munich districts, HY1/22 vs. HY1/23 (Graphic: von Poll Immobilien GmbH) - interactive graphic incl. figures by mouseover: https://www.datawrapper.de/_/lbKdL/
In addition to Moosach, Aubing-Lochhausen-Langwied with -14.8 percent (purchase: 7,211 €/m2) and Berg am Laim with -15.3 percent (purchase: 7.588 €/m2) were among the three districts with the sharpest falls in purchase prices for condominiums among Munich's residential districts. In contrast, rental prices for apartments rose moderately by 2.5 percent in Aubing-Lochhausen-Langwied (rent: €17.96/m2) and by 3.7 percent in Berg am Laim (rent: €19.63/m2).
The purchase-rent price trend among the Munich districts analyzed diverges least in Ramersdorf-Perlach, Bogenhausen and Untergiesing-Harlaching. In the first half of 2023, purchase prices for owner-occupied apartments fell by an average of -13.5 percent in Ramersdorf-Perlach (purchase: €7,375/m2), -9.8 percent in the upscale Bogenhausen neighborhood (purchase: €8,754/m2) and -12.6 percent in Untergiesing-Harlaching (purchase: €8,827/m2). While square meter prices for rental apartments in Ramersdorf-Perlach actually fell by -2.2 percent (rent: €19.20/m2) - making it the only district with falling rents compared with the first half of 2022 - rents in Bogenhausen rose slightly by 1.6 percent (rent: €21.26/m2) and Untergiesing-Harlaching by 2.8 percent (rent: €20.59/m2).
Michael Zeller, office manager at VON POLL IMMOBILIEN Munich - Solln/Grünwald:
"The demand for real estate has visibly decreased - except in very good micro-locations of individual districts or areas. As a result, the supply of real estate has increased, and the marketing period has also lengthened. In addition, prospective buyers no longer accept every asking price. Investors are still asking for properties with purchase prices of up to around EUR 400,000 - but only in good locations. Prices beyond that are difficult to realize for capital investors, since the interest - without redemption - is partly higher than the cold rents."
It is also striking that in only five districts of Munich the square meter prices for condominiums have fallen in the first half of 2023 in the single-digit percentage range, including Obergiesing-Fasangarten with -8.1 percent (purchase: 8.492 €/m2), Schwabing-West with -8.7 percent (purchase: 10,723 €/m2), Feldmoching-Hasenberg with -9.1 percent (purchase: 7,282 €/m2), Trudering-Riem with -9.4 percent (purchase: 8,168 €/m2) and, as mentioned above, Bogenhausen. While rents in Trudering-Riem rose by 6.9 percent (rent: 19.11 €/m2) and in Obergiesing-Fasangarten by 4.7 percent (rent: 20.69 €/m2), they increased somewhat more weakly in Schwabing-West with 2.7 percent (rent: 24.40 €/m2) and Feldmoching-Hasenberg with 3.8 percent (rent: 18.72 €/m2).
In 14 districts in Munich, prices per square meter for condominiums fell between -10 percent and -13 percent in the first half of 2023, including, among others, Munich's top locations Ludwigsvorstadt-Isarvorstadt (purchase: 12.176 €/m2), Schwabing-Freimann (purchase: 10,101 €/m2), Au-Haidhausen (purchase: 10,376 €/m2), Neuhausen-Nymphenburg (purchase: 9,603 €/m2), Schwanthalerhöhe (purchase: 9,728 €/m2). Average rents for apartments, on the other hand, rose between 4 percent and 6 percent in these residential districts.
Sascha Hadeed, office manager at VON POLL COMMERCIAL Munich and VON POLL IMMOBILIEN Gräfelfing:
"The demand for real estate has visibly decreased - except in very good micro-locations of individual districts or areas. As a result, the supply of real estate has increased, and the marketing period has also lengthened. In addition, prospective buyers no longer accept every asking price. Investors are still asking for properties with purchase prices of up to around EUR 400,000 - but only in good locations. Prices above this are difficult to realize for capital investors, as the interest rates - without repayment - are sometimes higher than the cold rents. Investors are also currently very cautious about high asking prices. At the peak of the market in Munich, we sometimes had purchase price factors of between 40 and 50, but with the current interest rate of almost 4 percent, this is no longer calculable. In addition, the owners of such properties are not yet ready to reduce the price reasonably - so that currently little movement is in this market."
Property price analysis of the districts in Munich
Fig. 2:Development of purchase and rental prices in Munich city districts, HY1/22 vs. HY1/23 (Table: von Poll Immobilien GmbH)
Once again, the rental prices for apartments rose the most in the first half of 2023 compared to the same period last year in the Munich districts of Allach-Untermenzing with 8.9 percent (rent: 19.13 €/m2) and in the popular university district Maxvorstadt with 8.8 percent (rent: 26.11 €/m2). In contrast, purchase prices for condominiums fell by -10.6 percent in Allach-Untermenzing (purchase: €7,861/m2) and by -11 percent in Maxvorstadt (purchase: €11,653/m2).
1 The data basis of the purchase price analysis for condominiums as well as rental prices for apartments in the portfolio (up to and including 2019) is based on the average asking prices in the first half of 2023 compared to the first half of 2022 from GeoMap and VON POLL IMMOBILIEN Research (2023).
The graphic for the interactive bar chart including embedding link can be downloaded here: https://www.datawrapper.de/_/lbKdL/
