What is currently happening to purchase prices of residential properties?

By now everybody has been impacted by the coronavirus. Carsten Heinrich, Managing Director of Berkshire Hathaway HomeServices Rubina Real Estate, shares his opinion relating to what affect the Coronavirus Crisis may have on purchase prices for residential properties in Berlin.

11 May 2020, Berlin – Last year, the growth in residential property prices in Berlin – which had been rising for years – was already slowing down. The rent cap on one hand, and the political framework conditions on the other contributed to a slowdown in the growth of residential property prices.

The property market was visibly unsettled by these political effects. In addition, newly-constructed residential property prices have come closer to those of other major European cities – and in some cases have exceeded them. Berlin: “Poor but Sexy” has not been valid (at least the poor part) for a while now.

With the Coronavirus Crisis came at the beginning at least one thing: uncertainty about the effects and time periods of the effects. Since then, there have been different approaches as to how purchase prices will develop. Some assume a 20-30% decline in purchase prices, while others assume a short setback followed by a recovery of purchase prices with growth potential.

What will happen now? We think we are well-advised to look back at the fundamental data of the real estate market. Mortgage interest rates remain at their lowest level, demand has hardly changed, and supply still lags behind demand. These fundamentals speak for a stable real estate market. 

In addition, real estate will continue to gain in importance as an asset class; the looming global economic crisis will lead to some liquidity being invested in real estate. This will, in turn, lead to increasing demand. The focus will not necessarily be on achieving the highest return, but on a more secure investment.

Residential real estate is normally characterised by secure and stable income. As well as reducing uncertainty, the only question is how secure and how high average-net household incomes are – and will be – during and after a crisis; this will have a direct influence on the increase in purchase prices and their affordability.

People always must have apartments to live in – that is a principle that has always applied in real estate investments.

Posted in Economy