The Pfandbrief 2011 | 2012

Residential Properties
The German residential property market proved to be a haven of stability over the last decade.
After the “reunification-driven boom” was corrected, the development in rents and prices
fluctuated little – although trends differed regionally. Unlike most foreign markets, during the
financial and economic crisis the German market benefited from the long-term fixed-rate mortgage
loans that are customarily granted in Germany and so rule out, for the home-owner, the
impact of short-term interest rate fluctuations. Thus, there is no procyclical impact.
In the meantime, there are increasing positive signs for the German residential property
market; purchase prices and rents edged up slightly in 2010. The main reasons for this were
the favorable situation on the labor market and the attendant income security. Home ownership
is seen as a crisis-proof investment while offering both protection against inflation and old
age provisioning. Thus, this positive trend gained in breadth last year, after it had initially been
discernible in the case of high-quality properties and new buildings in large cities.
Price Index for Owner Occupied Housing
108
106
73
Index 2003 = 100
104
102
100
98
2003 2004
2005 2006 2007 2008 2009 2010
Source: vdpResearch
At the same time, the downward trend in building permits which had persisted for a number
of years came to a halt, and is currently rising slightly. However, the market is not likely to be
burdened by a growing number of completed residential properties as a result. The only minor
increase in construction activity is concentrated in urban areas and primarily addresses the
high demand for modern, energy-efficient dwellings. Potential owner occupiers alone are not
generating demand, however. Demand from tenants is also on the rise.
This, on the whole, positive trend will continue in 2011 and subsequent years in view of
demographic developments. Although population numbers are falling, the number of households
is set to climb further. This, together with the ongoing net migration, will stimulate
demand for dwellings in urban concentrations, whereas demand will stagnate in many rural
areas.