Berlin’s housing market rebounds after brief price drop

THE housing market in Berlin is so tight that a steep increase in borrowing costs seems to have put the brakes on rising prices only briefly.

The cost of buying a newly-built apartment in the German capital rose by 0.8 per cent last quarter. This partially reversed a dramatic drop recorded in the previous three-month period, according to figures compiled by property advertising firm Immobilien Scout for Bloomberg News.

A square metre now sells for an average of 6,093 euros (S$8,856), just about double the level just seven years ago.

Germany’s decade-long boom in residential property prices came to a sudden halt last year, after the European Central Bank embarked on a series of interest-rate hikes.

Those moves doubled – and sometimes even trebled – mortgage rates for house buyers, pricing many out of the market and causing asking prices to fall across the country. 

Prices for existing apartments in Berlin fell for a second consecutive quarter, the Immobilien Scout data showed. However, that drop – of just 0.3 per cent – was extremely small and followed a 5.3 per cent plunge the previous quarter.

The latest data implies that the decline in existing apartment prices, too, is likely to reverse soon. If and when it does, it will return to earlier trends.

While a decade of low interest rates led to property prices soaring across Germany, the explosion was most dramatic in Berlin, where housing is notoriously scarce.  

The German capital has long faced a serious mismatch between supply and demand in its rental market. Government data showed that about 26,000 people in Berlin were sleeping in shelters, couch-surfing or otherwise lacked a fixed address at the beginning of last year.

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Some researchers estimate that the city needs to build more than 100,000 apartments to meet demand.

The lack of housing has driven up rents, which in turn push up prices paid for buildings. With inflation recently hitting record highs, landlords have been tempted to flout Berlin’s tough price-control regulations and charge renters even more.

Other industry sources indicate that Germany’s residential real estate market has already returned to a previous era of steady price increases.

The Europace house price indicator, which tracks residential real estate in Germany, posted a month-on-month increase in February, breaking a streak of seven consecutive drops that began last July. BLOOMBERG