Property prices in Germany: How do you spot a good deal?

Property prices in Germany - and indeed across Europe - have been on one hell of a roller coaster over the past few years. Peter Kleinwächter from Your German Mortgage pulls together some interesting points to consider what has impacted property prices, and how you can spot a good deal when house hunting. 

The rise in mortgage interest rates and the requirements of the newly-enacted Building Energy Act (GEG) have had a marked influence on the price of existing properties in Germany in various ways. Here are some points to consider. 

The Building Energy Act (GEG)

The GEG aims to improve the energy efficiency of buildings and increase the share of their energy that is coming from renewable sources. This means that properties that meet these standards generally have a higher value than those that do not or are only partially refurbished.

Rising interest rates 

Interest rates for construction financing have risen in recent years. This means that the cost of borrowing for buyers is rising. Demand for property has fallen accordingly, as many potential buyers can no longer afford the monthly burden of a loan. 

These factors have also led to a lower supply of properties, as fewer owners want to sell at lower prices and prefer to wait it out. 

The impact

The impact of higher interest rates and the GEG on property prices can vary depending on the location, size, condition and facilities of the property. There is no general rule on how these factors affect price.

Buyers and sellers are therefore currently in a dilemma: trying to find a fair purchase or sales price for an existing property. But how to decide what is a “fair” price?

Looking at property price data

One possible approach to solving this challenge is artificial intelligence. There is already software that uses thousands of publicly-available data points and delivers surprisingly accurate price forecasts. 

In addition, one can also find out the market value of a property over time, see how the price has developed over the last few years, and whether there has been a price decline compared to the previous year.

Refurbished vs unrefurbished properties

However, it becomes particularly interesting when you create a simulation that calculates the value of the property on the assumption that it has been completely or partially renovated. This means: new windows, new electrical installation, up-to-date bathroom and kitchen, new floor coverings and, above all, up-to-date heating and thermal insulation.

This calculation can then be used to decide whether a price is “fair” or not. In a nutshell: the price difference between a refurbished and an unrefurbished property should be higher than the amount it would cost you to modernise the property. If this is the case, you can be pretty sure the property is a good deal. 

On the other hand, if the price difference is higher than the projected cost of modernisation, you might want to think about buying a “doer-upper”. If you’re not afraid of doing some building work, this can be a good way of landing yourself a deal. Many banks already reward an upgrading of the property with special loan conditions and there are also public funds available to support people carrying out home refurbishments. 

House hunting in Germany? Your German Mortgage can help you work out if you’re getting a good price. Send them the details of the property you are interested in, and they will provide you with a market value assessment and a projection of the cost of modernisation, along with two financing models for different scenarios - all for free. Get in touch today!