Predictions of future developments in the property market all have one thing in common – they are based on assumptions that may or may not come true. They are therefore not dissimilar to gazing into a crystal ball. Analysts at Deutsche Bank have now predicted that in 2024, the German property boom that has lasted for more than a decade will come to an end. Should property owners now prepare themselves for a drop in equity?
In recent years, the average price of residential property in Germany has more than doubled, with an even sharper increase in some of the metropolitan regions. It has come as a surprise to some that even the coronavirus pandemic has neither halted nor even slowed this trend. Of course, the longer the boom lasts, the more likely it is that it will also have to come to an end.
Arguments for an end to the price increase
Economists at Deutsche Bank assume that in 2024, the time will have finally come: though they do not predict a crash in the property market, they do forecast a dent lasting for a certain period (around three years) that could depress prices by approx. 5 per cent. The experts justify their prognosis with a belief that the extreme bottleneck in the supply of residential property will have eased by 2024. Many new-builds now in the planning stage will have been completed by then; at the same time, many places are seeing a slow-down in population growth, not least as a result of fewer immigrants arriving during the pandemic. Moreover, the high property prices we are currently seeing are in part the result of a sustained period of low interest rates. Historically, this creates favourable financial conditions for private investors, but also results in a run on property due to a lack of alternative investment opportunities. If a global rise in inflation were to force central banks to end their policy of low interest rates, however, this could trigger a wave of property sales. At the same time, an increase in interest rates would depress property prices, as mortgages for property buyers would become more expensive.
Long-term value stability remains the rule
Other market researchers draw different conclusions. For example, the digital funding platform Europace doesn’t predict any major changes in the factors responsible for high property prices: longer life expectancy, more single-adult households, net positive migration to Germany and low new-build activity. If one compares the different analyses or even attempts to contrast the predictions made in previous years with subsequent real-world events, one thing quickly becomes apparent: the truly crucial triggers of economic developments or crises are virtually never forecast with any accuracy. Property owners should therefore not allow such blanket predictions to make them feel too anxious, and instead trust in the expertise of an experienced, professional estate agent with an unerring instinct for local market developments – an instinct honed by their daily work. Anyone who resists having unrealistic expectations of short-term increases in value, but instead sets store by the long-term value stability of their property, will generally be proved right. And while many crystal-ball forecasts vanish into thin air year after year, it is more than likely that not a single property bubble will burst during that same period.
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