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Interesting future promised for residential housing
Market Letter #2 '05
In 2004, the prices of residential housing sank to on average €1.761/sqm (€3.163/sqm in Munich). Interest rates around 4% are at an historical bottom line. However, this results in decreasing demand.
The situation is weird and economically interesting at the same time. Why is the demand low when prices are low and interest cheap? This is for two reasons:
- First of all, people are scared of losing their jobs. High salaries are driving industry to relocate production abroad.
- The second reason is that tax advantages, like depreciation have been reduced or abolished.
The market for residential housing has once again been at a low in 2004. Only 270,000 units have been completed (compared with 296,000 in 2003). According to the Federal Office for Building and Regional Planning a supply of approximately 350,000 residential units p.a. is essential to keep pace with real estate demand.
It’s easy to see that a supply gap for residential housing already exists, but this has evidently not been realized by the market.
It is because of that fact that increasing prices for real estate (especially leasings) is expected over the 5–10 year term.
Now is the time for smart investors to snap up the opportunity, while they can!