PRESS RELEASE

ACCENTRO Housing Cost Report 2020

- Across Germany, homeownership has an average economic benefit of 48.5 percent over renting

- Limited potential for COVID-19-related setbacks in residential segment

- Landlords and buy-to-let investors come from every population cohort

Berlin, 26 May 2020 - Buying residential property in Germany remains much more affordable than renting, and this is true nationwide. The cost advantage of inhabiting a condominium rather than a comparable rental flat equalled 48.5 percent in 2019 - this is the upshot of this year's ACCENTRO Housing Cost Report. According to the survey, owner-occupiers pay less for housing in virtually every district in Germany, including in the metropolises. The gap between the costs of owner-occupiers and the costs of tenants actually widened further since the previous year.
For the purpose of the Housing Cost Report, now already published in its fifth edition, the IW Economic Institute compares the housing costs paid by owner-occupiers with those paid by tenants; rents and owner-occupiers' housing costs were analysed for all 401 of Germany's districts and independent cities. The calculation is based on the net rent versus the owner-occupancy costs which break down into the purchase price, the incidental acquisition costs, the mortgage interest and the loss of interest on equity capital along with reinstatement costs and depreciation.
"Considering the persistently high property prices and the permanently low level of interest rates, it is still safe to say that homeownership represents the best form of private retirement planning. As in previous years, this year's ACCENTRO Housing Cost Report demonstrates also that it is more affordable to buy than to rent almost anywhere in Germany. At the same time, the survey highlights the fact that private landlords are found in all population cohorts," elaborated Lars Schriewer, CEO of ACCENTRO Real Estate AG.

No Overvaluations in Evidence on Real Estate Market
Due to the great housing cost advantage of homeowners over tenants, the IW research institute concluded that Germany's residential real estate market is not overvalued. "Even the coronavirus crisis implies only a limited potential for setbacks. I consider a drastic price drop by 20 percent or more, as predicted by some, to be rather unlikely. Instead, I assume that condominium prices will more or less flatline this year, generally speaking," elaborate Prof. Dr. Michael Voigtländer, Head of the Financial Markets and Real Estate Markets Competence Unit at the IW Institute. "However, the economic implications of the coronavirus crisis and the associated threats to the housing market are unevenly distributed among the regions. Especially in southern Germany, the threat of looming price adjustments for residential real estate seems to have increased, unlike in eastern Germany, where rent growth and corresponding price hikes remain a possibility," added Voigtländer.

One of the reasons for the stable housing market, according to the ACCENTRO Housing Cost Report, is the interest rate development, because interest rates are more likely to fall than to rise.
This assessment is backed by the measures the ECB has taken, among others, which are causing interest rates both for short and long fixed-interest periods to soften, as the experiences with the financial crisis and the sovereign debt crisis have shown. Another argument supporting the assessment is the growing imbalance between savings and investments, which also has a softening effect on the level of interest rates. On top of that, previous surveys already revealed that real interest rates tend to decline in the wake of pandemics.

Owner-Occupiers Better off even in Metropolises
As in previous years, the cost advantages of owner-occupiers are limited not just to rural areas or regions with low purchase prices, but are in evidence even in cities across Germany that are characterised by elevated price levels. In the "Big Seven" cities, the cost advantages break down into 35.1 percent in Berlin, 43.1 percent in Hamburg, 45.9 percent in Munich, 51.0 percent in Stuttgart, 55.6 percent in Frankfurt am Main, 58.7 percent in Düsseldorf and 59.5 percent in in Cologne.

Support for Homeownership Investments Advised
In its latest survey, the IW institute identified several reasons explaining why homeowners pay less for housing than tenants. As a result of the drop in mortgage interest, the anyway very low costs for homeownership have decreased even further. Although selling prices have continued to go up, the price growth is more than offset by the savings implied by the interest rate cuts. Tenants simply lose out on this interest advantage.
"Once again, we therefore conclude that the government should continue to support people's bid for homeownership. Since the required equity capital represents the main hurdle for most of those who seek homeownership, we propose government-guaranteed subordinated loans and a reform of the real estate transfer tax, for instance. This would lower the threshold specifically for households with low- and middle-income," said Voigtländer.
"Definitely a hurdle when seen in combination with the rising real estate prices are the tightening equity requirements. This is where government action is urgently required, both by helping with the capital charge and by reducing the incidental acquisition costs. Sensible options would include an allowance or waiver of the real estate transfer tax," Schriewer added.

Landlords and Buy-to-Let Investors Come from Every Population Cohort
According to IW, 93 percent of Germany's private landlords derived a positive income from letting and leasing in 2017, meaning that the gross rental income exceeded the costs of maintenance and capital improvements. For nearly 20 percent of the households letting residential property, the income from letting and leasing was an amount between zero and 2,500 euros, between 2,500 and 5,000 euros for another 20 percent, and between 5,000 and 7,500 euros for around 17 percent. One in ten landlord households actually collected more than 20,000 euros.
44 percent of the private landlords were in the top 20 percent income bracket among German households. 25 percent were among the fourth quintile of Germany's highest-earning households. But a sizeable share of private landlords are actually not among the high-earning households: 15 percent belong in the third income quintile, ten percent belong in the second one, and six percent count among the lowest-earning 20 percent of German households.

Buy-to-Let Investments in Residential Property Pay off
The number of private landlords increased by around 750,000 households between 2010 and 2018, which IW interprets as a sign that many private households took advantage of the attractive conditions for acquiring residential properties for the purpose of renting them out.
Especially in the major cities, the number of private landlords increased by roughly one third over the same period of time.
The ACCENTRO Housing Cost Report also shows that a buy-to-let investment in residential real estate is a paying proposition: IW identified a cost advantage of nearly 50 percent for owner-occupiers when comparing the costs of inhabiting a condominium with those of occupying a rental flat. As IW elaborates in the survey, the advantage can also be applied to landlords, because it means that the income from rent payments is higher than the monthly costs of repaying a mortgage loan.

To download the (German version of the) ACCENTRO Housing Cost Report, click here:
https://www.accentro.ag/wohnkostenreport/

About ACCENTRO Real Estate AG
ACCENTRO Real Estate AG is Germany's market leader in housing privatisations. In addition to its home market of Berlin, the company focuses on auspicious metro regions such as Hamburg, Rhine-Ruhr and Leipzig. In its Privatisation business unit, ACCENTRO retails condominiums from its proprietary portfolio to owner-occupiers and buy-to-let investors or-bundled into portfolios-to institutional investors. In its Services & Ventures business unit, ACCENTRO sells apartments on behalf of investors and property developers-including through equity investments in its own right within the framework of joint ventures. ACCENTRO Real Estate AG is listed on the Prime Standard segment of the Frankfurt Stock Exchange (German securities code number WKN: A0KFKB, ISIN: DE000A0KFKB3). www.accentro.ag

About the Cologne Institute for Economic Research (IW)

The Cologne Institute for Economic Research (IW) is a private economic research institute committed to a liberal economic and social order. The institute is organised as a registered pro-bono association. Its members include around 110 industrial associations and employers' association along with individual companies. Among its project partners are primarily foundations, associations, and public-sector institutions.

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