German residential property market

Transkript

1 German residential property market November 2013 Economist (+49)

2 Agenda Overvalued German housing market? What are the domestic price drivers? What are the external price drivers? 4 German regions 5 Bottom-line 1

3 Can you spot the German residential property bubble? Nominal house prices 1990= US JP DE FR IT UK CA AU BE DK FI IE KO NL NO NZ PT ES SW CH EA Sources: OECD, 2

4 German house prices have increased less than disposable income until recently Affordability Ratio of house prices to income Long-run average= IT ES GR NL IE FR DE Fair value Source: OECD 3

5 High correlation between price-to-income and price-torent ratio in Germany Changes in price-to-rent vs. changes in price-to-income ratio Changes in index points Price-to-rent ratio Price-to-income ratio Source: OECD 4

6 Agenda Overvalued German housing market? What are the domestic price drivers? What are the external price drivers? 4 German regions 5 Bottom-line 5

7 Structural reforms 2002 to 2005 have strengthened the German labour market and the economy Germany: Labor market Employed people (in Mio.), on the right Unemployment rate in %, on the left Unemployment rate Employees Source: Bundesagentur für Arbeit, Destatis 6

8 Declining interest rates have increased affordability of mortgages Interest rates and interest charges % Mortgage rate Share of repayment and interest rates to disposable income Sources: Bundesbank, 7

9 but nominal credit growth remains sluggish Germany: Credit growth % yoy Mortgage Total Sources: Bundesbank, 8

10 and real credit growth has even been negative in recent years Germany: Credit growth % yoy Mortgage Total Inflation Sources: Bundesbank, 9

11 Low fixed income yields (opportunity costs) might be more important for the house price boom than credit growth German yields % Rental yields new Rental yields existing DAX dividend yields 10year Bunds Sources: BulwienGesa, Bloomberg, 10

12 In particular rental yields of multi-family houses are attractive Rental yields multi-family houses A B C D Sources: BulwienGesa, 11

13 Agenda Overvalued German housing market? What are the domestic price drivers? What are the external price drivers? 4 German regions 5 Bottom-line 12

14 Do foreigners invest? Capital flows in the euro system (as of: Autumn 2013) Debtor and creditor in EUR bn Major creditor Balanced Major debtor Lux Sources: University of Osnabrück, NCBs, The next slide gives some answers. 13

15 What asset classes benefit from foreign capital? Many questions remain open Details on capital inflows are rather sparse (official statistic) Substantial anecdotal evidence that international investors are interested in the German residential property market. Rental yields around 4% (without transaction costs but also without leverage) has the potential to attract additional capital. Due to its size large capital inflows to Germany should eventually go into German government bonds Property market Many other markets may show strong price reactions if they have to digest large amounts of capital inflows 14

16 Agenda Overvalued German housing market? What are the domestic price drivers? What are the external price drivers? 4 Details on German housing market 5 Bottom-line 15

17 Broad price indices to track the German residential property market Residential property prices 2007=100, sa/nsa BulwienGesa VDP Empirica Hypoport ImmobilienScout24 Sources: BulwienGesa, VDP, Empirica, Hypoport, 16

18 Large regional differences Price development strongly driven by supply shortages in large cities Nominal prices: Houses and apartments % yoy A B C D Sources: BulwienGesa, 17

19 where additional demand for apartments and inelastic supply lead to double digit price increases Residential property prices (BulwienGesa) 1990= Single-family houses Terraced houses new Terraced houses existing Apartments new Apartments existing Sources: BulwienGesa, 18

20 In large German cities prices of new apartments have strongly risen relative to average income Affordability index: Price of new apartments (100 sqm) to disposable income B D F HH K M S Sources: BulwienGesa, 19

21 but for existing apartments the development is rather mixed Affordability index: Price of existing apartments (100 sqm) to disposable income B D F HH K M S Sources: BulwienGesa, 20

22 Affordability of apartments (100 sqm) of 125 cities/towns Large range of affordability Green structurally rather weak areas Blue cities with global champions and broad diversified company profile 21

23 Major risk: Market interventions All four German parties in the Bundestag have some preference for interventional politics. But market interventions will not reduce the excess demand. Some measures such as stricter rent control may rather lead to more excess demand. Bundesbank may continue to intervene verbally. 22

24 Agenda Overvalued German housing market? What are the domestic price drivers? What are the external price drivers? 4 Details on German housing market 5 Bottom-line 23

25 Bottom-line Total German market driven by normalization Credit expansion is lackluster. It seems that the market is driven by portfolio reallocation of domestic investors and demand of foreigners. By and large, prices in regional markets seem in line with economic strength Risk of a bubble rather small unless behavioural change of creditors and debtors takes place affordability rapidly exceeds 100 More market interventions are likely but excess demand will not react to wishful thinking of politicians 24

26 DB Articles on the German residential property market Implications from the coalition agreement on the resi sector, Nov 2013, Industry Update German house price increases in perspective, p. 11, Oct 2013, Focus Germany Has the east German housing market turned the corner?, p. 19, Jul 2013, Focus Germany Germany: 2012 affordability indices of existing apartments in cities, p.22, Apr 2013, Focus Germany The German housing market: Risk of a bubble until 2020?, p.5, Sep 2012, Focus Germany Euro area property prices: Germany vs. the rest, July 2012, Global Economic Perspectives 25

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