Home Buyers Have an Opportunity in These Cities as Germany Looks to Shake up Its Economic Strategy

But times are changing. Rising energy prices, Covid-19-related supply chain disruptions and inflation have all made Germany more vulnerable. The country is one of the world’s only major economies that will see a decline in 2023.

The German housing market has followed suit. Residential home prices fell by 9.9% year over year in the second quarter—the steepest drop since 2000, according to government data released Friday. New home construction has declined, as developers navigate rising building costs and uncertainty among buyers. The country has set a goal of building 400,000 apartments a year to meet increasing demand from a rising population, but has struggled to do so in the face of increasing interest rates and the energy crisis related to the war in Ukraine.

For luxury buyers, now may be the time to get in at a lower price point in cities with a more diverse economy, such as Leipzig, Munich, Berlin or Hamburg, which are poised for long-term growth in home prices.

“These cities are proving comparatively stable and are recording price growth even in times of crisis,” says Kyrill Radev, CEO of Ziegert Group, a real estate firm based in Berlin.

Berlin

Berlin’s home prices have fallen the least of any of Germany’s major cities, declining 5% compared to a year ago, according to Ziegert Group. The median price of an apartment there is €5,238 (US$5,528) per square meter.

“Compared to other metropolitan areas such as Paris or London, residential property prices in Berlin are still significantly lower, but the economically strong capital has good arguments for catching up with them,” Radav said. “Not only are large companies such as Tesla, Deutsche Bahn or Charité based here, but Berlin is also known for its distinctive innovative startup scene.”

The city is home to Matter Labs, a crypto startup, and Enpal, a solar panel installation company, both of which were ranked among Germany’s fastest-growing startups, according to the tech news site Sifted.

Despite the proliferation of remote work, the city was still expected to add nearly 40,000 new office-based jobs between 2022 and 2026, according to a study by Oxford Economics.

Berlin’s many energy-focused companies could also be poised to benefit from the government’s €177.5 billion Climate and Transformation Fund, which will go toward initiatives like decarbonization and hydrogen technologies.

Radev said he’s bullish on Berlin. He predicts that in 2024, the city will see a modest increase in home prices of 1.5%.Interior of a two-bedroom penthouse apartment in Berlin. The property is currently on the market for about $2.5 million.

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Silicon Saxony and Leipzig

In recent years, Saxony has become a hub for microchip manufacturing. One in every three chips in Europe is made in Saxony, German Chancellor
Olaf Scholz
 said during a May groundbreaking ceremony for a new facility in Dresden, the region’s second-largest city. European Commission President
Ursula von der Leyen
has called the city a “digital lighthouse in Europe.”

In Dresden, the median home price in the second quarter of this year was €3,077 per square meter, down 3.5% from the same time last year. In Weisser Hirsch, a posh hilltop residential area north of downtown, home prices remain at a record high of €4,204 per square meter, compared to €3,398 per square meter in 2020, according to Immowelt, a German real estate agency. 

The more popular spot in Saxony for luxury buyers is Leipzig, the region’s largest city.

Before Covid-19 hit, the city was seeing a massive revitalization, with new high-rises and high-end homes sprouting up across the city. Between 2012 and 2017, the price of single-family homes surged by 65%.

Luxury buyers are especially attracted to the city’s pre-war villas, as well the suburbs around the Markkleeberger See, a lake just south of Leipzig. 

Once a part of East Germany, Leipzig has managed to attract major auto manufacturers like Porsche and BMW. Those plants, plus the various technology companies based in Leipzig, have sustained population growth there. As of 2022, Leipzig’s population was 601,000. 

The growing population and halted construction have resulted in increasing home prices, Radav said. In 2022, prices in the new-build segment rose by 4.6%, with an average asking price in the new-build segment of €5,234 per square meter. 

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Munich

Boasting the third-highest GDP among German cities at €129 billion, Munich remains a more stable market for luxury buyers. 

“Munich is one of the most interesting places because we have a good mixture of industry, finance and science,” said Ralf Heidemann, an agent with Christie’s International Real Estate based in Munich. 

Still, Munich isn’t immune to the housing woes plaguing the rest of the country. The asking price for apartments in Munich has dropped from a high of €9,750 per square meter to just under €9,000, according to recent data from Christie’s.

Heidemann expects that demand will return by the end of 2023 and into 2024.

Neighborhoods with a stock of historical villas like Nymphenburg and Bogenhausen will continue to command high prices, due to limited supply of pre-war housing and huge demand from Munich’s wealthiest residents to live there. A villa in one of these neighborhoods tends to go for between €5 million and €10 million, or around €16,300 per square meter.

“Prices have gone up the most in these neighborhoods compared to other places,” Heidemann said. This four-bedroom, modern villa in Munich is listed for about $5 million.

Hamburg

Hamburg, traditionally known as a port city, has become a hub for some of Germany’s major aeronautics and biotech firms. Siemens, Airbus and Philips all have a major presence there. The city has also been dubbed as the “startup capital of Germany.”

Home prices fell 7.3% in the second quarter of 2023 compared to 2022, according to data from Dr. Klein, a construction financing company. Apartment prices were down 14.5%.

But those declines haven’t been felt as sharply in the city’s most expensive neighborhoods. In Rotherbaum, an upscale area which looks over Lake Außenalster, home prices remain around record highs—about €9,050 per square meter, according to Homeday. The villas and historical buildings, along with its proximity to the University of Hamburg and Pöseldorf shopping center make it a favorite among luxury buyers

“There are a lot of well-educated people and internationals propping up the luxury market,” Heidemann said. “That’s a major advantage of Hamburg.”

This article originally appeared on Mansion Global.