Germany’s property boom

Jacopo Mingazzini is the CEO of Accentro, a German real estate services firm specializing in renovating and re-selling existing real estate across Germany. Accentro caters to clients from across Germany and the world. Nina Haase and Sumi Somaskanda spoke with him about Germany's soaring property prices.

Deutsche Welle: Mr. Mingazzini, how have you witnessed the changes in Germany's real estate market?

Jacopo Mingazzini: The prices in big cities have risen sharply. It is essentially an automatic reaction to the falling interest rates. That trend has been very pronounced across the big cities, but has also been evident in every region in Germany.

Are you concerned that Germany is heading towards a housing bubble – and crash?

A bubble is characterized by speculative overshooting, by questionable lending practices. We don't see that in Germany. We see banks that counteract the price increases with higher capital requirements. The banks are very conscious of the capacity to meet principal payments, and they base that on an interest rate with a mid- to long-term perspectives – for example, six percent. Buyers must exhibit a reasonable capacity to meet the principal payments. At the moment, we require a down payment of 30 to 40 percent for purchases; earlier it was 20 to 30 percent. So banks are very careful to ensure that the type of speculative bubble we saw in the past doesn't happen again, in the same way.

You sell a lot of German property to foreign investors as well. They don't purchase for their own use, do they?

No, very few foreign investors buy an apartment to live in themselves. They tend to buy rented apartments as an investment. They're satisfied to see a stable income in rent, and they welcome the possibility of raising rental prices in accordance with the local rent index. And they're happy with the increase in value that we've witnessed here in recent years. Anyone who bought property five years ago has seen a significant increase in value.   

The apartments that are vacated and bought for personal use in Berlin tend to be purchased by locals – Berliners – or people moving to Berlin from other parts of the country. And sometimes foreigners, too.

You have lamented the fact that fewer German families are able to afford purchasing their own apartment. Why do you see that as problematic, and what is holding them back at the moment?

Almost anyone who is earning a living can afford the running costs of buying an apartment. If you have stable employment, even if your income is low, you can afford the costs of purchasing an apartment. The real obstacle for most people now is the capital contribution. The real estate purchase tax has risen across Germany from 3.5 percent to 6.5 percent in many states. The notary and realtor costs are all additional burdens that add up to 20 to 25 percent of the purchasing price. Take an apartment that costs 150,000 to 200,000 euros. If you need to bring 20 percent of your own capital to the table, that is well and truly an obstacle for young families who haven't had the time to save up. But if you could get past that hurdle, the interest rates make the running costs of owning significantly lower than renting a comparable apartment. We recently presented our latest report in conjunction with the German Institute for Economic Research (DIW) that shows across Germany, there is not one single county where renting is cheaper than buying. Again, the barrier is the capital contribution. There aren't too many young families who have saved up 40,000 to 50,000 euros.

Doesn't that worry you, that so many young families simply aren't able to save up for a down payment?

I think we're passing up an historic chance. Policymakers should really think about whether they want to let that happen. We have this historic opportunity because of the low interest rates, but with the real estate purchase tax, the notary fees and other additional costs, the government has not made it any easier for people to buy. I'd like to see politicians roll these measures back. There have been proposals to give first-time buyers an exemption from the real estate tax – that would reduce the burden for a lot of people. Or you could relieve the tax burden for low earners, or families with two or more children, for example, as long as they don't exceed a certain income level.

Why do you see this as an historic chance for Germany, what do you mean by that?

If you look at international wealth distribution rankings, Germany is always at the bottom of the list because we are a nation of tenants. If you look at southern Europe, people there earn far less than Germans, but in terms of private household wealth, Germany is bringing up the rear. I come from Italy and anyone there who wants to start a family aims to buy a property first. And after some time, they end up accruing more wealth because they are automatically forced to save, to pay off their loans. That constantly increases your assets. If you don't have that incentive, you usually don't follow through. The savings rate in Germany is much lower and private household wealth is, as well.

How do you see your responsibility, as a real estate services firm, to make sure property is affordable for young families, for example?

We can only try to do a good job. All we can do is make sure we choose the right property, renovate it properly and help people with the financing and all the other issues they face. This is our daily bread, it's what we do. We can't really influence the parameters, but we try to act responsibly with anything that lies within our power. It starts with making tenants an offer to purchase and accompanying them as much as we can in what is often a new process.