Munich is not worth it
Sell or rent? You get the most out of your property in these regions
Montag, 27.06.2022 | 11:20
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Despite the corona pandemic, they are Real estate prices in Germany also increased significantly in 2021. If you want to buy an average-sized condominium in Munich today, you have to pay an average of 992,492 euros for 92 square meters, including all ancillary costs such as brokerage fees, notary fees and real estate transfer tax. Munich will soon break the million mark, because according to the latest Postbank Housing Atlas, house prices in the Bavarian state capital are expected to increase by an average of 2.19 percent per year by 2035.
This leads to the bizarre situation that the insanely high prices continue to be worthwhile for investors. Anyone who spends almost one million euros on an apartment in Munich today and puts 10 percent equity on the table could sell their property at a profit as early as 2034, despite interest payments. Rental is less promising despite the high prices. Even if you calculate with an average increase in rents, you will not recoup the high purchase price until 2061 – and even then the profit from a sale would be significantly higher.
Real estate: where long-term rental is most worthwhile
So Munich is at one end of a scale that we use the data from the Postbank Wohnatlas and data to average apartments in Germany calculated by the Federal Statistical Office. Specifically, the question is which of the 401 regions in Germany real estate investors should use which tactics. Is it more profitable to rent out an apartment permanently or to live in it yourself and then sell it again after a certain period of time?
At the other end of this scale are six counties from eastern Germany: the Elbe-Elster district from Brandenburg, Jerichower Land, the Mansfeld-Südharz district and Salzlandkreis from Saxony-Anhalt, and the Greiz and Altenburger Land districts from Thuringia. Here the rental income already exceeds the possible profit from a sale in 2032. In all cases, this is because purchase prices in these rural areas will fall sharply at least until 2035. With the exception of Jerichower Land (-2.4 percent), the rates in all districts are more than minus three percent per year.
However, the fact that from 2032 you will get more from a rental than from a sale does not mean that you are also making money. Because the rents are correspondingly low, in 2032 only the loss from renting is smaller than that from a sale. You will make actual profits in Jerichower Land and in the Greiz district from 2035, in the other four regions from 2036.
Rent in the country, sell in the city
Overall, there is a clear dichotomy in Germany. Renting pays off quicker than selling in rural counties, while in most cities you’ll either have to wait a long time for a rental benefit or it’s almost never going to happen. In 294 of the 402 German districts and cities, when buying a property today, at some point in the next 25 years you will reach the point where renting out is more profitable than selling. The average term of a real estate loan is 25 years.
In addition to Munich, this point will never occur in eight other German regions. In addition to the Bavarian metropolis, these are the nearby districts of Ebersberg, Erding, Landsberg am Lech and Miesbach, the Bavarian city of Landshut, Potsdam near Berlin and the district of North Friesland in Schleswig-Holstein. With the latter, however, caution is called for: The average values for the district are raised here because the island of Sylt with its expensive real estate is one of them. Lower prices apply on the mainland.
Large cities in NRW are an exception
For the same reason, almost all other German coastal regions have long waiting times until renting would be more profitable than selling. You have to wait more than 25 years not only on the Baltic Sea and North Sea, but also in Berlin and the surrounding districts, in large parts of Bavaria and Baden-Württemberg, in southern Hesse and some districts of other federal states. Of the major cities, Hamburg, Düsseldorf, Cologne, Frankfurt, Stuttgart, Dresden and Leipzig also belong in this category.
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However, there are also large cities where renting pays off more quickly than selling. The fastest is in Gelsenkirchen and Herne from North Rhine-Westphalia (2036), followed a year later by Bremerhaven, Duisburg and Hagen, then in 2038 Oberhausen, Remscheid and Bochum. In the same year, Salzgitter from Lower Saxony is the second non-NRW city after Bremerhaven.
That’s how we calculated
We used some assumptions to calculate the returns. Basically, all values are at an average size condominiums calculated. According to the Federal Statistical Office, it measures 92 square meters.
For the purchase price, in addition to the average price per square meter in each region, we included the land transfer tax applicable in the respective federal state, brokerage fees of 5.355 percent, notary fees of one percent and other ancillary costs of 0.2 percent. The values apply as national averages.
For the financing, it is assumed that a buyer brings 10 percent of their own shares and takes out a loan for the remaining 90 percent of the purchase price at the current average interest rate of 1.55 percent per year. The repayment is calculated in such a way that the monthly rate is 1500 euros. This corresponds to the average rate that couples in Germany pay for real estate loans.
For the sales price, we used the price increases forecast for the respective region in the Postbank housing atlas up to the respective year. For the rental income, we are assuming the current average rents without heating and heating according to the Postbank Housing Atlas, and that these will continue to rise by 1.3 percent per year. This corresponds to the average rent increase over the past twelve years.
But what if I buy an apartment, rent it out and then sell it?
In our two models, we assume that you will either live in an apartment yourself after purchasing it and then sell it, or rent it out permanently and never sell it. Of course, there is also the third option, renting out an apartment after buying it and still selling it after a few years. This tactic is the most profitable in every German region. In large cities, you could cover the monthly installments for the real estate loan simply by renting it out. In all other regions, the difference is so small that long-term rental income will never exceed the return on sale after rental.
However: In this case you have to live in another apartment yourself, which also costs you rent (or loan installments in the case of a home of your own).
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