Get a more detailed overview of the city you are interested to invest. Rather than just looking at the city as a whole, go that bit deeper. Look at the different districts, look at the property prices and how they have been impacted by changes i.e gentrification that has taken place in the last years. This could be a good indication of the impact on the prices for the future.
A good indication of how realistic the property prices are, can be gauged on how long properties stay on the market before being sold. When properties are slow to sell , this could indicate room for negotiation! When properties are moving quickly, then you have to move quickly too!
Macroeconomic data can also provide some valuable information, particularly when you are looking at it from a ‘supply /demand’ perspective. Comparing the number of households in the district and the number of housing units available, is a good indicator how the property prices could develop. When the demand is higher than the number of properties available on the market, prices will rise.
The age of the inhabitants in a district will certainly have an effect on the property prices. Districts with a younger age group, those finishing their studies starting new jobs, starting families etc create a demand for cafes , restaurants, entertainment outlets, kindergartens, organic markets etc enabling new businesses for flourish. This in itself creates a further demand as more people want to be part of this and so, is then reflected in the property prices. Back to the supply/demand.
When a district has a healthy employment rate, therefore a stronger purchasing power, this will undoubtable have a more positive effect on the future potential for property.
The average net income in a district to some degree can be related with the employment status, but of course, a lower net income district with a high employment rate with young residents could also become a future area for development. Sometime we also have to take a longer term view.
By considering the number of people per household in a district, this will help determine which district best match with your requirements and investment strategy. Buying a 3 room apartment for a family could also work well for student sharing accommodation, if there is a high student presence in that district and the demand is there.
The City of Munich assumes that the population could grow by up to 20% by 2035. To satisfy not only the existing deficit in housing supply, but also the constantly rising demand and to reduce the high housing cost burden, a further intensification of new construction activity is necessary. In addition to absorbing existing space potential and converting existing space in the city, such as the development of a former cattle yard in Ludwigsvorstadt-Isarvorstadt (600 apartments), larger projects that integrate the surrounding area and network it with the Munich labour market through additional infrastructure are also required. This would not only have the advantage of facilitating the development of large units of contiguous space, but would also avoid further confrontations with residents who had recently shown increased resistance to city centre housing projects. In addition to efforts to intensify new construction activity, Munich is also discussing other, sometimes unconventional housing policy instruments to offer affordable housing – especially to people in the lower income brackets. This includes the idea of a Munich Citizens’ Fund or the reintroduction of company-owned apartments.
Average asking rents in Munich rose by just 1% between the first half of 2018 and corresponding period in 2019, to reach €19.45/sqm/month. This low growth rate was driven in particular by the decline in prime rents. In the first half of 2019, prime rents were around €27.65/sqm/month, 7.5% lower compared to the same period last year. The lower rental price categories however recorded growth of 3.2%. Due to the persistently high pressure on demand, apartments with less than 45 sqm of living sp ace and new-build apartments in particular were able to achieve strong price increases (5.8% and 5.3% respectively). There are also major variations in the development of rental prices across the submarkets. For example, a comprehensive decline in rents can be observed in the city centre neighbourhoods. Conversely, significant increases can only be found on the western periphery. Despite slight stagnation, a long-term decline in rents is not to be expected in Munich, as the excess demand remains high and vacancies are virtually non-existent. On the contrary, subdued price growth can be expected in the future due to saturation.
In the market for condominium apartments, purchase price growth remained high at 5.9%, albeit below the 5-year average of 7.8%. The average asking price for a condominium apartment is currently €7,680 per sqm; however, within the inner city ring road, the average purchase price in many neighbourhoods is already above €10,000 per sqm. Both the prime and lowest price segments have recorded strong growth: while a price rise of around 11.0% has been recorded in the lowest purchase price category over the past 12 months (5-year average: 9.7%), prime purchase prices have increased by just under 12.5%. Therefore, the average prime purchase price in the first half of 2019 was around €11,130 per sqm. This development reflects the continuing high demand for apartments in the luxury segment. Slight declines in asking prices can only be observed in locations on the fringes of the city centre along the River Isar from north to south.
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Senior Financial Consultant
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