Tag Archives: Germany

The property market in Leipzig – Part 1

In the last few years Leipzig property prices have gone kinda crazy. Rents on average remain low but have increased significantly in some areas and for some types of property.

While investment in renovations and in new exciting buildings is welcome, the re-appearance of property speculators is considered a negative. There’s even talk of a bubble.

Plagwitz
Plagwitz

 

In this post I tackle some background – previous boom and busts, attitudes to ownership, and rents. In later posts I’ll cover things like how to buy property in Leipzig, recent and forecast price trends, and owning pros and cons.

Boom and bust

In the early 90s the so-called ‘Munich dentist’ bought derelict Leipzig altbau (old apartment blocks) and renovated them to get attractive tax breaks. By the late 90s property investors had turned the market into a fully-blown bubble. Renovated altbau reached €1,300 per m2 by 1999.

However, Leipzig’s population and economic growth and the expected rise in rents never materialised. Instead the bubble burst and by 2005 apartment block prices fell to less than €600 per m2. Many leveraged (mortgaged) investors found themselves in serious financial trouble.

Ownership vs. renters

When the GDR regime collapsed in 1989 everyone living in Leipzig at that time was essentially renting from the government. Even today Germany (53%) and Leipzig (22%) have the lowest home ownership rates in the developed world. This is a nation of renters.

But why? Well any foreigner who has spent time living here will realize part of the answer. Tenants are virtually immune from eviction, rents are stable and affordable, and the quality of rental accommodation is high by international standards.

Property prices adjusted for inflation. Q1 1975 = 100
Property prices adjusted for inflation. Q1 1975 = 100

 

The other part of the low ownership puzzle is that historically property has been a very poor investment. Adjusted for inflation German property prices are on average lower today than in 1975 (see chart above).

So unlike say in the UK, Australia or Canada ordinary people did not get rich from owning their home. Home ownership is viewed simply as a luxury, like a nice car.

What about rents?

Many worry rents will become expensive like in Berlin. Already ‘kaltmiete’ (cold or basic rent) in the best areas of Leipzig is near €8.5 per m2. This is crazy for Leipzig! Nevertheless, there’s no panic just yet. Most places are way cheaper than this.

The 2014 Mietspiegel (rent index) from Leipzig City Office of Statistics shows that rents have risen only slightly since 2012. Average apartment rents in 2012 ranged from €4.00 to 5.99 per m2 versus in 2014 from €4.23 to 6.45. This increase is much less than the maximum allowed by German tenancy laws.

Next time I’ll look deeper into recent trends in asking prices for residential property in Leipzig (hint: up) and ponder the question “Is the market over-heating?”. Subscribe to LostinLeipzig to make sure you don’t miss it.



In the meantime, take a look at the Buying Property section or the Accommodation section.