EFFECTS OF INFLATION ON PROPERTY PRICES

Since 2021, the inflation rate in Germany has exceeded 5% for the first time – a price increase can already be felt in many areas of everyday life. In this article, we take a look at how inflation is affecting property prices in Berlin.

High demand and cheap money cause prices to rise

Although inflation is rising, the European Central Bank is keeping the key interest rate low – allowing consumers to take out loans on favorable terms. Interest rates are rising, but only slowly and slightly. Cheap money and continued high demand, especially in conurbations such as Berlin and the surrounding area, are exacerbating the situation on the real estate market: prices for condominiums and houses are rising – by around 16% from 2020 to 2021 alone. Inflation is doing the rest: where goods are becoming scarcer, they are also becoming more expensive.

But inflation alone and artificially low lending rates are not the only reasons for rising property prices. During the coronavirus pandemic, people were increasingly looking for security and a home of their own that could withstand any crisis. And those who wanted to protect their savings in fixed-term deposits or savings accounts from inflation preferred to invest in tangible assets. Real estate is still regarded as concrete gold and therefore a safe alternative to other investments.

Last but not least, and this should not be underestimated when discussing the price increase on the real estate market, affordable housing is in short supply. Demand remains high, particularly in metropolitan areas such as Berlin and Potsdam as well as parts of Brandenburg, which offer ideal locations for commuters.

Where are inflation and real estate prices heading?

As of May 2022, the European Central Bank has not raised the key interest rate, although this would be one of the most effective means of achieving the inflation target of 2%. It remains to be seen whether the inflation rate will level off on its own. Will persistently high inflation lead to a real estate bubble? The bursting real estate bubble that various media have been reporting on for years could only occur if supply exceeds demand – which is not to be expected, at least not in Berlin and Potsdam.

Would you like to sell your condominium in Berlin or are you looking for the right house in Brandenburg or Potsdam? Let us advise you professionally and personally.