Germany's financial institutions are seeing a resurgence in property loan approvals, particularly for residential properties like apartments and houses. According to the VDP, a collective of German Mortgage Bond Banks, they approved approximately 31 billion euros in loans during Q2, marking a significant 15.6% increase compared to the same quarter the previous year. This surge in new business is the highest level seen since Q3 of 2022, as indicated by the VDP, a key player in Germany's real estate financing landscape, known for heavyweights like Deutsche Bank, Landesbanks, and major savings banks.
The demand for residential property financing skyrocketed, with the Q2 loan volume reaching 20.1 billion euros - a substantial 33% increase, albeit starting from a low base. The majority of these loans were issued for single-family and semi-detached homes, as well as owner-occupied apartments. Contrarily, commercial real estate did not witness a similar surge, with the office market grappling during the recession. The loan volume for commercial properties dropped by nearly 7% to around 11 billion euros during the same period.
"The marked growth in financing volume shows an evident uptick in demand for homeownership," commented Jens Tolckmitt, the CEO of VDP. He believes this could indicate a potential abatement of the real estate market crisis, as the VDP recently reported price stability in Q2. Prior to this, the market had been impacted by heightened interest rates and construction expenses, leading to a 8.4% dip in property prices in Germany across 2023 - the highest annual decline since the chart's inception in 2000.
The trend of residential property loans in Germany can be attributed to a combination of factors. Moderate price increases are expected in the coming years, making homeownership more feasible for many. The residential real estate market has begun to stabilize, with housing prices rising slightly due to latent excess demand, earlier price reductions, increases in real wages, and the recent fall in mortgage interest rates. In addition, the German government has initiated efforts to make owning a home more affordable for residents.
International investors are anticipated to play a significant role in the future of the German residential real estate market, with around 30% of residential property transactions expected to be handled by them by 2025. This interest is driven by the country's stable economy and impressive rental yields. Furthermore, the rental market dynamics indicate that around 55% of residential properties in Germany will remain rented by 2025, due to a strong preference for renting and limited construction of new homes.
Despite some tightening of lending standards for private residential property loans in the first three quarters of 2024, the loss rates for these loans remained at a low level. Bank loss provisions slightly increased due to higher interest and principal repayments. Overall, these factors collectively contribute to a stable and growing residential property loan market in Germany, ultimately leading to a 15.6% surge in Q2 2023.
