After being awarded a generous promotion, 52-year-old finance professor Claus Rerup is looking to buy his first home in Frankfurt. Finding a place in Holzhausenviertel, an attractive inner-city neighbourhood where he currently rents a two-bedroom, 100 sq m apartment for €2,400 a month, is proving difficult though.
“Housing is really becoming a problem in Frankfurt,” he says. “It may not be London prices but it’s not uncommon for a place to go for €10,000 a sq m.”
Low interest rates and a high level of pent-up demand from renters waiting years to buy a place they can afford have meant that prices for flats have kept rising in the past year, despite the pandemic’s hit to the economy and people’s livelihoods.
In the third quarter of 2020 prices for new apartments averaged €7,200 per sq m, up 8 per cent from the same quarter of 2019, according to Bulwiengesa, a real estate consultancy. Since 2014, prices for all apartments have been growing at about 10 per cent per year, according to the property company JLL.
Such has been the pace of recent growth that, last year, UBS ranked Frankfurt as having the second-most overvalued housing market of any major city in the world, behind fellow German city Munich, according to its Global Real Estate Bubble Index.
As one of Europe’s biggest financial centres, Frankfurt attracts foreign workers and high-earning employees. Developers have also taken advantage of economic growth to invest in the upper segment of the market, contributing to house price inflation, UBS says.
But a correction phase will likely emerge when state subsidies linked to Covid-19 are withdrawn and pressure on income increases from recession.
In recent years, a lot of investment has come from overseas, says Sebastian Grimm, an analyst and valuation director at JLL. Low interest rates and the idea that Germany’s residential sector would bring in reliable yields throughout the pandemic have been a bigger factor than Brexit, he adds.
After the UK voted to leave the EU in 2016, some in Frankfurt predicted the city would become Europe’s next finance capital after London. Frankfurt Main Finance, the city’s lobby group, predicted that 10,000 jobs would relocate there over a period of eight years.
More recently, local bank Helaba estimated that 3,500 finance jobs will have been created in Frankfurt by the end of 2021, with the Bundesbank calculating that non-German banks could move €675bn to the country this year.
But the pandemic could be a setback. In Frankfurt, a report by Helaba in October found that coronavirus could cost 2,000 banker jobs by the end of 2022 — about 3 per cent of the total.
So far, Germany has weathered the coronavirus crisis better than many of its neighbours, with about two-thirds of the UK’s cases and a little more than half the deaths. But rising infection rates in recent weeks have led to the imposition of tighter lockdown restrictions, which could have a knock-on effect on the city’s property market, says Grimm.
“There’s been less migration this year and the private sector could be hit harder with this second lockdown,” he says. Grimm says prices could increase at a slightly lower rate as a result.
Many Frankfurt residents struggle to afford the city’s high property costs as it is. “A lot of people have difficulty finding a place to rent, people end up couch surfing for a month or so,” says British-born entrepreneur Amjed Younis, who moved from Lancashire to Frankfurt two years ago. “And, when they find something, there is already a queue of 20 people [at the viewing],” he adds.
“People with money can buy in the centre and believe the price will double in 10 years’ time,” says Andreas Reinhardt from the agency Reinhardt Immobilien, “For families who don’t work in finance, it’s completely unaffordable.”
The demand for high-end homes is strong, he says. Apartments in the spacious Holzhausenviertel or attractive Westend sell for €10,000-€15,000 per sq m, he adds.
The rise in remote working has led people to look for more spacious housing in the suburbs, says Florian Wenner, an analyst with Bulwiengesa. The wooded areas of the Taunus have become popular among day trippers — and homebuyers. But most still choose to live relatively central, says Wenner, as they enjoy the bustling city.
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Younis is among them, having recently swapped his one-bedroom flat near the European Central Bank — which cost him €1,500 a month — to a 45 sq m apartment in the Bornheim neighbourhood for €850 a month.
One of the most popular districts in the city, Bornheim has a farmers’ market and a variety of bars. Other popular areas include Sachsenhausen, along the Main river, famous for its apple-wine pubs and historic timber-framed houses, and Holzhausenviertel, where Rerup is looking, home to green spaces such as Adolph von Holzhausen park.
“People really enjoy the parks,” says Rerup. “A lot of people are working from home, but I don’t have a sense that the city is being emptied out.”
Transaction fees vary between 13 and 20 per cent of the purchase price, including a 2 per cent notary fee and a 6 per cent property transfer tax. Estate agent fees (which range from 3.5 to 8 per cent) are split between seller and buyer.
What you can buy for . . .
€745,000 A 126 sq m flat in the attractive Westend area
€1.9m An exclusive penthouse of 244 sq m in the charming diplomats’ quarter
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