It’s no secret that the German housing market has exploded in recent years. Yet despite rapidly spiralling prices, low-interest rates mean that buying a house in Germany can still be worthwhile. The important thing is to take into account is the rent versus purchase price ratio. 

Property prices continue to rise in Germany

Homebuyers had to dig deeper into their pockets again, almost everywhere in Germany last year. Examining data from real estate purchases, consumer organisation Stiftung Warentest calculated that anyone buying a house in the last quarter of 2018 paid on average 5,6 percent more than in the previous year. For single-family houses, prices rose by 8,2 percent.  

These rising prices mean that the hurdles for real estate purchase have increased significantly, especially in Germany’s largest cities. Anyone looking for a 100-square-metre apartment in a good location in Berlin or Hamburg, for example, will need at least 120.000 euros of equity capital for the down payment and closing fees (including taxes, broker, notary and land registry fees). In big cities like these, purchase prices are also high in comparison to rents. 

Prices rising fastest in outlying areas

The problem of unaffordability isn’t just confined to the cities, however. Indeed, the data shows that prices are no longer rising as quickly in Germany’s seven largest cities as in their outlying areas. 

According to the data, the top 10 cities with the highest price increases in 2018 were no longer Munich, Cologne and Stuttgart but instead Dortmund, Essen and Bayreuth. Even Hamburg is no longer at the top of the most expensive real estate cities in Germany; prices are rising instead in the districts Pinneberg and Segburg, as well as Kiel and Flensburg. 

Buying a house is still a sound investment

Yet despite these dramatic price increases, in many cases, the purchase of real estate is still worthwhile, according to Stiftung Warentest. Why? Because in many cities and districts in Germany, the price of a property is still less than 25 times the annual rent and interest rates are currently extremely low. 

As long as you stay below this price-rent ratio, it is perfectly possible the repayments on your mortgage may turn out to be the same, or even less than what you would have been paying in rent. This is the case even in some big cities like Cologne and Nuremberg.  

Of course, your ability to purchase real estate depends on a variety of factors, including purchase price, down payment and interest rate. If you are seriously considering buying a property in Germany, a mortgage calculator can help you work out what you can afford.