Fitch: Eastern growth boosts German residential property prices

Rising residential property prices in some of Germany’s less wealthy eastern regions supports our view that broad-based price growth will underpin national home price rises, Fitch Ratings says. Fitch forecasts prices to rise nationally by around 4% per annum this year and next in our most recent Global Housing and Mortgage Market Outlook – 2017.

Fitch has mapped the latest property prices from research and consulting firm BulwienGesa for 127 German towns and cities onto our own four categories based on a purchasing power index (PPI). We use the PPI categories (from A to D, with A exhibiting highest purchasing power) when we analyse default probability and recovery rates in the German residential property market.

According to BulwienGesa, German housing prices rose 5.5% in 2016. Stable economic growth, supply constraints and low interest rates have supported average annual growth rates of around 5% p.a. since 2011. Group A regions, including the wealthiest metropolitan areas such as Munich, Frankfurt and Dusseldorf, have continued to enjoy strong growth (over the last 15 years, prices have almost doubled in Group A regions, while rising less in the less wealthy categories – B 68%, C 58%, D 27%).

However, there is considerable variation even within the four PPI Groups. For example, over the last five years, cumulative home price growth in Group C and D regions in the former East Germany of 40% has outpaced that in the same PPI regions in the West, where prices rose 26% (measured as a simple average between house and apartment growth). Since 2014, annual C and D growth rates in eastern regions even outpaced that seen in Group A regions nationally.

Source: FitchRatings

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