Real Estate

Boomtown Munich – Great Expectations or Excess Boom?

By Dr Michael Bihler, LUTZ | ABEL

Munich is the third largest city in Germany with about 1,550,000 inhabitants. Due to its scenic amenities and flourishing economy, its attraction to foreigners and natives remains unchanged. Each year 15,000 to 30,000 people move to Munich, thus putting increased pressure on the residential market.

Land for building is a rare commodity, resulting in prices between EUR 2,600 and 4,500 per square metre (EUR 240 to 420 per square foot). Residential apartments sell for an average of EUR 6,900 per square metre, and in preferred areas prices may easily double. Office space, retail shops and warehouses rent for EUR 17 to 25 per square metre per month, thus lowering the rate of return to 2.0% - 3.5%.

Threats and Opportunities

The price increase rate in real estate from mid-2015 to mid-2017 is estimated to be 25 % - 40 %. Is this a clear indication of an overheated market? Not necessarily, say experts.

The Munich market is mainly driven by demand, not speculation. Whereas the average age of inhabitants in Germany and Bavaria is increasing, it is decreasing in Munich: more young people come to Munich to work and enjoy the advantages of life in a ‘Millionendorf’ (village with a million inhabitants).

Even though capital interest rates remain at a historical low level (1.5% - 2.5% per annum) in Germany, there are quite strong restrictions on loans for private real estate acquisitions under EU and national law, thus preventing a price bubble.

Personally, I still see blue skies for real estate investments in Munich.


Dr Michael Bihler

Dr Michael Bihler

LUTZ | ABEL, Munich, Germany
T: +49 89 544147 0
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LUTZ | ABEL is a business law firm with offices in Munich, Hamburg, Stuttgart and Brussels. More than 50 lawyers offer comprehensive legal advice. Their expertise covers all key areas of business law and is regularly honoured by awards from different newspapers, the JUVEHandbook and Legal 500.

Dr Michael Bihler is an experienced lawyer. He specialises in real estate law, administrative law and renewable energies. His main field of activity is litigation and dispute resolution.
 


Published: Winter 2017 l Photo: FleischiPixel - Fotolia.com

 

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