Economics: ROUNDUP / Research: Buying real estate is often cheaper than renting

FRANKFURT In the IW study conducted by real estate developer Accentro, the costs of owner-tenants were compared with the costs of tenants. As a result, buyers are responsible for the purchase price and additional acquisition costs such as property transfer tax and notarization, loan interest burden and interest lost – property buyers may have invested money in an apartment or house. This is based on the return on premium corporate bonds. Maintenance and depreciation costs are also taken into account, and the increase in value has been limited to three percent per year. Real estate has grown much faster in recent years, but the boom should not be overestimated. On the other hand, there were net cold rents in new contracts and in existing rents. Result: If landlords in Germany paid an average of 4.21 euros per square meter in 2021 – with then very low loan interest rates of just over one percent – tenants would have to pay 10.30 euros per square meter for new leases for comparable apartments and EUR 7.04 for existing contracts. The buyers had almost 60 percent. advantage over tenants and 40 percent. over the current rents. The study shows that even in expensive metropolises there was a big advantage. “The decline in interest rates over the past year has compensated for the increase in purchase prices,” said IW real estate expert Michael Voigtländer. The reform of the distribution of brokerage fees also relieved buyers. “But rising interest rates will significantly reduce the cost advantage of the owner over the tenant.” With high inflation, financing quickly became more expensive: according to FMH-Finanzberatung, interest on ten-year standard loans has more than doubled, from less than one percent to an average of around 2.5 percent since December – and the trend is rising. In three scenarios with an increase in the interest rate on buildings to 2, 2.5 or 3 percent. IW has calculated whether property buyers will continue to do better this year than tenants with new contracts. The interest rate of 2.5 percent has already more than doubled costs for owners (8.55 euros). Taking into account the increasing purchase prices, we get EUR 8.97 per square meter. At three percent interest on the loans, the landlord-tenant costs increase to EUR 10.63. In this scenario, renting is already cheaper than buying in 86 of Germany’s 401 municipalities and municipalities, the authors write. Especially in the areas surrounding the seven largest German cities and other major cities, buyers have an advantage even with higher interest rates. The “neutral interest rate” of ten-year financing, from which the cost of renting the owner corresponds to the new contract rents, is 3.6%. in metropolitan areas, 3.1 percent. in other large cities and 3.5 percent. in their surroundings. If the interest rate is even higher, the tenants have an advantage. In the case of the remaining districts, IW achieves a neutral interest rate of 3.7 percent. In seven metropolises, incl. in Berlin, Munich and Hamburg, tenants are already 2.8 percent. better off than buyers. Owning your own home is considered a good insurance for old age. However, the decision between renting and buying depends on appropriate living conditions, such as the need for frequent professional removals. And while some people would like to live independently of the owner, others point to the benefits of not being in debt and having to pay for expensive repairs. The authors emphasize that this is an example calculation. Strong increases in the value of flats and houses, as in recent years, brought owners even greater benefits than shown in the study. On the other hand, people with cheap old contracts in expensive cities are doing well when it comes to buying or renting. The experts in the financial guide “Finanztipp” also point out that tenants can also have enormous financial opportunities: anyone who invests their money in high-yield investments such as stocks over the long term “can also build long-term assets as a tenant, in some situations even more than when buying real estate, ”you write. For buyers, a lot depends on changes in interest rates. “It is difficult to continue the rapid increase in interest rates in construction,” says expert IW Voigtländer. This means that inflation may stabilize at a high level. However, experts from FMH-Finanzberatung expect that the interest rate on mortgage loans for ten-year financing will increase to 3% in the summer months. The uptrend is not in sight, they wrote recently, with painful consequences for property buyers: “This year, interest rates at four percent are not pessimistic, but very realistic.”

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