Study: Buying real estate is often cheaper than renting – with low interest rates | News

FRANKFURT (dpa-AFX) – According to a study by the German Institute for Economics (IW), buying an apartment or a house is often much cheaper than renting it, especially with new contracts. However, a sharp increase in lending rates significantly reduces the benefits. In all regions of Germany, in all regions of Germany, in 2021 the situation of real estate buyers was better than that of tenants, according to the IW analysis published on Wednesday, available to the German Press Agency. However, the benefits to buyers diminish as interest rates rise, especially in expensive cities.

In the IW study conducted by real estate developer Accentro, the costs of owner-tenants were compared with the costs of tenants. Consequently, buyers bear the purchase price and additional acquisition costs, such as property transfer and notarial tax, the burden of interest on loans and lost interest – buyers could have invested their 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 become much more expensive 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. Buyers had an advantage over tenants of almost 60 percent. and 40 percent in the case of previous rentals.

According to the study, even in expensive metropolises there was a big advantage. “The decline in interest rates over the past year has offset the increase in purchase prices,” said IW real estate expert Michael Voigtlander. 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.”

Financing quickly became more expensive due to high inflation: 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 interest in construction to 2, 2.5 or 3 percent. IW has calculated whether real estate buyers will be better off this year than tenants with new contracts. An interest rate of just 2.5 percent more than doubles the cost to 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 neighborhoods and urban areas, 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 rental costs of apartments correspond to the new contractual rents, is 3.6 percent. in the vicinity of large cities, 3.1% 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 drive better than buyers from 2.8 percent.

Owning your own home is considered a good insurance for old age. However, the decision between renting and buying depends on relevant circumstances, 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 having to pay debt and not 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 how interest rates are shaped. “It is difficult to continue the rapid increase in interest rates in the construction industry,” says expert IW Voigtlender. In this way, inflation could 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. There is no end to the uptrend, as they recently wrote – with painful consequences for property buyers: “This year, interest rates at four percent are not pessimistic, but very realistic. “/ als / DP / stk

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