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2020

Why you need a flat in Munich

You study or work here

With high level international universities, Munich is a great place to study.

Just sad that flat prices are that high... And working here is awesome, there is almost full-employment and many firms, so that you can choose your boss.

It is a safe and reliable place to live in and there are also well-paid jobs. What do we need more?

No vacancy in Munich

The rental market in Munich is marked by a strong demand and a weak offer.

The population grows fast and it is (very!) hard to find a flat to rent when you arrive in the city.

Without the help of your boss, some friends or other contacts it is almost impossible to find a flat for a normal price before having a stable job.

This makes the vacancy-rate in Munich one of the lowest worldwide: Only 0.2% of the flats are unoccupied.

This is not enough to renovate old flats, to transition while moving or to manage the owner-transition (for example due to inheritance of owner-used flats).

This causes housing-stress for many tenants. If you want to stay on the safe side, rather own your flat.

Bubble-risk in Munich

Is an investment in Munich risky?

Population

The population is growing as expected.

There are not enough flats yet for the expected population in the next years so the intensive building activity is justified.

Job-market

The employment rate remains at a very high level and the official unemployment rate has been near or under 5% for years.

However, the hidden unemployment rate is questionable. This includes for example people preferring studying longer than entering the job-market.

If all of them decided to look for a job, the unemployment rate of the younger generation would be higher.

Nonetheless, the situation is much better than in parts of Europe hit by the crisis.

In Munich, you can job-offers just walking in the street. They are not the jobs you dream of, but if you really need a job, you can find one very quickly.

Poor workers are also a problem here.

To make ends meet, many people try to have a second income from jobbing or using the tax-advantage of the mini-job-rule, also known as 450-Euro jobs.

Interest-rates

Germans still complain that the classical safe deposits yield 0% interests.

More and more are looking for alternatives and they compare the increase in price of the last years with the current yields for deposits.

This comparison makes economically no sense.

Perception of risks

More and more investors and savers consider real-estate as being risk-less (which is of course false).

Neither Munich nor Germany as a whole has had a real-estate crash between 2007 and 2009 because the market was less leveraged than in other places.

Investors look more confident here than elsewhere. They base their thought on the previous evolution and not on current and actual facts and numbers.

Behaviour of buyers

Officially, buyers use leverage only moderately, with about 70% of the flat-value coming from borrowed money.

However, this figure is based only on bank-data and does not take into account the new and growing market for grey-finance like P2P-lending or online lending-platforms.

We lack accurate data to estimate the real risk coming from leverage in the local market.

Rental yield

All market researches agree that the housing market in Munich is at stress and that rents are expected to rise for the reasons mentioned above.

However, this situation is already priced. The rental yield is one of the lowest in the world.

Flats in the very chic quarter Lehel in the city-center are sold with a rental yield around 1%. This is not enough to pay for the repairs on the long run.

To get rental yields above 4%, you have to seek flats away from the city-center. This is quite impressive for a city with less than two million inhabitants.

This means that rising rental prices are already taken into account by the buyers. Did they exaggerate their expectations?

A few years ago, experts agreed that the rental-prices were expected to rise, whereas the buying prices were to remain stable.

With hindsight, the opposite happened: Tenants could not afford higher prices and ownership has become more expansive.

Despite non-growing rental prices, it has not become easier to find a flat as a tenant.

This is why evaluators don't agree anymore with another.

Some keep saying that the market is one of the safest in the world because of the strong demand.

On the other hand, other experts see an exaggeration in the buying prices and consider the drift between rental-prices and costs of ownership as a bubble-factor.

So who to believe? You may rely on a strong demand in the future rental-market. The level of prices will then depend on the evolution of the economic cycle.

There are not many crazy buyers with over-leveraged positions. However, the market expectation is so high that a deception can let the market fall soon.

Only the future will say reliably whether the market is right. Stay tuned to get the latest news.