The aging society is a fact that Germany has to face with all its consequences. Germany is already in second place in some international rankings (median age), right behind Japan. The combination of increasing life expectancy and low birth rates is not without consequences, and many experts see the aging of society as a whole as one of the main reasons for the ever-increasing shortage of skilled workers. But the high average age also affects how we live. Owners should already be prepared for the coming consequences for the real estate market.
Boom continues in some places in the long term
Germany’s demographic structure will change significantly in the coming decades. The Federal Statistical Office forecasts a significant increase in the proportion of older people and a decline in the younger population. This change in the demographic structure will not only have an impact on social systems and the health system, but will also change the real estate market in the long term. The key interest rate increases by the ECB seem to have put a damper on the hunt for record prices for the time being, but a long-term increase in real estate values can also be expected in the coming years – at least in urban areas. The current one also shows that prices develop very differently in the city and in the country Housing Atlas 2023. Significant increases in value can be expected by 2035, particularly in the south and north-west of Germany.
André Heid, founder and managing director of Heid-Immobilienbewertung.de, advises anyone who wants to invest in real estate as an investment to search for a specific property and rent it out. There are also tax reasons for this: “I can deduct everything that I put into a rented condominium. This advantage is lost if you use it yourself”.
What at appraisal counts
In order to be able to understand the value and price developments over the next few years, various external influencing factors must be taken into account. The effects of the aging society are particularly evident in a drastic shift in the relationship between supply and demand. With the shrinking young population, the demand for housing will decrease. This can lead to an oversupply of real estate, especially in rural regions and structurally weak areas. Foresighted owners therefore already take care of a professional property valuation so that the right time for the sale can be timed. “Most people might have one or two in their lifetime appraise property. You can’t expect them to know exactly what they’re doing. However, the work of real estate appraisers is largely appreciated by the general public,” explains Heid im Forbes Magazine.
A real estate appraisal is a professional appraisal prepared by a surveyor or appraiser to determine the market or market value of a property. Among other things, the location, size and condition of the property, comparable properties (with the comparative value method), as well as the equipment, the year of construction and certain legal aspects are taken into account. The latter include, for example, heritable building rights, but also specifications for energy efficiency. The most accurate and at the same time legally usable form of the appraisal is the appraisal of the market value. Free estimates, on the other hand, are usually based on a few key figures.
“Old Republic” Germany
The high birth rate of the so-called baby boomer generation is an absolute exception in the history of the Federal Republic of Germany. In this context, researchers even speak of a singular event that could only exist under the specific conditions of the still young post-war Germany. For this reason, the “boomers” today form by far the largest group within the senior population, supplemented by the last representatives of the war and pre-war generation. The 60 to 100 year olds make up around 30 percent of the total population. For direct comparison: The under-18s make up just 16.8 percent. The median age (depending on the methodology) is between 44.8 and 47.8 years, which puts Germany in second or third place in a global comparison.
The legacy of boomer generation
With the rising proportion of older people, the demand for barrier-free living space and age-appropriate living concepts will increase. This opens up new opportunities for the real estate market, but there is also a need for adjustments to existing residential properties. This development could be followed by an increasing conversion of existing properties. The high building activity of the older generations is striking. In 1978 almost 240,000 residential buildings were completed in West Germany, but in 2012 there were only around 82,500. In the past, buildings were mainly built in rural areas, which at the time had good infrastructural connections. In addition, the baby boomers were the first generation to break with the concept of the apartment building. Instead, mainly single-family houses for small families were built. The consequence is that there is a lack of affordable housing, particularly in urban areas, while there could soon be a surplus in rural areas. As a result, the structural change will manifest itself very differently in different regions. In the large German conurbations, a decrease in demand is not to be expected in the short or long term.
Sustainability is becoming increasingly important
Experts use at least one of three methods for property valuation. For residential properties, appraisers usually use the comparative value method. This uses sales prices of comparable properties that are in the immediate vicinity of the property to be valued and have recently been sold. However, there are times when no meaningful comparison is possible. Then there is the material value method, which is based on the construction costs, taking various factors into account. If the property is to be rented out, the capitalized earnings method is also suitable. In principle, an expert includes certain characteristics such as location, size, condition, equipment and year of construction of an object. The size of the property is also taken into account.
The aspect of sustainability, which was often neglected in the past, is becoming increasingly important today. The decisive factor here is the energy class. “Only 13 percent of properties have an energy class of A+, A or B, according to a survey from 2021. Around 75 percent of all properties have an energy class of D or lower,” notes André Heid. The real estate expert sees an urgent need for action here if an imminent loss in value is to be averted. In view of the upcoming heating law, many homeowners are toying with the idea of selling, but the renovation is often more worthwhile now because outstanding modernization measures can massively reduce the purchase price.
Understanding how demographic changes affect real estate values is crucial when navigating the property market. It helps in making informed decisions, whether you’re buying, selling, or holding real estate assets. However, comprehending and utilizing this data to optimize your real estate investments can be quite challenging. That’s where the expertise of a proficient real estate agent comes into play. Choosing a Top Real Estate Agent can be a pivotal step, providing you with insightful guidance, strategic market analysis, and a comprehensive understanding of demographic impacts on property values, ensuring that your investments align well with market trends and opportunities.