Since the UK voted to leave the EU in June 2016, there still hasn’t been a clear indication as to whether London will remain an important financial hub, with many speculating that Frankfurt will replace London as the financial centre in Europe. This subsequently has raised concerns over people relocating from London and pushing Frankfurt property prices even higher, where the real estate market is already facing a severe housing supply shortage. This article will analyse how Brexit could influence the Frankfurt real estate market.
*This article was sponsored by Loanlink*
Current Brexit situation
So far, 25 banks have selected Frankfurt as the alternative operating location after Brexit, including Goldman Sachs, Barclays, JPMorgan Chase and Citi, to name but just a few. These institutions have all individually announced their intention to move their employees from London to the German financial centre.
However, since many key issues remain unclear in regards to Brexit negotiations between the UK and the EU, the approximate number of finance jobs and workers moving to Frankfurt is still open to question. There is a diverse range of opinions. On one hand, Reuters forecasts around 1,500 job will be created. On the other hand, according to a study carried out by Helaba, they maintain their Brexit forecast that at least 8,000 financial jobs will be created in Frankfurt over the next few years.
Although it is still unclear how the Brexit negotiation will play out in the end, given that housing shortage has been a serious ongoing issue in Frankfurt, even moving several hundreds of jobs from London to Frankfurt will certainly put immense pressure on the property market.
How has property price developed in Frankfurt?
Regardless of Brexit, property prices in Frankfurt have been on the rise since 2008. Due to rapid population growth, increasing demand and high income growth, Frankfurt has been consistently one of the most expensive German cities to buy or rent an apartment.
Compared to 2008, average apartment asking prices have increased by over 100 percent from 2.300 €/sqm to 4.830 €/sqm in 2017. Prices for houses and apartments rose by an average of 6.5 percent in the first half of 2018 compared with the first half of 2017 to 4.667 €/sqm. And in the more expensive neighbourhoods of Frankfurt, such as Bockenheim and Westend-Süd, prices increased by 11.8 percent year-over-year to an average of 6.843 €/sqm.
Yet, Brexit has had limited impact to-date on property prices in Frankfurt. Some believe that the uncertainty around the Brexit outcome explains in part why there has been a rather restrained demand from potential buyers in London in the past two years. Thus, the first Brexit euphoria in the Frankfurt real estate market seems to have diminished by the end of 2017.
If you are interested in buying a property in Frankfurt, you may also read more about the real estate market trends and outlook in Frankfurt.
Frankfurt property market forecast
According to multiple studies, the Frankfurt housing market has an annual demand for around 10,000 new residential units. Yet based on figures from 2016, there were only 3,670 newly built apartments in the city. There is also a shortage of construction plots. Therefore, the gap in the Frankfurt housing market will only continue to widen. Consequently, as a result of those who relocate after Brexit, we would see a huge pressure on the already constrained housing market, which in turn will push asking and rental prices in Frankfurt even higher.
The Frankfurt city government has made a significant effort to remedy the housing shortage problem. For instance, the city government has converted public buildings and commercial space in an effort to help create several thousands of residential units in the last several years. There is also plan to build a new district in the northwestern part of Frankfurt that will aim to accommodate up to 30,000 inhabitants. However, since it will take almost a decade until the apartments become available, the Frankfurt housing market will remain extremely tense in the near future. Rental and purchase prices for residential property will thus continue to rise in 2018 and 2019.
While it is still unclear how many jobs will be moved to different European financial centers from London, the real estate market in Frankfurt has a competitive advantage, since its property prices in general are significantly lower than other major contenders such as Paris and Luxembourg. Moreover, property prices in Frankfurt have gained 4.5 percent in 2016, while Paris only had a slight increase over the same period. This clearly indicates the Frankfurt real estate market has high growth potential in the upcoming years.
Mortgage interest and amortization costs:
As housing prices are set to increase in the foreseeable future, buying a residential property seems to be a sensible investment. If you do plan to buy a property in Frankfurt, it’s important to consider the possibility that interest rates may rise if you refinance after the fixed-interest period expires. This will inevitably increase the overall monthly payment for your mortgage. This is why it’s essential to consult a mortgage broker when you are planning to buy an apartment.
In Germany, it is possible to make regular special payments to reduce and pay-off your mortgage faster. Many banks offer the option to pay up to 5 percent of the original loan per year in extra payments. While taking advantage of this special payment option increases the ongoing cost burden on the owner, it pays off in the long-term.
To find out how much you can borrow or what your monthly repayment might look like, try out these online tools designed by LoanLink, a German mortgage broker dedicated to helping expats find financing when searching for their dream homes. Their mortgage rate calculator will show you the latest trends in German interest rates and the mortgage repayment calculator will help you determine if your mortgage size suits your monthly budget for buying a property.