;Resize=(1200,627)&impolicy=perceptual&quality=mediumHigh&hash=ffff71c7cd1c2ca6828badee87c259a8a71659933acc3a987c13bba52c4861fa "Why is there suddenly a surplus of supply on the Munich real estate market?")
By 2021, the city of Munich will have been able to “count on two hands” the offers for apartment purchases, says local authority officer Kristina Frank (CSU). “Süddeutschen Zeitung” (SZ). At that time, her department had decided on two positions to examine the offers, which could no longer keep up with the examination.
“We are faced with such a large surplus of supply that we cannot do justice to it with the human resources and financial opportunities that the city budget offers,” says Frank. Just last week, for example, a “large residential complex with more than 300 residential units” was added. There are “large-scale offers available” and therefore have to prioritize now, says Frank – small offers sometimes fall under the table.
The city of Munich is happily shopping – for 800 million euros
The city has spent a total of 800 million euros in the last 5 years to get involved in the city, which is overflowing with offers. Housing market to use, says Frank of the “SZ”. The majority of these expenses were incurred through “private purchases”.
Until the end of 2021, Munich municipalities would have had a right of first refusal when purchasing real estate in locations worthy of protection. In other words, even after investors had signed purchase contracts with the notary, the municipalities were able to subsequently purchase such properties.
The Federal Administrative Court then declared this practice illegal and ordered that the right of first refusal should henceforth only apply to largely vacant properties. As a result, in 2022 the city acquired just three apartment buildings with a total of 52 apartments through the right of first refusal.
The fact that the total of all purchases is still so high is thanks to the drastic increase in private purchases. Freehand or with the right of first refusal: By the way, “only a city like Munich can afford to spend 800 million euros on the purchase of apartments,” says Frank.
Interest rate increases act like a double-edged sword in the real estate market
But why are there so many properties available, asks Frank. You can’t know for sure, but growing fears about a real estate bubble in Munich and rising interest rates certainly played a role.
Higher interest rates mean more expensive real estate loans and – according to the house sellers’ thinking – soon a falling demand and therefore falling real estate prices. They want to sell before the real estate loses too much value.
Unfortunately, in the long term, neither the rising interest rates nor the city’s purchase program will have a positive effect on rental prices as long as the numerical ratio between apartment seekers and vacant apartments does not change, Frank tells the “SZ”.
Regardless of the seller’s train of thought, it is also a fact that the cases in which building law was created have declined sharply since 2018: 7,000 cases from 2018 were compared to 228 during the Corona year 2021 and 4,000 cases last year. Land on which rental apartments could be built was also only sold half as often in the first half of 2023 as in the previous year.
If these trends continue and the population grows to 1.82 million by 2040 as forecast, at least 5,000 new apartments would have to be built every year in order to address the future housing shortage.
In such a scenario, rising interest rates tend to cause potential property buyers to increasingly turn to the rental market, thereby driving up rental prices.