Real estate prices are witnessing a significant decline in a prominent city, yet this downturn brings little cause for celebration. The confluence of limited housing availability and soaring construction expenses persists in propelling rents upwards across Germany, despite the noticeable dip in property values.

According to the Association of German Pfandbrief Banks (vdp), residential properties in Germany marked a 4.3 percent decrease in prices during the first quarter compared to the previous year. Conversely, rents for apartment complexes surged by 5.6 percent, reflecting newly agreed-upon lease terms rather than existing rental rates. This unsettling trajectory for tenants shows no sign of abating, as managing director Jens Tolckmitt highlights the overwhelming demand outstripping the available supply in the rental market.

The decline isn't confined to property prices alone; construction activity in Munich, a city notorious for its high costs of living, is also witnessing a downturn. The surge in construction expenses, fueled by both loan interest rates and material costs, has led to a sharp drop in both housing construction endeavors and potential property buyers, consequently pulling purchase prices down.

Munich bears the brunt of this decline, with purchase prices plummeting by 5.3 percent within a year. However, the diminishing construction activity exacerbates the housing scarcity, thereby perpetuating the upward trajectory of rents. The Pfandbrief banks foresee no immediate reprieve, anticipating a prolonged shortage of residential properties with consequential impacts on rent trends. While the association predicts a gradual stabilization rather than further significant drops in purchase prices, the rental market remains fraught with challenges.

Meanwhile, the commercial real estate sector, encompassing offices, retail spaces, and similar establishments, experiences even steeper declines, with prices plunging nearly ten percent year-on-year. Tolckmitt anticipates continued downward movement in this domain, diverging from the optimistic outlook of some commercial real estate stakeholders who await a market "bottoming out."

It's worth noting that these assessments are derived from financial data provided by over 700 banks engaged in real estate financing, rather than relying on typical purchase and rental listings for evaluation.

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