Not just capital investment: Corona and low interest rates stimulate interest in luxury real estate

Home » Economy » Not just capital investment: Corona and low interest rates drive interest in luxury real estate January 30, 2022

Not just an investment
Corona and low interest rates boost interest in luxury real estate

01/30/2022, 09:44

The demand for expensive real estate has increased significantly in recent times. Brokerage firms are reporting a doubling of sales in the millions. Contrary to what is often assumed, new owners like to use the properties themselves. The focus is on second homes in attractive areas.

The corona pandemic has boosted activity with expensive luxury homes in Europe. Real estate agents and professionals are reporting a surge in interest from high net worth clients. The Hamburg-based brokerage Engel & Völkers, which operates in a good 30 countries, reports that in 2021 it negotiated almost twice as many properties in the price segment between five million and ten million euros compared to to the first year of the crisis, 2020.

“We have a significantly higher demand, especially for premium properties from two million euros,” says Ralph Kunz, director of premium management at von Poll Immobilien in Frankfurt. When it comes to better prices, location and the degree of privacy are particularly important. “Prices here sometimes go into the double-digit million range for single-family homes and villas in prime locations.”

This is confirmed by an expert who does not do any real estate brokerage himself: “We have a very, very strong market for luxury real estate”, says Stephan Kippes, market researcher at the real estate association IVD Süd in Munich. Kippes sees a factor at work that has fueled the real estate market for years: permanently low interest rates and penalties make many other investments unprofitable. “That money floats in the market,” says Kippes. Expensive residences are often not designed as a pure capital investment: “Holiday apartments and luxury properties are very often used by people themselves,” says Kippes. “You offer yourself, and then you always have the effect of an increase in value.”

The Mediterranean in the spotlight

Prices vary considerably from country to country. “While the highest prices in the premium segment in Hamburg, for example, reach up to 30,000 euros per square meter and thus reach the international level of Paris with 35,000 euros per square meter, prices in Italy are the highest high at 9,000 euros”, reports the CEO of Engel & Völkers, Sven Odia. As a result, foreign buyers do not play a dominant role in the German market for second homes and holiday apartments, contrary to what or may think. are often feared by many long-term residents.In truth, it is rather the opposite: wealthy Germans, Swiss and Austrians are looking for holiday regions outside their own borders, especially in the Mediterranean region.

“In Greece, most buyers come from the DACH region, followed by interested parties from France and the UK,” says Odia. In Mallorca, the majority of foreign “search customers” therefore come from Germany – 66%. The British follow far behind with 9%. Corona is now also blurring the line between primary and secondary residences: “Real estate in the secondary residence markets is in demand like never before,” says Odia. “Particularly in the luxury segment, following the corona pandemic, we are seeing the trend towards working from home in a second home.”

If it was a home office, wasn’t it in a nice setting?

(Photo: imago images/Schöning)

Many customers now spend more time in their second home and no longer see it only as an apartment building or as a second home for a few weeks a year. “Thus, classic second home markets and Mediterranean holiday destinations are increasingly becoming primary home markets.”

Prerequisites are a good infrastructure and a fast internet connection, as the expert Kunz reports. High inflation also plays a role. “It is mainly investors and wealthy customers who hedge against inflation by buying real estate,” Kunz explains. The market price of the property increases with inflation, but the loan amount decreases and falls as a percentage of the market price. “Real estate is increasingly preferred over equities as a stable, crisis-proof investment option.”

More and more often the secondary residence tax at the edge of the Alps

However, the Mallorca finca is by no means the only popular place. “Second homes in popular holiday regions in Germany have been a hot topic since the beginning of 2021,” says Kunze. There are understandable reasons for this, as market researcher Kippes explains: “You can still find your way around relatively easily, even in times of Corona.”

Buyers of second homes and holiday homes are not very well received in many German holiday resorts, just as there are reservations about German buyers in Tyrol and Salzburg. On the one hand, prices are rising. At the same time, living spaces are lost for the less well-off local population.

An example is the Bavarian Alps. Many municipalities bordering the Alps now levy a tax on second homes, as a spokesperson for the Bavarian city council said. Administrations have little building land, and if so, then often only for premises. This is particularly clear in Berchtesgaden: anyone who wishes to use apartments or hotel and boarding house rooms there as a second home must have their specific authorization provided that the rooms are empty for more than half the year.

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