Table of Contents:
Real Estate Industry Under Pressure
Building permits have plummeted by 26.6% in 2023 – while 400,000 new apartments are lacking annually.
Crisis-Proof Tangible Asset with Substance
In times of inflation, banking crises, and geopolitical uncertainty, real estate is considered a robust tangible asset with long-term stability.
Real Estate Remains a Key Asset Class
Real estate provides ongoing income, inflation protection, and tangible assets—an ideal foundation for resilient portfolios in times of change.
Sustainability shapes the future of construction
ESG criteria, energy efficiency, and social impact are becoming the standard – arcneo develops scalable solutions to meet this demand.
Knowledge
Why Real Estate Will Still Be a Good Asset Class in 2025
Jonathan Albroscheit
·
6
min. read
Jan 7, 2025
Knowledge
Why Real Estate Will Still Be a Good Asset Class in 2025
Jonathan Albroscheit
·
6
min. read
Jan 7, 2025
Real estate has traditionally been considered one of the most stable forms of investment and is an important component of wealth preservation for many of you. Especially in economically uncertain times, the demand for tangible assets, which are regarded as inflation-resistant and value-retaining, increases. However, the conditions for real estate investments have changed significantly in recent years. Rising interest rates, tightened regulations, and high purchase prices present new challenges for you as an investor.
These developments raise central questions: Is it still worthwhile to invest in real estate in the year 2025? What opportunities and risks exist? And what alternatives are available to you? In this article, we explore the various forms of real estate investment, analyze current market trends, and provide you with a comprehensive assessment of the profitability of this asset class. Finally, you will receive guidance on whether and under what conditions real estate continues to represent an attractive investment opportunity.
Real Estate as an Asset Class: An Overview
Real estate offers you the opportunity to secure your assets in the long term and generate passive income. However, not all real estate is the same. There are different forms of real estate investments that vary in terms of risk, return, and liquidity:
Different Types of Real Estate Investments
Direct Investments: The traditional purchase of properties like condominiums, multi-family homes, or commercial properties for rent or personal use.
Benefits: Full control over the property, long-term value appreciation, and direct rental income.
Drawbacks: High capital requirement, management effort, and risks from vacancies or rental defaults.
Indirect Investments: Participation in real estate funds, Real Estate Investment Trusts (REITs), or crowdfunding platforms.
Benefits: Lower capital requirement, broader diversification, and professional management.
Drawbacks: Less control, management fees, and potential fluctuations from market movements.
Specialized Real Estate: Investments in care facilities, vacation properties, or sustainable construction projects that often promise special tax advantages or high demand.
Benefits: Attractive return opportunities in niche markets and sometimes government subsidies.
Drawbacks: Higher dependency on specific market conditions and often strict regulations.
Benefits of Real Estate Investments
1. Stability and Inflation Protection
Real estate is considered to be a stable store of value and provides protection against inflation since rent is often linked to the rate of inflation. Historical data shows that real estate prices in Germany have risen by approximately 79.5% nominally since 1995. This is significantly above the cumulative inflation rate for the same period, indicating a real increase in value. Additionally, rents have increased disproportionately in many regions, which can ensure stable long-term income.
2. Regular Rental Income
As the owner of a rented property, you benefit from a steady income stream through rental payments. As of the end of July 2024, the average gross rental yield in the 30 largest German cities was 3.79%. Cities like Hagen and Chemnitz recorded above-average yields of 5.39%.
3. Potential for Value Appreciation
In the long term, real estate has proven to be an appreciating investment. Between 2010 and 2022, real estate prices in Germany have risen sharply, influenced by factors such as population growth, limited supply, and low interest rates. For example, the price per square meter for existing apartments in Rostock increased by 42% over the past five years, currently standing at €3,700.
4. Tax Advantages
You can benefit from tax incentives such as depreciation, deductible advertising expenses, and tax exemptions on disposals. These advantages can significantly enhance the overall yield of a real estate investment.
Disadvantages and Risks of Real Estate Investments
1. High Capital Requirement
The acquisition of a property generally requires a significant equity investment. Current data shows that the average equity ratio for real estate financing in Germany is around 30%. Additionally, construction loan interest rates have risen from 0.73% at the end of 2021 to an average of 3.57% in 2024, substantially increasing financing costs. This can pose a challenge, particularly for investors reliant on credit.
2. Maintenance and Management Costs
A common rule of thumb suggests that around 1–2% of the property value should be allocated annually for maintenance costs. Alternatively, a guideline of 10–15 euros per square meter of living space per year can be used. These costs cover regular maintenance, repairs, and unexpected damages.
3. Vacancy Risk
The average vacancy rate in Germany in 2023 was 4.3%, with significant regional variations. In economically strong cities like Munich and Hamburg, the rate is below 1%, whereas economically weaker regions exhibit significantly higher vacancy rates. This underscores the importance of thorough location analysis prior to investment.
4. Market Dependency
The real estate market is subject to cyclical fluctuations influenced by various factors:
Economic Development: In periods of growth, demand for real estate increases, while during recessions, a decline in demand can be observed.
Interest Rates: Rising interest rates increase financing costs and can dampen demand.
Regulatory Interventions: Measures such as rent controls or tax adjustments impact the attractiveness of real estate investments.
Currently, the German real estate market is in a consolidation phase, following years of price increases that have now been tempered by higher financing costs. Investors should, therefore, carefully review their financing strategies and consider alternative investment opportunities if necessary.
Current Developments and Challenges
Decline in New Constructions and Housing Shortage
Germany significantly misses the target of 400,000 new apartments per year. Forecasts indicate that by 2026, only about 175,000 units will be completed annually – less than half of what is needed. The causes are increased construction costs, higher interest rates, and a shortage of skilled workers. This further drives up rents in metropolitan areas and enhances the attractiveness of existing properties.
Regulations and Political Measures
With the Land Mobilization Act (2021), municipalities are supposed to activate land more easily and receive pre-emptive purchase rights. At the same time, there is a discussion about simplifying building regulations to reduce construction costs. This creates opportunities for investors, but also introduces new regulatory requirements.
Impact of Rising Interest Rates
Construction interest rates rose from 0.73% (end of 2021) to 3.57% (2024) and are currently around 3.11% for a ten-year fixed interest rate. This makes financing more difficult and changes purchasing decisions. Capital-strong investors can benefit from market adjustments, while smaller investors proceed more cautiously.
Sustainability and ESG Criteria
Real estate with poor energy performance is at risk of losing value, while sustainable properties are increasingly in demand. ESG criteria influence both the long-term value and the financing conditions of real estate. Investors need to strategically integrate sustainability into their strategies.
Invest in real estate now
Expand your portfolio with one of the most resilient asset classes of recent decades. Gain access to our current projects.
Conclusion
Real estate remains an intriguing asset class that, however, must be viewed with nuance. While rising interest rates and regulatory interventions can impact profitability, new opportunities simultaneously arise—especially for investors who operate strategically and keep track of market trends.
Long-term investors with a solid equity base benefit especially in times of economic uncertainty, as they are less reliant on financing costs. In addition, sustainable real estate is becoming increasingly significant, from both an ecological and financial perspective.
To successfully invest in real estate, one should conduct a thorough location and market analysis and consider innovative investment opportunities. Digital platforms offer modern and efficient solutions here, allowing investment in real estate projects and flexible responses to market changes.
Ultimately, the success of a real estate investment depends on a forward-looking strategy and the right selection of properties. Those who are well-informed and make targeted investments can profitably leverage real estate even in challenging market conditions.
Table of Contents:
Real Estate Industry Under Pressure
Building permits have plummeted by 26.6% in 2023 – while 400,000 new apartments are lacking annually.
Crisis-Proof Tangible Asset with Substance
In times of inflation, banking crises, and geopolitical uncertainty, real estate is considered a robust tangible asset with long-term stability.
Real Estate Remains a Key Asset Class
Real estate provides ongoing income, inflation protection, and tangible assets—an ideal foundation for resilient portfolios in times of change.
Sustainability shapes the future of construction
ESG criteria, energy efficiency, and social impact are becoming the standard – arcneo develops scalable solutions to meet this demand.
Knowledge
Why Real Estate Will Still Be a Good Asset Class in 2025
Jonathan Albroscheit
·
6
min. read
Jan 7, 2025
Knowledge
Why Real Estate Will Still Be a Good Asset Class in 2025
Jonathan Albroscheit
·
6
min. read
Jan 7, 2025
Real estate has traditionally been considered one of the most stable forms of investment and is an important component of wealth preservation for many of you. Especially in economically uncertain times, the demand for tangible assets, which are regarded as inflation-resistant and value-retaining, increases. However, the conditions for real estate investments have changed significantly in recent years. Rising interest rates, tightened regulations, and high purchase prices present new challenges for you as an investor.
These developments raise central questions: Is it still worthwhile to invest in real estate in the year 2025? What opportunities and risks exist? And what alternatives are available to you? In this article, we explore the various forms of real estate investment, analyze current market trends, and provide you with a comprehensive assessment of the profitability of this asset class. Finally, you will receive guidance on whether and under what conditions real estate continues to represent an attractive investment opportunity.
Real Estate as an Asset Class: An Overview
Real estate offers you the opportunity to secure your assets in the long term and generate passive income. However, not all real estate is the same. There are different forms of real estate investments that vary in terms of risk, return, and liquidity:
Different Types of Real Estate Investments
Direct Investments: The traditional purchase of properties like condominiums, multi-family homes, or commercial properties for rent or personal use.
Benefits: Full control over the property, long-term value appreciation, and direct rental income.
Drawbacks: High capital requirement, management effort, and risks from vacancies or rental defaults.
Indirect Investments: Participation in real estate funds, Real Estate Investment Trusts (REITs), or crowdfunding platforms.
Benefits: Lower capital requirement, broader diversification, and professional management.
Drawbacks: Less control, management fees, and potential fluctuations from market movements.
Specialized Real Estate: Investments in care facilities, vacation properties, or sustainable construction projects that often promise special tax advantages or high demand.
Benefits: Attractive return opportunities in niche markets and sometimes government subsidies.
Drawbacks: Higher dependency on specific market conditions and often strict regulations.
Benefits of Real Estate Investments
1. Stability and Inflation Protection
Real estate is considered to be a stable store of value and provides protection against inflation since rent is often linked to the rate of inflation. Historical data shows that real estate prices in Germany have risen by approximately 79.5% nominally since 1995. This is significantly above the cumulative inflation rate for the same period, indicating a real increase in value. Additionally, rents have increased disproportionately in many regions, which can ensure stable long-term income.
2. Regular Rental Income
As the owner of a rented property, you benefit from a steady income stream through rental payments. As of the end of July 2024, the average gross rental yield in the 30 largest German cities was 3.79%. Cities like Hagen and Chemnitz recorded above-average yields of 5.39%.
3. Potential for Value Appreciation
In the long term, real estate has proven to be an appreciating investment. Between 2010 and 2022, real estate prices in Germany have risen sharply, influenced by factors such as population growth, limited supply, and low interest rates. For example, the price per square meter for existing apartments in Rostock increased by 42% over the past five years, currently standing at €3,700.
4. Tax Advantages
You can benefit from tax incentives such as depreciation, deductible advertising expenses, and tax exemptions on disposals. These advantages can significantly enhance the overall yield of a real estate investment.
Disadvantages and Risks of Real Estate Investments
1. High Capital Requirement
The acquisition of a property generally requires a significant equity investment. Current data shows that the average equity ratio for real estate financing in Germany is around 30%. Additionally, construction loan interest rates have risen from 0.73% at the end of 2021 to an average of 3.57% in 2024, substantially increasing financing costs. This can pose a challenge, particularly for investors reliant on credit.
2. Maintenance and Management Costs
A common rule of thumb suggests that around 1–2% of the property value should be allocated annually for maintenance costs. Alternatively, a guideline of 10–15 euros per square meter of living space per year can be used. These costs cover regular maintenance, repairs, and unexpected damages.
3. Vacancy Risk
The average vacancy rate in Germany in 2023 was 4.3%, with significant regional variations. In economically strong cities like Munich and Hamburg, the rate is below 1%, whereas economically weaker regions exhibit significantly higher vacancy rates. This underscores the importance of thorough location analysis prior to investment.
4. Market Dependency
The real estate market is subject to cyclical fluctuations influenced by various factors:
Economic Development: In periods of growth, demand for real estate increases, while during recessions, a decline in demand can be observed.
Interest Rates: Rising interest rates increase financing costs and can dampen demand.
Regulatory Interventions: Measures such as rent controls or tax adjustments impact the attractiveness of real estate investments.
Currently, the German real estate market is in a consolidation phase, following years of price increases that have now been tempered by higher financing costs. Investors should, therefore, carefully review their financing strategies and consider alternative investment opportunities if necessary.
Current Developments and Challenges
Decline in New Constructions and Housing Shortage
Germany significantly misses the target of 400,000 new apartments per year. Forecasts indicate that by 2026, only about 175,000 units will be completed annually – less than half of what is needed. The causes are increased construction costs, higher interest rates, and a shortage of skilled workers. This further drives up rents in metropolitan areas and enhances the attractiveness of existing properties.
Regulations and Political Measures
With the Land Mobilization Act (2021), municipalities are supposed to activate land more easily and receive pre-emptive purchase rights. At the same time, there is a discussion about simplifying building regulations to reduce construction costs. This creates opportunities for investors, but also introduces new regulatory requirements.
Impact of Rising Interest Rates
Construction interest rates rose from 0.73% (end of 2021) to 3.57% (2024) and are currently around 3.11% for a ten-year fixed interest rate. This makes financing more difficult and changes purchasing decisions. Capital-strong investors can benefit from market adjustments, while smaller investors proceed more cautiously.
Sustainability and ESG Criteria
Real estate with poor energy performance is at risk of losing value, while sustainable properties are increasingly in demand. ESG criteria influence both the long-term value and the financing conditions of real estate. Investors need to strategically integrate sustainability into their strategies.
Conclusion
Real estate remains an intriguing asset class that, however, must be viewed with nuance. While rising interest rates and regulatory interventions can impact profitability, new opportunities simultaneously arise—especially for investors who operate strategically and keep track of market trends.
Long-term investors with a solid equity base benefit especially in times of economic uncertainty, as they are less reliant on financing costs. In addition, sustainable real estate is becoming increasingly significant, from both an ecological and financial perspective.
To successfully invest in real estate, one should conduct a thorough location and market analysis and consider innovative investment opportunities. Digital platforms offer modern and efficient solutions here, allowing investment in real estate projects and flexible responses to market changes.
Ultimately, the success of a real estate investment depends on a forward-looking strategy and the right selection of properties. Those who are well-informed and make targeted investments can profitably leverage real estate even in challenging market conditions.
Invest in real estate now
Expand your portfolio with one of the most resilient asset classes of recent decades. Gain access to our current projects.
More articles on the topic
Knowledge
Why Real Estate Will Still Be a Good Asset Class in 2025
Jonathan Albroscheit
·
4 min read
Jonathan Albroscheit
Jonathan Albroscheit
4 min read
Jan 7, 2025
Knowledge
Demographics and Real Estate: How Change Influences Demand
Jonathan Albroscheit
·
4 min read
Jonathan Albroscheit
Jonathan Albroscheit
4 min read
Mar 21, 2025
Directing capital
where it creates real added value.
Our Newsletter
Our Newsletter
Invest in the future with sustainable residential construction projects.
Directing capital
where it creates real added value.
Our Newsletter