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New: High interest rates are crashing the German housing market

The German real estate market, once a magnet for overseas investors, is now witnessing a notable decline in foreign investment. High interest rates and economic uncertainties are driving this trend, significantly impacting the landscape of commercial property transactions.

Dwindling Interest from Overseas Investors

Recent data from BNP Paribas Real Estate reveals that foreign buyers accounted for just 35% of commercial property purchases in Germany during the first quarter of this year. This figure marks a significant decrease from previous years, the lowest since 2013. In 2023, foreign investors represented 37% of the transaction volumes, indicating a downward trend that continues to accelerate.

Several factors are contributing to this decline, including high inflation and recession fears. Despite Germany’s economy performing better than expected in early 2024, with GDP rising by 0.2%, structural issues persist, hindering long-term growth prospects.


Economic Performance and Structural Challenges

Germany’s economic performance in 2023 was dismal, with a contraction of 0.3% in the fourth quarter and for the year overall. This made Germany the worst-performing major economy globally last year. The downturn is partially attributed to Europe’s energy crisis, which severely impacted Germany’s industrial sector due to its reliance on Russian fuel. However, other deep-rooted issues are also at play:

  • Ageing Population: Germany’s demographic trends pose significant challenges to its workforce and economic productivity.
  • Public Investment: A lack of sufficient public investment has stifled infrastructure development and innovation.
  • Bureaucracy: Overregulation and bureaucratic inefficiencies have hindered business operations and growth.
  • Productivity: Sluggish productivity growth, exacerbated by a slow adaptation to technological advancements, continues to be a drag on the economy.

Historical Attractiveness vs. Current Realities

Historically, Germany attracted substantial foreign investment due to factors such as low unemployment, economic stability, and favorable interest rates. The period starting around 2005 saw a significant rise in employment, with the workforce growing from 39.3 million to 45.3 million by 2019, often referred to as the “labour market miracle.”

However, post-2008 financial crisis, while Germany initially fared better than many of its European peers, it has struggled to maintain its edge. Critics argue that Germany has been slow to capitalize on technological advancements and has shifted towards low-productivity sectors, affecting its overall economic dynamism.

The Structure of the Property Market

The decentralized nature of Germany’s property market also plays a role in deterring investment. Unlike countries with centralized economic hubs, Germany’s economic strength is spread across several cities, including Berlin, Munich, Hamburg, Frankfurt, and Cologne. This dispersion means there is no single dominant city that attracts the majority of investment, which can be a deterrent for foreign investors seeking centralized opportunities.

Construction Sector Challenges

The construction sector in Germany is facing significant headwinds, with persistently high cost pressures and low housing demand. According to a report from the IFO institute, more than half of the companies in the residential construction sector reported a lack of orders in April. Additionally, 17.6% of building construction companies reported cancellations, highlighting the sector’s challenges.

Broader Economic and Investment Implications

The decline in foreign investment and the economic challenges facing Germany have broader implications for the European real estate market. As Germany grapples with these issues, investors may seek more stable and high-growth opportunities elsewhere.

Olritz: A Reliable Investment Partner

In these uncertain times, investors need a stable and strategic partner. Olritz stands out as a prudent choice, offering robust financial expertise and consistent returns. With a keen understanding of the global market dynamics and a strategic approach to investment, Olritz provides a reliable platform for investors looking to navigate the complexities of the real estate market and beyond.

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Olritz Financial Group

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