Value Appreciation of Residential Properties – Dreams and Reality in Germany
After more than a decade of impressive price increases, prices recorded a nominal decline of 3.6% and a real (inflation-adjusted) drop of 12.1% for the first time.
This development raises the question of what long-term value appreciation of residential properties is realistic and what factors influence it.
This paper examines the long-term value appreciation of residential properties in Germany in an international comparison. It highlights structural influencing factors as well as misconceptions that lead many investors to overly optimistic expectations.

Data used:
► No transaction costs for buying and selling.
► All returns in local currency.
► German inflation over these 53 years was 2.8% p.a.
► [A] Data only available for Austria from 1987 onwards. Therefore no maximum cumulative loss shown here.
► [B] Weighted average of the countries DE, CH, AT, NL, USA, France, Italy, Spain, UK, Sweden, Australia, Japan, South Africa. Individual countries weighted with population share of the total population of all 13 countries.
►Data source: Bank for International Settlements (BIS) in Basel.
Historical Development of Value Appreciation
International Perspective
An analysis of real (inflation-adjusted) value appreciation of residential properties in 13 Western countries between 1970 and 2022 reveals:
- Germany ranks last, with average real price increases of 0.3% per year. Even Japan, which also experienced low value appreciation, achieved 0.4% per year.
- By contrast, the average for the 13 countries was significantly higher.
- The development was not uniform: longer periods of strong price increases were often followed by declines.
Germany: From Laggard to Catch-Up
The German property market showed one of the poorest performances in international comparison between 1970 and 2009. This changed only with the phase starting in 2010, when a dynamic price increase set in, attributable to the following factors:
- Historically low interest rates: The continuous decline in interest rates significantly reduced financing costs.
- Undervaluation: After decades of stagnant prices, German properties were considered relatively cheap.
- High demand: Urbanisation trends and economic growth led to strong demand, especially in major cities.
Structural Factors Influencing Value Appreciation
Tenant Protection and Regulation
Germany is characterised by strong tenant protection and strict building regulations. These limit potential value appreciation as they heavily regulate the property market:
- Rent caps and tenant protections: These reduce the profit potential for investors.
- Strict building codes: High requirements for energy efficiency and accessibility increase construction costs without necessarily leading to higher prices.
Demographic Trends
In the long term, population trends are likely to lead to an oversupply of housing. The baby boomer generation will increasingly release residential space due to age, which could have a dampening effect on prices.
Urbanisation and Demand
Contrary to the assumption that urbanisation leads to long-term price increases, data does not show systematically higher value appreciation in large cities. Urbanisation has even tended to decrease in developed countries.
Interest Rates
Interest rates remain a dominant factor in price development:
- Rising mortgage rates reduce demand for properties.
- While the current interest rate level is moderate by historical standards, there is potential for further increases that could negatively impact prices.
Stock Market Performance from 1960 to Present
The stock market has shown remarkable growth over the past six decades, outpacing the value appreciation of residential properties. The following table summarises key performance metrics of major stock indices:
Time Period | S&P 500 Annual Return (Real) | DAX Annual Return (Real) |
---|---|---|
1960-1980 | 4.3% | 4.7% |
1980-2000 | 7.6% | 8.2% |
2000-2020 | 4.1% | 3.9% |
1960-Present | ~5.7% | ~5.9% |
The data underscores the stock market’s capacity to generate higher long-term real returns compared to residential property investments, driven by factors such as corporate earnings growth, globalisation, and innovation. While the stock market exhibits higher volatility, its returns have been a key driver of wealth creation globally.
Overoptimistic Expectations and Reality
Many investors tend to overestimate the long-term value appreciation of properties. The main reasons for this are:
- Nominal vs real perspective: Nominal price increases are often confused with real returns.
- Property marketing: Actors such as estate agents and banks deliberately emphasise the advantages of property investments.
- Lack of market transparency: Unlike stocks, market prices for properties are less visible, making evaluation more difficult.
- Emotional factors: Unlike abstract investments such as stocks, properties can be imbued with personal and aesthetic values.
Conclusion:
A realistic view of historical data and structural influencing factors can help make informed decisions. Properties remain an attractive form of investment – but more due to stable rental income and inflation protection than value appreciation.
Further research should focus on how the mentioned influencing factors will evolve in a changing world and what new opportunities and risks will arise for investors as a result.
Literature:
Dimson, Elroy/Marsh, Paul/Staunton, Mike (2018): „Credit Suisse Global Investment Returns Yearbook 2018“; Long Version; Credit Suisse Research Institute; 251 pages
Glaeser, Eduard (2013): „A Nation of Gamblers. Real Estate Speculation in American History“; In: American Economic Review; Vol. 103; No. 3; May 2013; pp. 1-42
Kommer, Gerd (2021): „Kaufen oder Mieten – Wie Sie für sich die richtige Entscheidung treffen“; Campus Verlag; 3. Auflage; 2021; 285 Seiten