The residential real estate market is in a state of upheaval. The economic changes of the first half of the year are slowly making themselves felt. Time to take stock and talk about how the market will develop over the next 12 months. For this purpose, we asked Christian Crain, Managing Director of PriceHubble Germany GmbH, for an interview.
Hello Christian. You have been working in the real estate and financial market for many years and have therefore already experienced several market phases. How do you assess the current situation?
First of all, yes, that's right. In my career, I have dealt a lot with the topics of construction financing and the valuation of residential real estate, and as part of this I have experienced the German and also the Swiss residential real estate market in various market cycles. For the past five years, the market has lived off the fat of the land. Sure, there was a damper at the beginning of the pandemic, but even then it quickly became clear that residential real estate is the winner of the crisis and the growth rates have moved steadily upwards in the double-digit percentage range as in the years before.
This means that the market is also somewhat spoiled and is now looking anxiously to the coming 12 months. The economic effects of the war in Ukraine, the increase in inflation, rising construction and raw material costs and, of course, the announcement of the increase in the key interest rate by the ECB are not leaving the real estate market untouched. In the residential real estate segment, I expect a sideways movement and a stagnation of prices at a high plateau. The market is thus recovering a little.
Does that mean that the market was sick?
Let's put it this way, it has been in a fever of excitement. The phase of low interest rate policy has led to a strong inflation of the buyer class, especially in the area of medium- and high-priced residential real estate. Buyers who until then could "only" afford 70 to 80 square metres were able to finance up to 100 square metres thanks to 100 per cent financing. Now the temperature on the market is dropping and this group of buyers will have to look for much cheaper properties to buy or alternatively rent.
What does this development mean for estate agents or project developers who want to sell properties in the next 12 months?
For project developers, this means first of all taking stock of current projects and, in a second step, examining planned projects. For ongoing projects, of course, financing plays a role if this has to be renegotiated within the project period. In addition, the marketing prices have to be checked and compared with the group of buyers I would like to attract, who may now be affected by the rise in interest rates. For new projects, developers certainly need to take a closer look at the planning and, if necessary, also use digital tools such as the Building Simulator to check which prices are achievable for which flat sizes and use a property and location analysis to check whether the target group at the location will remain the same and how prices will develop in the coming months. Those who start early can also get through this more agile market cycle.
For brokers and agents, the upcoming market phase definitely means a little more effort again, or let's say challenge. Demand, especially for mid- to high-priced properties, will thin out due to the loss of part of the buyer base. This means that it will again be a little more necessary to find the right buyer for the right property and it will again be necessary to examine more closely what purchase price I am trying to achieve on the market. Market price instead of marketing price will be the determining credo in many locations and price segments in the next 12 months. The market segment of luxury properties remains an exception, as this group of buyers is usually only marginally affected by economic changes of this kind. On the contrary, "concrete gold" remains one of the most important investment assets for these buyers.
When you say that the market price will take precedence over the marketing price, how do I determine it?
For this purpose, there are modern tools, so-called statistical valuation models, such as ours, which are able to determine the current statistically most probable market and rental price of a property based on several hundred price-influencing factors. Our model is developed and trained to such an extent that it is also able to give a forecast of value development for the next 24 months on the basis of the learned patterns and correlations in the market. As a result, we can already see a clear change in the performance of some positions in the form of a sideways movement. For many market participants, this is crucial for their planning and processes. Acting instead of reacting is more important than ever, especially in such market times.
As a result of the Corona pandemic, many have already addressed the issue of digitalisation and are using modern tools to optimise and increase efficiency. Will this trend continue?
It must and I think it will. The pandemic has already awakened many from their slumber and virtually forced them to find digital ways, as this was not possible otherwise in times of home office and lockdown. The use of digital tools that are based on artificial intelligence or use cloud computing, for example, is still a closed book for many because it is new and deviates from traditional approaches. However, many technologies, such as digital property valuation, have long since established themselves and found their place. Last year, the use of statistical valuation models was even already included by the European Banking Authority in its guidelines so that banks look into these topics for lending and monitoring purposes.
A final big topic on everyone's agenda this year is ESG. Here and there the darkness is clearing, but still the topic is more of a black box to fill. How do you see it?
Black box is the right term. That climate protection and sustainability are important topics is, I think, beyond question for everyone. I welcome the fact that the real estate industry is now also fundamentally dealing with this, but unfortunately it still resembles a large anthill. Everyone is motivated and the common goal is set, but there is not yet a really detailed roadmap and so there is a lot of hustle and bustle. I think it is important first and foremost to collect and structure data on a large scale. Only if we can really record and quantify so many factors along ESG, can we deal with the extent to which and with what we can influence these factors. We have taken a first step by integrating the energy label into our model. This means that it is already possible to read off the development of a property's value if I improve its energy class, for example through energy renovation measures. Such data-based insights create a concrete incentive for the economy to work on factors such as the energy efficiency of properties.
Of course, this is only a first step and a small part of the whole. But this is how the industry as a whole must work to address individual aspects in a data-based way and develop measures that feed into the ESG debate. We are also working flat out to implement more and I hope I can already report on this in the next interview.
That sounds excellent. Is there anything else you would like to share with the industry?
Data, data, data. I never get tired of saying it. I think whoever has the most information can also make the best (real estate) decisions. A little market sense and intuition are just as important, but these have also been formed from past experience and data. Those who now deal intensively with their projects and properties and check where they can automate processes with the help of digital tools will have more resources for strategic planning and above all for customer advice, which will once again take centre stage.
Thank you Christian for the detailed interview and see you next time.
Christian Crain is Co-Managing Director of PriceHubble Deutschland GmbH and has been driving the expansion of the Swiss PropTechs PriceHubble's innovative solutions for real estate and finance professionals in Germany since 2018. He brings over 20 years of experience in sales in the real estate and finance industry. As a housing and real estate credit specialist, he started his career in various real estate companies. For the last five years before PriceHubble, he played a key role in building MoneyPark AG as COO, today one of the most successful FinTechs in Switzerland. Before that, he spent eight years at Interhyp AG, where he was involved in setting up the Berlin branch and spent three years as Head of Private Banking.