Real Estate Price Indices for Germany: Past, Present and Future

Abstract

In the past, information on residential property price developments in Germany could be inferred only from a small number of indicators of sometimes dubious quality. These indicators often lacked a clear methodological foundation and had a restricted coverage. Moreover, they gave - to some extent - contradictory signals. The Bundesbank residential property price indices derived from BulwienGesa data, which was released in 2003, brought some improvements with respect to intertemporal comparability. The main weaknesses of the Bundesbank indicators are the reliance on expert assessments instead of true transaction data and the limited coverage (only cities). Still, the BulwienGesa/Bundesbank indicators remain the market leaders in Germany. The increasing use of the internet for residential property transactions and finance has provided additional indicators. However, the future will belong to hedonic indices. The German Federal Statistical Office is developing hedonic indices based on data gathered by local expert committees for property valuation. Due to the federal structure of Germany, however, it is very difficult to compile comparable data from all over the country. The Association of German Pfandbrief Banks is developing hedonic property price indices based on data gathered in the course of its member banks' commercial operations, and it invests heavily in improving the quality of the raw data. The main motivation behind this effort is compliance with new capital adequacy requirements. As a by-product, high quality hedonic property price indices for Germany might emerge, covering not only residential property but also commercial property.

Keywords: asset prices, real estate, price index, Germany

JEL Classification: C43, E31, R21, R31