Liquidity pressure creates new opportunities in the residential real estate sector

Residential real estate remains the most stable asset class, a reflection of housing’s status as a basic human necessity. At the same time, the sector in Germany is under significant pressure. Rising interest rates, new regulatory requirements, and far-reaching energy efficiency mandates are substantially increasing capital requirements, not least to preserve the high standard of the current housing stock.

As a result, the direct transaction market has more or less ground to a halt. While sellers are often still basing their asking prices on outdated valuations, buyers are already increasingly factoring in higher financing costs and renovation risks. This disconnect has led to a standstill in many direct sales and large transactions.

The secondary market, in contrast, offers new opportunities. A growing number of investors are opting to sell their shares in property-owning funds at fairly short notice – and often below market value – in order to generate liquidity. A significant factor driving this trend is demographic change: many investments acquired in the 1990s are now held by investors who are either retiring or facing succession issues. Accordingly, the number of sales is rising.

For buyers, this translates into a liquidity premium. Funds with residential properties in their portfolios, in particular, present attractive entry points. Crucially, price discounts do not necessarily reflect the quality of the properties; rather, they generally signal the seller’s willingness to sell.

This situation is especially appealing for investors on the lookout for residential properties with development potential. Older properties in need of modernisation, vacant units, or those requiring ESG upgrades, offer value-creation opportunities when managed professionally. In this context, a liquidity gap on one side transforms into a compelling value-creation opportunity on the other.
Residential real estate is characterised by its structural stability, with demand remaining robust, particularly in urban centres. Access to the secondary market allows investors to acquire properties efficiently, bypassing the lengthy processes associated with direct acquisitions. At the same time, the current price discounts create a financial cushion for essential renovations and sustainability improvements.

In the United States, a well-established and highly liquid secondary market serves as a model for Germany, which is still in the early stages of development. However, in the current climate of heightened uncertainty, the secondary market presents a significant opportunity for residential real estate investments. My conclusion: The secondary market has evolved beyond a niche phenomenon. For investors with a focus on residential real estate, it currently offers exceptional opportunities, provided they are willing to conduct thorough due diligence and invest in high-quality properties with strong growth potential.