BERLIN (dpa-AFX) - The combination of a housing shortage and high construction costs is causing rents in Germany to continue to rise despite falling real estate prices. In the first quarter, residential real estate in Germany was 4.3 percent cheaper than a year earlier, according to the Association of German Pfandbrief Banks (vdp) in Berlin on Wednesday. By contrast, rents in apartment buildings rose by 5.6 percent - this figure relates to newly concluded rental agreements, not existing rents.

An end to this unpleasant trend for tenants is therefore not in sight: "There is immense pressure on the rental housing market," said Managing Director Jens Tolckmitt. "Demand far exceeds supply."

Housing construction has become very expensive in recent years because both the interest rates on loans and the actual construction costs have risen sharply. As a result, both housing construction figures and demand from potential property buyers collapsed, leading to lower purchase prices.

According to the Pfandbriefbank Association, the sharpest decline was in Munich, Germany's most expensive city: in the Bavarian capital, purchase prices fell by 5.3 percent within a year.

However, as the slump in construction activity is exacerbating the housing shortage, rents are continuing to rise. The Pfandbrief banks do not expect any improvement for the time being: residential real estate will remain scarce for some time to come, with the corresponding consequences for the further development of rents. However, the association does not expect any further major declines in purchase prices for residential properties, but rather a gradual stabilization.

The commercial real estate market for offices, stores and the like is a different story: Prices fell by almost ten percent year-on-year, according to the report. Tolckmitt still does not see the "bottoming out" that many companies active in the commercial real estate market are hoping for, but expects further declines.

According to the association, the calculations are based on business data from over 700 banks on real estate financing, not on purchase and rental offers, which are otherwise frequently evaluated./cho/DP/zb