DRESDEN, Germany — After an evening drink at the old-fashioned wine garden overlooking the Elbe River in Dresden last summer, Stefan and Katharina Kluge decided to hop a nearby construction fence and check out a 19th-century building being converted into luxury condos.
Once inside the gutted old walls, they sat down, drank another glass of wine and stared out at the water.
“That’s the moment we fell in love with the place,” Mr. Kluge said. “That’s when we decided to buy.”
When their 1,270-square-foot, four-bedroom condo is finished this summer, the Kluge family will do what many East Germans are doing today — return to their roots.
Having earned enough money elsewhere, they are settling in to raise their children where they grew up. And they are not the only ones drawn to a part of the country that has been underpopulated for decades.
Housing prices in Germany have been on the rise for years, powered by a strong economy, low interest rates and a growing desire for homeownership. The highest prices are in western Germany, in cities like Hamburg and Munich. But these days, cities in the former East Germany like Dresden and Leipzig — which have gone through complete transformations since the country reunited nearly three decades ago — are attracting buyers, too, and prices there are soaring.
Across Germany, a standard condo, defined in Germany as a 2-bedroom, 861-square-foot apartment, has risen in price nearly 65 percent since the beginning of the decade, almost entirely driven by price increases in cities, according to IVD, a real estate association that keeps track of property prices. (Nationwide top-of-the-line single-family houses with roughly 1,600 square feet have gone up 44 percent in the same span).
Compared with prices in Munich — the country’s most expensive city — Dresden’s standard condos still cost a little over a third as much, but things are changing quickly: From 2017 to 2018, the year the Kluges bought their new apartment, the value of an apartment in the city has risen 46 percent, on average.
In the 1990s, East Germany emptied out. In the decade after reunification, the area that made up eastern Germany, including East Berlin, lost close to a million inhabitants, almost all of whom went west.
The migration was so extensive that many small villages were dotted with abandoned houses and empty apartment buildings, and local officials set about knocking them down, rather than living with the blight. In 2004, roughly 60,000 apartments — one quarter of all apartments in the city — stood empty in Leipzig, according to one study.
Since then, much has changed. Cities like Dresden and Leipzig have things to attract both wayward natives, like the Kluges, and outsiders looking for nice places to live: excellent infrastructure, meticulously refurbished downtowns, shorter commutes, a less hurried pace — in short, a better quality of life.
Dresden, which grew from its lowest point of 484,646 inhabitants in 1998 to 566,484 now, attracts residents with its historic downtown, cultural scene and the Technical University of Dresden, one of the best universities in the country. At first, the city had a shortage of living space. But thousands of new units have been created, a mixture of new apartments and refurbished old ones.
Most of the foreigners who invest in Dresden buy property in the area around the Frauenkirche, a painstakingly restored Protestant church with the largest stone dome north of the Alps, according to Henry Brömme-Herrmann, a native who has been dealing in real estate for more than a decade.
“Dresden’s growth is sound,” he said. “But you do have to know where to invest.”
In much of the city, a standard two-bedroom apartment sells for slightly more than $200 a square foot, making Dresden the most expensive market in the east, apart from Berlin, where a comparable apartment would cost closer to $250 a square foot. But luxury apartments in some parts of Dresden, can exceed $600 a square foot.
Stefan Kluge grew up in Leipzig; Katharina, in Dresden. After completing their degrees in Leipzig, where they met, she moved to Myrtle Beach, S.C., to intern in an animal emergency hospital and Mr. Kluge focused on making films. In 2007, they moved to Switzerland, where Ms. Kluge earned her doctorate and where their two children were born. The family then moved to St. George, Grenada, where Ms. Kluge works as a veterinary professor and Mr. Kluge as a data scientist while they live on a 35-foot sailboat, which Mr. Kluge plans to sail across the Atlantic when they move.
They want to return because their children are at the perfect age to transfer from Grenadian to German schools.
“What I love about the East — especially Dresden — that it is still a little wild,” said Mr. Kluge, in a telephone interview. “You meet many people who live a different kind of life.”
Just 70 miles west is Dresden’s fiercest rival, Leipzig. Its real estate market is even hotter — for the first time since reunification.
After the fall of the Berlin Wall, Leipzig faced more obstacles than Dresden. The city was considered more utilitarian, and though there was more than enough living space, much of it was not up to modern standards.
When Leipzig was at its lowest in 1998, it counted 437,101 residents.
Not only are universities and colleges attracting researchers and faculties, but Porsche and BMW have opened huge factories on the outskirts. Both Amazon and DHL have overnight hubs in Leipzig.
According to a study by the city, more than three quarters of the people in Leipzig are satisfied with their quality of life — a rating many cities in other parts of the country could only dream of.
Last year, after growing by nearly 6,000 people, Leipzig counted almost 596,000 inhabitants.
“I remember this city when everything was gray. The houses were gray, the streets gray, there seemed to be a layer of soot on everything,” said Andreas Köngeter, a West German who has lived in Leipzig and been active in the real estate market since 1991.
The change, he says, came in 2003, when Leipzig won the domestic bid for the 2012 Olympic Games, which the city would ultimately lose to London. Although the campaign was unsuccessful, the media attention reintroduced the city to German audiences.
Before World War II, Leipzig was one of the most important trading cities in Germany and on track to becoming a city of one million, said Matthias Hasberg, the city’s spokesman.
“It’s why the streets are so wide, and it’s why the train station is so big,” he said.
The British Academy of Urbanism awarded Leipzig the European City of the Year award for 2018, bolstering its reputation as the new pearl of the country’s east.
Although the average price for a middle-of-the line apartment is closer to $150 a square foot, many are betting on a strong upward trend.
A carefully refurbished 1,520-square-foot, five-room apartment in a house built in 1909 in Connewitz, a left-leaning neighborhood with a history of squatters occupying houses, may fetch over $500,000, a sum that would have been unthinkable just five years ago. The unit is not the only one for sale on the block. Dozens of new condos across the street reflect the changing neighborhood.
But because of the often eclectic mix of beautiful prewar buildings (Leipzig has several examples of Bauhaus), more functional German Democratic Republic blocks and newly built post-reunification buildings, neighborhoods mostly stay mixed. Large-scale gentrification, which occurred in the Prenzlauer Berg district in what was East Berlin, is still a ways off.
Mr. Köngeter says that the boom is best documented by the cost of empty lots — the result of bombs during the war, or Communist-era houses in such poor repair that they had to be torn down after reunification. For a while, such lots had virtually no value. But recently, they have been sold for millions to investors planning to build condominiums. According to market research provided by IVD, the price for such lots has gone up 212 percent in the last five years.
“Many who say Berlin is just too expensive now come to us,” Mr. Köngeter said.
Markkleeberg and other villages south of Leipzig are also getting attention. The towns were at the edge of some of the largest open-pit coal mines in the region. When the destruction of the landscape stopped with the fall of East Germany, those living closest to the pits had won the lottery: After billions of euros of cleanup, the pits were converted into large lakes, and the lakefront land became some of the most expensive real estate in the region.
Private real estate in East Germany didn’t exist as such before 1990. Property was state-owned and virtually everyone rented or received housing from their employer.
A problem for young families who were raised in eastern Germany, is that their parents can’t help them with down payment or financing, the way many do in the west, Mr. Kluge said in a telephone conversation, because their parents were never able to buy property or otherwise amass wealth.
So the couple had to finance the nearly $700,000 price themselves.
Although their unit is not yet finished, the family has spent a lot of time thinking about how to style their apartment, how to make best use of the light and of the two windows facing the Elbe, where Mr. Kluge hopes to be able to sail a dinghy. (He plans to keep his big sailboat on the Baltic Sea, roughly four and a half hours by road from Leipzig.)
“In all the places we’ve lived we realize, what really counts is not so much the house itself, but where it is,” Mr. Kluge said.