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Guide to German Property Investment - Including Berlin
 Assetz
Germany is starting to sell selected properties in Berlin thanks to a unique
and exclusive partnerships with a number of premium property companies in
Berlin.
As the capital city of Germany, Berlin is likely to lead the property price
growth over coming years and so it is for this reason that we have gone to
Berlin to hunt out the best locations for investment. Our role consists of buying very select blocks of apartments in the best
areas of West-Berlin where there is a high demand for rental of quality apartments
and with significant accompanying capital gains potential.
Assetz and our developer partners are responsible for
- selecting the area and building according to criteria such as location,
condition of the building, conditions of the lease contracts in place
- buying the building and doing the division, then putting in place the
co-ownership regulations
- starting quality improvement works in order to add value to the building
and increase the rents in place
- selling the apartments to investors on an individual unit by unit basis
- carrying out the ongoing property management (rental, works etc…)
Why invest in property in Berlin ?
The federal capital has become the centre of the enlarged European Union,
following the inclusion of the eastern states. Berlin is not only the seat
of the German Government and countless associations and organisations but
it is also the base for the headquarters of more than 40 worldwide-operating
companies.
In addition to its political significance as federal capital, it has also
established itself as an internationally competitive and attractive location
for hi-tech
and modern service providers for the approximately 3.39 million residents
of the city. Recently media companies have been moving into the city in large
numbers, possibly making Berlin a leading creative centre for Germany over
the next couple of years.
Compared to other large cities, Berlin has a relatively high unemployment
rate (19.2%) and a below average consumer purchasing power which reflects
the social economic problems of the location. In economic terms, the city
is very attractive in term of development and especially for the property
market.
Why Germany ?
Assetz
believes that Germany is going to turn into one of the hottest property markets
in Europe during 2006. Under 40% of Germans own their own homes compared
with around 80% in the UK and Ireland. In Berlin only 14% own their own homes,
quite astounding for a European capital.
 When
the German market awakens to the opportunity of property investment with
low interest rates, and their economy starts to recover again,
we are expecting to see significant price rises over the next 5-7 years from
a very low starting point today. For example prices in Berlin, one of Europe's
major cities, are at €1,000 - €3,000 in many excellent areas
compared to prices of €10,000 plus in Paris and London for example.
For a capital city this is plainly wrong and not sustainable over time so
prices are sure to rise.
It has been interesting to see the development of
the market over the past 24 months with organisations such as Terra
Firma buying of a €7 billion worth of residential property in Germany
and the property fund disaster in early 2006 where over optimistic valuations
within property funds caused mass departures by investors and forced sales
that could well mark the capitulation of the market and mark the beginning
of the growth of this country's property investment opportunity.
Off-plan or existing housing ?
Assetz Germany specifically deals with existing German property. Of particular
interest at present is Berlin residential property which appears undervalued.
Beautiful, renovated, well-maintained early 20th century buildings in prime
locations can be acquired for €1,200 to €1,400 per square metre with yields
ranging from 5.5% to 6.1% for such buildings. Berlin and other strong cities
are likely to grow economically and draw significant numbers of immigrants
into these locations and underpin the rental market through growing demand
and rents. For example, in Berlin it is estimated that far more than the
30,000 official immigrants from Poland settled in the city in 2005. In Berlin,
the
capital of Germany, there are large stocks of quality properties at surprisingly
low
rents and
low
prices.
Not
all the areas are
good and with our partners we have been investigating the regions and cities
offering the best opportunities for investors.
Without a doubt existing properties offer the best opportunity at present
as they are so cheap for a major European capital city with such good
quality turn-of-the-century stone architecture apartments in tree-lined avenues
surrounded by parks and near to the river. Prices are currently a few thousand
euros per square metre and this is several times less than other major European
capital cities. Equally rents are also quite low, often only between 3 and
5%. However, existing tenanted property is cheaper than empty property awaiting
a tenant. Anyone familiar with the UK commercial property market will know
that this is back to front - normally empty property, without the benefit
of a tenant or a lease, is cheaper than occupied property with a lease in
place. Not so in Germany, mainly due to the expectation that rents will rise
strongly over the coming years and sitting tenants will limit rent rises.
In order to minimise risk, it is important to consider existing tenanted
property and forego the potential higher rent for the certainty of an existing
tenant. For the property speculators amongst you, purchasing an empty property
gives the potential for much higher rent under a new
lease. With the rental market in
Berlin looking strong, if an investor was to buy in the strongest location,
we feel that the risk of an untenanted property is easily countered by
the
potential for a much stronger rental income and for this reason we agree
that empty property should be more expensive in quality locations than tenanted
property.
Change is coming...
The German property market has not grown for many years (over 10) and German
property prices remain reasonably flat. However, many indicators show that
change is coming with unemployment beginning to lower, retail spend beginning
to increase and the extremely low home ownership statistics looking like
they are about to move upwards. Traditionally, Germans have rented their
homes rather than buy them, but now owners such as banks and newer organisations
such as Terra Firma mentioned above are beginning to help renters to purchase
with new financial packages. In many ways this is similar to the council
housing boom in the UK in the 1980s when a similar property boom took place
once home ownership was made easier.
The property market in Berlin
 Berlin
has benefited from a subsidised environment for many years prior to the wall
coming down at the end of the Cold War. These subsidies were there to help
Berlin continue as a workable city while split between East and West and
they helped keep rents down.
Since the fall of the wall there has been a boom in development as well
as commerce with many subsidies available over recent years to incentivise
inward
investment. Whilst this is now coming to an end, the effect of it has started
the economic revival of this city.
Rental rates and property prices are still very low though compared to other
major German cities and other cities in major European countries. The German
government is being relocated from Bonn to Berlin and whilst this is underway,
so far there has only been muted movement in house prices.
Market view by Real Estate category
Rental homes
So called "Zinshäuser" (Rental homes with 8-20 apartments
or flats) or "Aufteiler"; this being companies that buy and divide
such houses into individual condos so that the apartments can be sold as
single units are most attractive as investments in Germany. Most sought after
are what we call "Altbau"; buildings that were constructed at
the beginning of last century and so are between 80-100 years old. If these
houses are modernised, they are unique with their high rooms. The ceiling
level is about 3.20 to 4.00 metres (buildings since about 1950 have around
a 2.50 metres room height).
A modernized Altbau is also a very good rental property as these flats are
most in demand.
Square metre prices range from €1.500,- to €3.000, (depending
upon the area in Berlin) anything higher than that is not recommended as
a capital
investment. For such houses the investment yield ranges between 2 and
5% per year generally.
Supermarkets and Malls
In general this is a very difficult market. Well-known supermarket chains
have been doing very well in one area and bad in another. Renting out
a supermarket to such a chain does not say much compared to the similar status
in the UK. The situation might change very quickly. Supermarkets that have
been going well for many years
and where they are situated very centrally can be a good investment, though.
But these opportunities are very rare. The capital investment return
can be expected to be somewhere between 8.5 and 11% per year. An investor
needs to carry out extensive research on where to buy and be careful when
buying in East
Germany
no matter which chain the market is rented out to!
Mixed Use
Properties that have a mix between shops and apartments are most recommended
when located very centrally. They are some of the best investments possible.
The value increases over coming years can be expected to be very good. Investment
return is somewhere around 4 and 7% per year.
New apartment buildings
This is a difficult proposition at present, and only recommended to experienced
building companies which work with a German house building company with
some experience
of
the German City bureaucracies and who know the sales potential very
well.
Single family homes
Very much in demand but not particularly interesting at present as a capital
investment, due to a low return-on-investment rate (1-3%).
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