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Brandenburg Gate

Germany is on everyone’s lips because of the performance of the national football team. The team even made it onto the front of Newsweek, under the headline: ‘Welcome to the German Century.’ In property, though, Germany has been experiencing a quiet, steady, almost teutonically efficient housing boom.

Things have reached the point where you expect the second paragraph of an article on a housing boom top list the financial breaks, low interest rates or safe-haven status of the locale in question. But the German boom has been so uneventful and so sustained because it’s built on top of a real economy. The German housing boom owes its existence to low unemployment, rising construction rates and surging rents.  Property consultants CBRE recently held a survey to determine the most attractive property market, and the answer they got back was: Germany.

While some point to Germany’s economic successes, with exports at record highs on the back of an emphasis on midsize firms and a thriving apprentice system, others observe that during the decade when prices exploded across Europe, German prices remained level. And the signs aren’t all good for a sustainable boom either: German incomes rose about 12% over the last 5 years, not keeping pace with prices – and certainly not with rents, a source of friction in a country with low home ownership rates.

One good sign of a boom in Germany is rising rents. First, that indicates that it’s not a speculator’s market. But in a country where only 53% of residents own their own homes, rising rent is an important indicator of market health, akin to rising prices in a more buyer/owner-heavy market. And Germany’s rents have risen by 15% in the last five years, while prices have climbed by 23% over the same period, according to BulwienGesa, Germany’s leading property index.

That 23% increase in prices for apartments in Germany looks impressive already: contrast it with the rate of price change across Europe as a whole, which is -3.7%, and you see why regional German towns miles from Berlin are of interest to foreign investors, as well as to overseas and domestic purchasers.

And the desire for German property might be driving investors to the country – but it’s also driving residents. About 30,000 people are moving to Berlin alone every year, while approximately 4,000 apartments are built citywide. JP Morgan Cazenove says the result is a shortfall of 15,000 units.

The danger for Berliners – native and newly-minted – is that these rises in rents will drive out to many residents. Luxury refurbishments have been banned by several Berlin local governments for this very reason, and in some areas it’s against the law to install a fireplace or underfloor heating.

However, compared to other European capitals Germany still offers relatively low rents. Average rent in Munich is €14/m2, compared with €44/m2 in London, according to Jones Lang LaSalle.  Purchase prices compare favourably, too: €4,590 in Munich, €9,270 in London. And Munich is Germany’s most expensive city.

If you’re eying German property, the likelihood of good yields supported by a strong economy should encourage you. If you’re thinking of moving there, beware a rising market in a country with so few property owners!

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berlin

50,000 new residents moved to Berlin last year, and with over 200,000 more young professionals set to join this burgeoning populace by 2030, this boom is set to trigger surging growth within the city’s rental market.

With homeownership at just 17%, renting is the norm in Berlin, meaning that the majority of these new residents are set to add to the already, incredibly high number of renters in the city.

The potential of this surge was recognised by investors last year, as Berlin became the third most active European real estate market between Q1 and Q3 2013, receiving investment of over €4 billion.

Berlin has also toppled Munich as Germany’s most attractive area for investment. Last year, 96,000 residential units were sold within the historic city, accounting for 44% of all real-estate transactions in the German property market.

This surge in real-estate investment has facilitated growth within Berlin’s wider economy. The start of 2014 saw the economic index of the Berlin-Brandenburg Chamber of Industry and Commerce reach its highest level since 2007, while Oxford Economics predicts that this growth is not set to slow any time soon, forecasting growth of 1.4% throughout the rest of the year.

As investor interest compounds, prices are inevitably rising in the Berlin market. According to ImmoWelt.de, asking prices for one bedroom flats have risen 53% in three years, while residential property prices have jumped 17% in the last 12 months and 31% in the last five years, ending July 2013.

However, this has not served to dampen investor appetite as prices for apartments in Berlin still remain relatively low, selling at an average of €2,000 per sq. metre, a third less than the existing rate in Paris and less than a quarter of the price in London.

These low prices have seen Berlin ranked as the number one choice for residential investment in the “Emerging Trends in Real Estate 2013” survey by PWC, because of the opportunities for growth within the market.

Attractively, rents also remain relatively low, allowing for opportunities of growth in the rental market.  At the end of 2013, the average rent in Berlin stood at €7.90 per sq. m lower than rents in Hamburg and Munich, where they stood at €10.00 and €12.50 respectively, outlining the opportunities for growth in Berlin.

Berlin’s emergence as an area for investment is a result of it being recognised as one of the world’s fastest growing cities.

This new-found status can be seen in the city’s surging tourism figures. Berlin hosted over 26 million overnight guests last year, according to its tourism office, making it not only Europe’s third most popular city for real-estate investment, but also Europe’s number three city destination.

Leaders in worldwide property investments, Knight Knox International, were quick to respond to these changing market trends in Berlin, launching a host of developments in Berlin at the start of 2014.

One of these developments is situated in the artistic region of Kaiserdamm, while two more developments are located in the district of Mitte – a popular destination for new residents to the city, which sees annual population increases of 3%.

The developments include; Mitte Living which is set to comprise of 128 residential apartments upon completion, Shorhnhorststrasse, which is set to comprise of 118 high-end one, two and three bedroom apartments, and Kaiserdamm, which will contain 31 residential units, two commercial units and 20 underground parking spaces.

The Shorhnhorststrasse luxury apartments are available from £305,663; Mitte Living apartments are available from £187,065 and Kaiserdamm apartments from £149,990.

For more information please contact a Knight Knox International property consultant on 0161 772 1370.

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Barbie has lived in Malibu since the 1971 introduction of Malibu Barbie.  But now she has made a bold move, from the sun and sand of California to 25,000 square foot Berlin townhouse.

Of course, the bold move is really by Mattel, owners of the Barbie brand.  The Malibu mansion was listed with real estate website Trulia for $25m and a member of a real estate realty show’s cast has been hired by Barbie to handle the listing.  Since Barbie retains the number one position for dolls, companies and brands were eager to collaborate with Mattel’s stunt.  Not only was it a bold, creative marketing move, but you have to admire the chutzpah required to put a $25m tag on a one-room house with a wall missing.

But the Berlin Barbie Dreamhouse is entirely real, at least in the sense that it will occupy 25,000 square feet of Berlin real estate.  The multi-storey mansion, bright pink throughout, is expected to open in March.

According to promotional material ‘dreams will come true’ – ‘You want to be a model or a pop star, we will show you how.’

Visitors will have the opportunity to make customised digital cupcakes in Barbie’s kitchen, visit Barbie’s walk-in closet and digitally try on clothes, check out the enormous four-poster and parade in a Barbie fashion pageant.  Each room will feature themed activities.

The Barbie Dreamhouse is intended to cement Barbie’s place in the doll firmament.  When she was created in 1959, Barbara Millicent Roberts was modelled on a German doll, Lili, whom her creator had seen while on holiday.  She swiftly acquired a dominant position in the doll market.  Fifty years on, 90% of girls between three and ten years old own a Barbie, but the company isn’t resting on its laurels. ‘There are so many toys for girls today, and the Dreamhouse is about bringing Barbie to life,’ said Sarah Allen, a spokeswoman for Mattel in the UK.  ‘We’re constantly trying to reconnect.’

In 2009, Barbie’s 50th birthday celebrations saw a lifesize recreation of one room, in California, but the Dreamhouse is on a different scale from that.

And the Barbie brand faces stiff competition from rival dolls Bratz €“ literally; prior to 2013 Bratz dolls had no arm joints.  In 2013 Bratz owner MGA Entertainment will attempt to build up the 40% market share of Bratz by increasing their height to match Barbie’s.  There may be records, movies and spin-offs, but as yet there is no Bratz house.  Barbie is the queen of plastic real estate.

The event agency behind the house itself is EMS Entertainment, whose Christopher Rahoffer told Das Spiegel that ‘we want to allow fans to spend an entire day in the fantasy life of their icon.’  It’s likely that the house will go on tour, spending time at other German destinations, but EMS are ‘very pleased that we have the Barbie Dreamhouse  in Berlin for the first worldwide opening,’ according to company director Thomas Ladicke.

The news follows on the heels of other Barbie promotional stunts.  Not only has Barbie sold her Malibu home to move to Berlin, but she’s added to her portfolio of careers by trying out in Silicon Valley, and Mattel announced in December that Barbie would be taking those nails to construction sites in the near future as she takes up the building trade.

Barbie is expected to take a hands-off approach to the construction of the Dreamhouse, which is planned for one of three areas in Berlin with no final decision yet.  It’s possible that it will be built on the site of the old Berlin Zoo ferris wheel.

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Germany is Europe’s healthiest economy and has remained relatively immune to the plague of defaults and debt that has swept across the rest of the EU.  But a different danger might be facing Germany.

Brandenburg Gate in Berlin, Germany

As the economies of Spain, Ireland, Greece and even the USA suffered, investors in property there withdrew their cash and looked for places to invest it.  Meanwhile, Germany continued to rebuild swathes of old slum and rubble left over from the days of its division.  Foreign business investors built flagship buildings in Berlin, like the €600m Sony Center, whilst local businesses spread into areas that had previously been run down and rejuvenated them driving property prices up in the process.  Prices rose about 5.5% nationwide last year, causing German Bundesbank President Jens Weidmann to describe the rate as ‘something we will need to watch’ in a statement.

Stefan Sebastian, head of the Institute for Real Estate Finance at the University of Regensburg, says prices are going up because of ‘fear of inflation and fear of currency reform.’  Kai Carstensen, an economist at the Ifo Institute in Munich, echoes Mr Sebastian’s views, saying that while Germany is in a better position to protect itself against a bubble than the US or Ireland, ‘if we learn from the US experience, we should be cautious, even if we up to now aren’t in a bubble.’  Mr Carstensen points out the commonality of the optimistic belief in being the exception, too: ‘When I talk to politicians, they always say, well, it’s different.’

Many experts think the danger signs of a bubble are in place in Germany; ironically the country could be a victim of its relative stability and prosperity.  Unemployment is at its lowest in decades, and interest rates are at rock bottom.  Germans are typically not a homeowning nation in the way Americans or English people understand the term.  Home ownership in Germany runs at about 43%, but as interest rates make savings accounts look unappealing and loans seem to beckon by contrast, that might be set to change.  Whether it indicates a long-term trend or not, Germans are buying more property.

As a result, property prices are being pushed upward by domestic demand on one side and foreign investment on the other.  And the pressure isn’t just on existing property.  There’s been an upswing in German construction too, with new housing construction permits up 9% between September 2011 and March 2012 compared with the same period a year earlier.

However these two types of purchasers are likely to have very different experiences.  German mortgage lenders typically offer much lower loan-to-value (LTV) mortgages than are on offer in the US or even the UK, where 90% or even more LTV mortgages are returning after the 2008 crash.  In Germany, a typical mortgage is more likely to require a 20% deposit and as a result these purchasers are likely to ride out a downturn more equitably.

Investments for profit, based on the belief that prices and demand will rise inexorably, are much more problematic both for their investors and for the wider economy if a bubble should burst; indeed this was the very factor that hit the Irish and Spanish economies so hard.

So are investors in trouble in Germany?  While some experts claim to see the warning signs of a bubble, others say there’s no cause for alarm just yet.  The actual price increase has some local hotspots.   In Berlin, prices have risen nearly 20% in the last year, and protests about housing costs and gentrification are common.  Overall, though, prices are only 20% higher than they were at reunification in 1990, and the recent rises make up for a long preceding period of stagnation.  Ulrich Kater, the chief economist at Deka Bank, rejected the idea of a bubble in Germany: ‘If you define a bubble as the price is only high because investors believe that prices are going to be higher in the next year’,’ he said, ‘then you have no bubble in Germany.’

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Almost alone in Europe, Germany is economically in good shape and solvent.  Almost alone in Europe, Berlin’s property market is on the up, with the result – probably also unique in Europe – that the number of squatters in the city is actually decreasing.

Berlin isn’t a success story within Germany, on paper at least.  Unemployment in Berlin runs at twice the national average of 6.8%, and there are relatively few employers.  The city has nevertheless spent the last three and a half years building itself up into the go-to destination for Europeans.  Wealthy Germans used to go to Greece, Spain and Italy; now wealthy Greeks, Spaniards and Italians are coming to Germany.

They’re fleeing the economic woes of their own countries, and they’re contributing to a spike so sharp – 17% in a year that George Soros is worried about a bubble.  There’s a particularly high demand for luxury apartments in Berlin.  New builds are more likely to feature modernist architecture and designer interiors than to be family homes or affordable housing.  Those Greeks, Spaniards and Italians have helped push up prices and rents to the point that Berliners are protesting in the streets, to the chant of ‘nicht Ihre Prozent auf unsere Miete!’ – ‘don’t make your percent off our rent!’

Berlin’s population, much like that of any capital city, comes largely from outside.  The city’s been swelled in recent years by professionals, young creative types and entrepreneurs with an eye to emerging technologies, and prices and rents reflect this mix.  Rent on a Berlin apartment typically runs at 5% annualized return, and prices for residential property have risen by 31% in the last five years, according to property broker ImmobilienScout 24.  US corporations are moving their property investment money to Berlin, to capitalize on a market that’s low but shows strong promise.

In the process, the culture and atmosphere of Berlin is changing.  Berlin has a long history of being the place for arty Europeans to go, especially Germans, and has caught all those who might have gone to Paris if they could afford it.  Now they can’t afford Berlin either.  Berlin has no concentration of industries or banks, as London or Paris does.  As a result, claims Steffen Sebastian, head of the Real Estate Institute at the University of Regensburg, Berlin apartments are overvalued already.

A sign of the end of an era, as much as the renovation of any Dockland warehouse, is what’s happening to Tacheles.  Tacheles is German for ‘Straight Talk.’  It’s Berliner for a building in the now-fashionable Mitte area of the city which used to hose a department store.  For more than twenty years now, it’s housed a collective of artists who squatted there to work and live.  They were evicted a fortnight ago.

‘This part of Berlin doesn’t interest us anymore,’ said one of the squatters, Reiter, as bailiffs supervised the eviction of the collective to make way for developers.  But it’s also true that Reiter and those like him no longer interest Mitte.  It’s gone from a post war bombsite – old Red Berlin, with extra bullet holes and rubble – to an upmarket German analogue of London’s East End.  Gentrification, identified as ‘capitalist coup’ by Reiter and characterised by him by ’boutiques and restaurants,’ has set in.  George Soros, speaking in Berlin on September 10, seemed to agree, albeit in a different language.  He warned his audience of a bubble and said the Berlin market had a lot to do with the flight of capital and negative real interest rates.

Photo Credits: Piano Light

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Berlin Mitte Skyline (credits: Dennis Gerbeckx)

Reports about Berlin’s flourishing property market are not shy in the last few months. It seems that the capital of Germany has finally morphed out of its sleeping beauty shell and climbed into the international limelight when the rest of Europe licks their wounds.

We hear of shiny, modern new property developments in the middle (Die Mitte) of Berlin with prices as high as 10,000 euros per square metre which is apparently more than double than only a few years ago.

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In the first of a weekly series this month on REITs we look at their introduction in Germany.

Legislation for German Real Estate Investment Trusts was only passed by the Bundestag on 23rd March this year, though it was with retrospective effect back to 1st January 2007. It seems too soon to draw accurate conclusions about the success of the change although there is an enormous potential upside for German property.

To evaluate developments over the next 12 months or so it’s important to register that both the German property sector in general and the legislation of Angela Merkel’s coalition government to establish REITs have special features that make the situation different from, for instance, the UK, one of the other newcomers on the block.

Taking the general distinguishing characteristics of the German property first of all, the most obvious of these is the size of the real estate sector. Estimates vary in the range of roughly 6.5 to 7.2 trillion Euros, making Germany by some way the European Union’s largest property market. However, up until now the term ‘market’ may have been slightly misleading as Germany has not only had a large proportion of rented housing (57% of the total) but (more significantly for investors) a very high level (73%) of commercial property owned by the companies utilising or occupying premises. The equivalent proportion in the United States is 25%.

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One thing that England supporters attending the World Cup will have learned (apart from the confirmation that our penalty takers can’t hit a cow’s bottom with a banjo) is that Germany is an attractive country with a welcoming and hospitable people.

Surprisingly, though, despite its proximity and value for money, it barely features on the wish list of British buyers of holiday homes.

There are a number of reasons for this, but one of the most obvious is that Germany is not a major tourist draw for British holidaymakers or second home owners.

Most of us buy property abroad to let it out to other British holidaymakers or to live in communities of fellow expatriates.

Neither really applies to Germany, but the focus on the country during the World Cup could be about to change all that.

Savvy property investors are talking about Germany being the next big thing on the Continent. But on what grounds?

According to the European Housing Review 2006, it is the only European country where residential property prices dropped last year.

In its recent report, property analyst Merrill Lynch observed that the country ‘has conspicuously failed to join in the global housing boom of the past ten years’.

A number of factors have contributed towards this curious anomaly in an otherwise upward Continental trend.

Low levels of home ownership (42% compared with 70% in Britain), a culture of state subsidy for rental accommodation and a reluctance by German banks to lend money to buy property have combined to cause house prices to stagnate.

So, yes, Germany could be a good place to invest: you will be buying close to the bottom of a market which is expected to go up.

‘The German property market has underperformed for a long time,’ confirms Liam Bailey, head of residential research at Knight Frank. ‘But there’s been a lot of interest in Germany recently, led by major institutions and banks who can sniff a profit.

‘It’s one of the few markets where property investors can still pick up big chunks of stock very cheaply. The residential property market does offer value.’

Ilya Spitalnik, of German Property Investors, is more exuberant. ‘It’s a fantastic place to invest,’ he declares. ‘Eighteen months ago, the market had bottomed out. But it has now increased by at least 15% – in some areas, far more than that.’

If this rapid recovery suggests that new investors may have missed the boat, Mr Spitalnik thinks otherwise.
‘In practice, although German property prices are going up, it is still excellent value compared with other European countries,’ he says.

To find out what sort of value, take the capital Berlin, where the World Cup final will take place on Sunday.

Prices for a city centre apartment in one of Europe’s most dynamic cities – which has become a mecca for arty types priced out of London, Paris and Barcelona – are 50% to 60% cheaper than an equivalent flat in London.

A six-room apartment in the prosperous Friedenau district will put you back less than £200,000. For more ambitious investors, a fully refurbished city centre apartment block on Karl-Marx-Strasse with ten flats and three commercial units costs £600,000 – or roughly the cost of a four-bedroom terrace house in Chiswick, West London. So why is property so cheap?

‘You have to take the view that home ownership is structured much differently over there,’ says Spitalnik. ‘It’s very much skewed in favour of the tenant – to the extent that you rarely hear someone in Germany say: “I’ve found a great apartment to buy.” They’re much more likely to say: “I’ve found a great apartment to rent.”

‘There is little tradition of home ownership or of private individuals investing in residential property. ‘The historical curve of property values has followed a steady economic decline during the past ten years. The market is only now stabilising as the economy recovers.’

Prices in the former communist German Democratic Republic, in the east of the reunified country, are significantly lower than in the west – by as much as 15% to 20%. But this is unlikely to be the case for much longer. ‘The gap is closing,’ says Spitalnik. ‘But for the moment, cities such as Leipzig and Dresden are good places to buy.’

But don’t expect too much choice in the period property market anywhere in the country. Three quarters of homes in Germany have been built since 1945, so character properties come on to the market only infrequently.

They can still be found in winemaking rural areas, such as the Rhine and Mosel valleys, but prices are likely to be high. In the east, the properties for sale are more likely to be in state-built apartment blocks than attractive mansion blocks.

In the west, there are still altbau (old buildings) for sale in Berlin, Dusseldorf and Hanover. However Munich, Hamburg and Frankfurt are less likely to be fertile hunting ground for buyers seeking character. But if you really want to be king of the Schloss (castle), you can still buy one. After the fall of the Berlin Wall, the reunified country found it was the reluctant owner of hundreds of crumbling castles.

Many of them are for sale to any foreign investor willing and rich enough to take on a major refurbishment project. Grants of up to £175,000 are available for those prepared to wade into the uncertain waters of German bureaucracy.

The best advice is to get there before Kirstie and the rest of the TV gang. That way perhaps you could score a winner on Germany’s home turf.

What’s on the market

BERLIN
A fully refurbished, turn-of-the-century building on Karl-Marx-Strasse, one of the main shopping streets. Ten residential and three commercial units for £600,000, at a 6.25% gross yield. For more details, see germanproperty investors.com. Also in the capital, a turn-of-the-century, six-room, ground floor apartment with garden in the Friedenau district for £199,000. Fully renovated with wooden flooring throughout. See allgrund.com

DRESDEN
AN 18th-century castle in seven acres with a hunting lodge and several large barns in a small village 45 minutes from the city. It has been fully renovated outside, but requires extensive interior refurbishment. The purchase price and cost of refurbishment is estimated to be £2.06m. Visit poshjourneys.com

FRANKFURT
FOUR-BEDROOM, two-bathroom top floor apartment for £179,000. It is in the Bornheim area, close to East Park (the ‘Green Oasis’ of Frankfurt). Built in the early 1900s, it has been fully renovated with a new fitted kitchen and parquet flooring throughout.

Source: THISISMONEY.co.uk

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