German Property Price Rises Expected to Decelerate

Property prices in Germany are expected to continue decelerating as the economy is slowing down. During the second quarter of this year the hedonic house price index fell by 2.65% compared to the previous quarter after showing a rise of 2.8% in the third quarter of 2011, of 2.7% in the fourth quarter, and of 3.9% during the first quarter of this year.

In June this year the average price of an apartment fell by 1.74%, while the average price of a new detached home dropped by 0.28%. However the average price of existing homes increased by 3.94%.

In the year ending June 2012, the overall house price index increased by 6.7%. The average price of an apartment was €149,700 in June, while the average price of a new detached home was €250,600, and the average price for existing homes was €192,950.

Over the last couple of years prices in Germany have increased modestly, with the house price index rising by 2.97% in 2010, and by 5.44% in 2011. The number of dwelling permits increased by 21.7% to reach 228,400 units in 2011, and completions rose by 14.6% to 183,000 units.

Last year the German economy expanded by 3%, after seeing GDP growth of 3.6% in 2010. However this year the IMF is predicting growth of just 0.6%, and the first-quarter of this year saw growth of just 0.5%. Last month Moody’s placed Germany on a negative sovereign credit outlook due to the burden the country faces in its efforts to keep the Eurozone together during the current debt crisis.

However rental yields are increasing and most Germans choose to live in rented accommodation rather than buy their own home. Around 55% choose to rent whereas owner occupation is currently somewhere around 42%.

Berlin Property Prices Lowest in Industrialised World

Berlin property prices are lower than in any capital city in the industrialised world, according to a new comparative study by Engels & Volkers, although it is not the first time this has been reported, and it will probably not be the last either.

In Mitte, the upmarket district of Berlin, top end apartments currently go for an average price of 3,500 Euros per square meter, which is a fraction of the price of a comparable unit in the financial district of New York.

Engel and Volkers declared Berlin's history of division as responsible for its failure to grow like other capital cities.

"We have only begun to see things changing here in the last ten years. But, compared with other major cities, the impact of this on the property market is rather minimal," said Anne Riney, managing partner of Engels & Volkers in Berlin-Mitte.

"It will take a long time yet before the market reaches anything like the price margins of London, Tokyo, New York or Paris. Until then, Berlin will remain the world capital with the lowest-priced residential property," she added.

It is true; history is a huge part of the reason why Berlin property prices are so low, but not in the way laid out by Engels and Volkers.

Only 40% of Germans own their own homes, much lower than the developed world average of around 70%. The status quo has developed over the years, and the renters culture is now deeply entrenched in Berlin.

Because of the situation, the government imposes controls on rental rates, allowing rents to rise only when wages rise. Because the biggest buyers of property in Berlin are buy to let investors, price rises are governed by rental rates. This vicious cycle has kept the lid on Berlin property prices for years.

EU Construction Output Increase Bodes Well for German Property Investment

EU construction output grew 6.8% in March compared to February. This is the largest growth seen in the EU construction sector since the crisis hit. In fact, all the other rises have been lower than or a little over the 1% mark.

According to the data, from Eurostat, construction output rose on a monthly basis in thirteen of the fourteen states that provided data. The largest increases were recorded in Germany (+26.7%), Hungary (+5.5%) and the Czech Republic (+4.7%). Sweden was the only country to register a monthly contraction of -0.4%.

In the annual data it is a different story. Construction output for the entire EU was down 5.2% in March compared to last year, and the only countries to register an annual growth were the United Kingdom (+9.2%) and Germany (+2.6%). The largest decreases were registered in Romania (-23.1%), Bulgaria (-20.9%), Slovenia (-19.7%) and the Czech Republic (-19.1%).

This is the latest positive data on the EU economy, god knows it needs it after the debts of Greece blew up in everyone's face. According to recent reports, European property markets are starting to improve, and this is likely a major factor in the construction growth.

The growth in Germany is particularly interesting, because it confirms recent reports of major demand for retail and commercial spaces in the country. This will obviously fuel the residential markets in areas where the new construction is taking place. It is also good news for the German economy, which -- more than most places -- is a big factor in the shape of the property market.

In Germany only a little over 40% of the population owns their own home, and some 48% live in rented accommodation at full price. For this reason the property market is heavily restricted, with landlords only able to raise rents if wages are increasing. Thus, German property investments are most profitable when the economy is doing well.

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Overseas Property Industry Trends from 2009 to Influence or Expand in 2010

I just read a great article in Overseas Property Professional titled: LESSONS FROM 2009 TO PROSPER IN 2010. The article linked to several other articles explaining what had been selling in 2009, how this would carry forward into 2010, and some of the difficulties that would still be faced by some markets in 2010.

Actually one of the articles given as an example of the latter was most interesting of all: in the last few months the rebound in British and foreign demand for international property developed so quickly, that the reports can easily blind us to the fact that 2010 is still going to be a very difficult year for some parts of the industry.

The most enlightening was the one on Portugal, which told of a conference held by major players in the Portuguese tourism and realty industries on how they could work together to increase foreign trade and purchases of property in Portugal. The conference spoke of the pressure being applied to developers for them to cut prices, which many still refuse to do.

Since April the reports have been circulating of increasing British buyers in the Portuguese property market. However, these reports all involved UK based agents who are obviously finding it easier to attract the UK buyer.

Another hot seller in 2009, to continue doing well in 2010 is repossessed and distressed sales in established markets, namely Spain, America and the UK. America is expected to be particularly hot next year, with a record 3.9million repossessions expected according to RealtyTrac. The article said that distressed opportunities in Florida would dry up pretty quickly, while there would be opportunities to buy distressed property in Detroit for sometime.

It is no secret that America will be offering some pretty fantastic buy to let yields for as long as the repossessions continue, and that is why America was 3rd on our list of top investment destinations for 2010.

Another trend we have commented on here was highlighted in the OPP article:

“Our clients are pulling away from any risk, and are looking for guarantees. This is why we have decided to only recommend key-in-hand developments, and those that also offer a guaranteed leaseback are top of the list,” said Daniel Wentworth, International Sales Manager, Promonova.

We have written many articles on the risk-aversion of the buyers currently active in the market, and of the offers developers are having to lay on in order to increase sales, as is covered in the article linked by OPP as related news.

One trend missed by OPP that we are sure is in emergence (though it is covered indirectly in a few of the related articles and quotes) is the rise of buy to let investment in overseas property. This was again confirmed by Germany being 3rd most popular on portal Property Abroad.com in December.

The single biggest reason foreigners buy German property (obviously there are exceptions) is for buy to let investment. Germany is also known as one of the safest and most stable places in the world to invest, which ties in with the risk aversion also.

Another thing tying 2009 to 2010 missed by OPP was the chance given to Turkey to shine. Turkey property had been growing in popularity with foreign buyers for some time, but the effect the credit crunch had on foreign exchange rates has benefited Turkey in 2009 and will do so even more in 2010.

The strong euro/pound rate caused British tourism to Turkey to see accelerated growth. It also led to British sales of Turkish property surviving better than many European favourites.

We have just taken on a new development in Turkey that is certain to be a favourite in 2010: 2 bedroom apartments by a reputed developer in the South West Aegean Coast resort of Akbuk for £50k. Click here to find out more.

European Property Investment on the Increase – Now is the Time to Get Back in the Saddle

Investment in European property jumped 53% in the third quarter of 2009 according to Cushman and Wakefield. Yields are also on the up across Europe. With the exception of the UK, the average yield on European property investments rose 3 basis points on the quarter – the largest quarterly rise since late 2007.

This was part of a report from Cushman and Wakefield on the rising confidence in the European real estate investment sector.

Now is certainly looking like a very good time to get back into overseas property investment in Europe, with a view to completing acquisitions into 2010. Take Germany for example:

Jones Lang la Salle are forecasting that rents on German offices will be 6% lower by the end of this year. Germany is the biggest economy in Europe, largely because of its massive export sector.

A dramatic fall in rental rates on German offices, in line with business expansion beginning to remerge, will likely spark a massive drive on business expansion in German cities; local business expansion, and foreign companies taking advantage of the situation to open offices in Germany.

This will stimulate increased demand in the residential sectors, on property to rent and property to buy. German property has often been overlooked by residential property investors, because other locations offer more spectacular yields, but German property has always been a world beater in terms of the risk/reward ration on buy to let investments,

Now that the foreign investors the world over have learned that solid rental potential that can withstand external pressures is the key to a sound property investment, German property is likely to be high on more people’s short-lists. Such a dramatic fall in office rental rates will push it even higher.

On top of that we have the fact that Germany and Italy accounted for 63% of all retail property investments in the first half of this year. Retail investment is expected to increase in the second half of the year according to analysis by CB RIchard Ellis, and Germany’s retail sector is well placed for some solid growth. This will further fuel demand in the residential sector.

Romania is another market seeing some good expansion in the commercial office sector of late. Analysis by BNP Paribas noted a major increase in sub-leasing from small business expansion. With most of the growth coming from companies involved in business consultancy, IT, private medical public institutions and Utilities, indicating expansion in those sectors within the economy. Therefore demand for residential Romanian property should see some growth in 2010.

Bulgaria sees the opening of the European Trade Centre, a five building office complex and shopping mall in Sofia, now scheduled for Spring 2010. This, again will stimulate increasing demand for Bulgarian property to rent and buy in the residential sector in the area.

Outside of Europe proper, Turkey is doing very well on the back of low interest rates and extended term mortgages. In the two months ending October, the Turkish real estate sector expanded by 2%, compared to a growth of 3% in the previous 9 months. This acceleration is thought to have been because of improving sentiment, and derestricted lending by the banks, including an increase in the term of low-rate loans from 60 months to 10 years.

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German Property Perfect for Today’s Breed of Investor – to benefit from Crunch

German property investment has totalled 1.9 billion Euros so far this year according to a new report by Savills. The investment consultancy says that the money spent so far has been mostly by German Real Estate Investment Trusts, but that it expects the return of foreigners in 2010.

German property could do very well in the coming years, and if it does then it will have the credit crunch to thank.

Before the credit crunch, German property was constantly losing out to the emerging markets, and even to its neighbouring established markets, when it came to overseas property investment, because investors will primarily looking for exceptional capital gain.

Now that people have seen in no uncertain terms how quickly any capital gain can be lost, today's property investor is primarily looking for solid rental performance in their property of choice. For that type of investor Germany is perfect.

In Germany only 42% of the population owns their own home, and 44% rent at the market rate (according to recent figures from Eurostat).

This means that the government has to restrict rental rates, and landlords are only allowed to raise rents if the economy is growing. That is where the downside ends. In Germany tenants are very loyal, and when one tenant leaves it is relatively easy to find another. Typical yields are around the 4% mark, or around 6% in some areas.

Another reason why German property is perfect for today's investor is the abundant availability of properties with tenants already in place. Today's investor is researching their acquisitions to within an inch of their lives. Having the tenant in place with a rent figure set allows the potential investor to have exact figures on which to calculate the cash-flow from their German investment property.

It is also worth mentioning the fact that there are very few -- if any -- off plan property in Germany. Especially in Berlin it is almost all resale apartments in buildings built 40-100 years ago. This is also highly suited to today's risk averse property investor.

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German Property Becomes Popular as Investors go for Rental Yields and Security

Portal Property Abroad.com revealed its top ten most popular locations among those searching for overseas property on the site in September. The chart proved what has been suspected about overseas property buying trends since the industry began to recover: that people are buying based on stability, security and rental income as oppose to a quick buck.

The biggest indicator of this was the fact that Germany entered the chart at no. 8. Now, German property has always had its fair share of fans; those who saw the benefit of buying in a country with a renters culture. However, people buying in Germany were under no illusions of soaring capital growth, or even massive rental yields.

But when you look around now at the devastation left by the international downturn; at property prices in established markets lying in tatters, and you see German property still selling at similar prices to what it was in 2007, you realise that the forecasts of stability and security were not mistaken.

That said, Germany wasn't in the top 10 most popular countries very often (before I get my head in my hands I know it was in the APITs top 10 and climbed quite high in 2007).

The fact that it has now entered the Property Abroad.com chart at no 8 confirms that today's investors are a risk averse bunch looking closely and methodically at rental figures.

View German property for sale

German Business Index Shows Worse May Be Over - Keen Interest from Property Investors

There are hopes that the German economy maybe past the worst of the recession after a major index of business confidence rose for the fourth consecutive month and to its highest level since November 2008.

The Ifo index polled 7,000 German firms on the business climate, the current economic situation and business expectations (future). The business climate index rose from 85.9points in June, to 87.3 points in July, the current expectations index rose to 84.3points from 82.4 in June, and the business expectations index from 89.5 to 90.4.

The Germany property market, certainly from an overseas property investment standpoint is very much based on the strength of its economy, with most investors buying properties with a view to the strong residential rental market in places like Berlin -- because of the predominance of German's renting their homes as oppose to buying.

Thus, the investors of yesterday and tomorrow will be keenly watching for any further signs that Europe's largest economy is starting to get back onto its feet.

There are those that believe the economic crisis may forever change the property market, with people taking advantage of any price-falls to buy their house and escape the rental market, but I myself feel this is unlikely -- in Berlin especially renting is a way-of-life.