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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Germany Rated One of Best for Property Investment in 2010

Germany continues to be rated as one of the top property investment markets for 2010. In fact: the number of people sharing this view has risen to 80% from 66% last year. This is one of the key findings of Ernst & Young Real Estate’s annual trend survey of some 100 companies and investors. That said: another finding was that over 80% of the respondents do not believe the market has bottomed in terms of demand, space, and payment behaviours.

Survey participants included banks, closed-end real estate funds, real estate stock corporations/REITs, institutional investors, investment companies, opportunity/private equity funds, insurance companies and residential real estate companies.

'Although the transaction volume is set to increase for the first time since the beginning of the crisis, major commercial portfolio transactions and distressed sales are currently not anticipated,' said Hartmut Fründ, Managing Partner of Ernst & Young Real Estate GmbH. 'The market is still going through a period of consolidation,' he added.

Other statements from Ernst & Young partners confirmed what we said in yesterday's post; that residential property (buy to let) is attracting more attention from institutional investors than it has for years.

Partner Christian Schulz-Wulkow said that the residential sector is currently very popular: 'Residential property entails less risk and it has become a considerably more attractive proposition for institutional investors,' he said.

Another finding that was particularly interesting, was the fact that only a minority of those surveyed expected sovereign wealth funds and banks to be active buyers in 2010. In 2008 these buyer classes were among the most active in the German market -- especially in Berlin. The majority believe that family offices and institutional investors, most notably insurance companies, special funds and open-ended funds, will continue to be key buyer groups in 2010.

Opportunity and private equity funds, real estate stock corporations and international funds are seen as the biggest seller groups in 2010. Non-property companies and the public sector will make occasional sales only, according to the majority of respondents.

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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.

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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