Tuesday 10 November 2015

Investment in Berlin Residential Property – The Time is Now

In a world of “cheap money” because of monetary policies by the FED (Federal Reserve System, US Central Bank) and the ECB (European Central Bank) banks are not rewarding deposits of any kind but are able to hand out money at low interest rates if the collateral security is right. Stock market speculation of any kind is one option but requires the investor’s attention and is somewhat volatile. Property is always considered a more conservative, safe and care free option especially for the long term. One of the main motivations is the relative stability of value (increase) compared to other assets. Keeping this mind-set in focus, a typical property investor will expect value development (appreciation) at least as much as on income creation (yield). There might be locations with higher yields than Berlin but there are not many places that can promise a stable outlook on value appreciation quite like this city at the moment.

Berlin residential property has become a main focal point for international property investors - for various reasons.

The Outside View

Being involved in a market (I was born and grew up in Berlin) always carries the danger of one being “blinkered” and it is important to take an outside view. As Warren Buffet said: "Don't ask your barber whether you need a haircut".Only in recent days there have been international publications on the subject and I would like to share some of them. Very interesting reading , you will find that some of the articles I am suggesting to you will quote similar sources, big property agents with a vested interest, should be taken with a pinch of salt but behind the sales talk is a big piece of truth.

Berlin Carries On As Europe’s Property Investment Star - Square Foot.com.hk

Berlin has been on a property tear in the last few years. The German capital has seen faster price growth than any other location in the country — including traditional economic and banking hubs at Munich and Frankfurt — and it has emerged as one of the best investments in Europe. Building is finally on the rise, giving international investors more opportunity to enter the market. But is the primary market the only way to go?

New Berliners Propel Property Prices · Handelsblatt Global Edition

As Berlin keeps attracting more young, creative people from around the world, new districts are becoming more popular – and expensive.

A more inquisitive but in the end confirming and not contradicting view is represented in this article:

Berlin Devises New Methods To Solve Housing Crisis - TheUrbanDeveloper.com

Berlin, Germany’s largest city is facing a housing crisis as the city’s population soars as it has become a magnet for European youth and also grapples with the effect of the continent’s migration crisis including asylum seekers from Syria and further afield.

These recent examples of publications are in agreement about the reasons for the focus on Berlin Residential Property.

The Inside View

Making a career in the Berlin Property Market since 1981 in various roles and responsibilities we have seen many ups and downs but nothing quite like the current development. Today, on the 26th anniversary of the famous press conference that sent the Berlin Wall tumbling in 1989, Berlin is not seen as the center of political tension anymore but named alongside New York, Paris and London as one of the world’s prime locations, especially for young creative people.

‘The New York of Europe’ · Handelsblatt Global Edition
URL: https://global.handelsblatt.com/edition/301/ressort/finance/article/the-new-york-of-europe

There is talk of gentrification and displacement of incumbent tenants in the central districts of Berlin (Mitte, Prenzlauer Berg, Friedrichshain, Kreuzberg, Schöneberg, Wilmersdorf and Charlottenburg and in some specific parts of Neukölln and Steglitz) and political action has been taken. Mainly these are: - Capping rent rises at 15% within 3 years on existing rental contracts,
- new contracts exceeding the current rent table by not more than 10%
- and other measures to prevent costly modernizations resulting in significant rent increases in defined protected areas,
to name the important measures, some are more specific for property developers and dealers.

At the bottom line these measures don’t reduce the attractiveness of Berlin Residential Property much because the restrictions of market reality are probably more stringent: A 5% rent increase per year would be nice to have! So the political action can be rated as action taken for the next election but not causing real harm.

One of the key issues in delivering the anticipated and calculated results is the right choice of property management and instruction of the property manager. For a long time operating in a highly regulated and predominantly local or at least German Property Market many of the local property managers have no understanding of the needs and expectations of international property investors. Assumptions on both sides, property manager and investor, leads to disappointing outcomes as we have to witness again and again when called in to fix issues. (There will be separate information on this topic available shortly).

Currently, demand for residential investment properties is high and supply somewhat scarce and the outlook for investments is good. It is important to secure opportunities now. Demand for housing in Berlin is constantly growing while building permits and building activities cannot keep up with it. The demand is pushing into the peripheral regions of Berlin with unprecedented rent levels. The pressure on the housing market is intensified by the influx of refugees widely referred to as “refugee crisis”.

The current demand for Berlin Residential Property is in no way a “Property Bubble” as there is a sustainable growth in demand for housing and investment. Especially in times like this, opportunists are flooding the market with dubious offers and big promises. There is a need to assess the real risks and opportunities in an investment, whether apartment blocks, luxury apartment or investment apartment. Last but not least the right Property Management is key in delivering all these great prospects. Even though the current development in the property market is far removed from the situation before 1989, the knowledge of the rules and regulations then are still important factors in understanding the market now.

We are experts in supporting international investors in finding their right investment and management of it. Talk to us before you make your decision, especially when you are a long distance investor. We are your home base in the Berlin property market