The Berlin Property Market - Outlook 2018

We wish you a Happy, Healthy and Successfull Year 2018

The German and especially the Berlin property market experienced a record year in 2017 and left quite a few loose ends to watch out for.

Rent levels in the German Big 7

... Berlin, Munich, Stuttgart, Frankfurt am Main, Düsseldorf, Cologne and Hamburg have risen significantly although at quite different rates. This applies to all market segments but is most outstanding residential properties in Munich and Berlin. Some market participants will tell you that the limit is reached and others will say that especially in Berlin there is still plenty of scope compared to other European metropolia like Prague or Warsaw.

Construction of new Apartments and Office Space

... does not keep up with demand in the big population centers and increases the upward pressure on rent levels.

Legal Challenges in the Residential Market

Almost all legal measures undertaken by the Federal Government and Local Authorities have been somewhat successfully challenged in court. Mietpreisbremse battle taken to Germany's Federal Constitutitutional Court Another challenge is the use of Airbnb by tenants and apartment owners.

Financing Property

... might become more expensive in 2018 as the inflation rate in December was at 1.8% the highest in 5 years. The main cause was the rent development and energy cost. This could have an impact on interest rates which in turn might have a slowing effect on property price increases.

These are just a few items to keep an eye on. Stay informed about the developments: Sign-up for updates from this blog and visit our website berlin-portfolio.com.

The Berlin Property Market - Outlook 2018

Investors favour Germany over UK for commercial real estate for first time

One in three (33 percent) commercial real estate investors have suggested that Germany is their preferred region to invest in, according to the latest BrickVest commercial property investment barometer. According to the latest market barometer of 3,500 professional real estate investors from BrickVest, the online real estate investment platform, suggests that more than a third of professional real estate investors are trending towards Germany as their preferred region to invest in. This is the first time that Germany has been chosen as the number one region to invest in, ahead of the UK which was selected by a quarter (27%).

The Barometer also revealed that UK, French, German and US investors are now less favourable towards the UK since last year.
BrickVest’s Barometer also showed that the investment objective for the majority (55 percent) of its online investors is capital growth compared to 33 percent who said income. This is a good explanation for the popularity of Berlin Real Estate despite yield compression - appreciation.

 

Investors favour Germany over UK for commercial real estate for first time

There Could Be a Way To Avoid Capital Gains Tax for Apartments in Germany After 2 Years

If you have bought or are planning to buy an apartment or a house in Germany this could be very valuable information for you. The base of the subject seems very dry but the impact is potentially very significant: It is the subject of “Capital Gains Tax”.

Read more here:

https://www.linkedin.com/pulse/how-avoid-capital-gains-tax-apartments-germany-uwe-falkenberg/

There Could Be a Way To Avoid Capital Gains Tax for Apartments in Germany After 2 Years

Emerging Trends in Real Estate in Europe 2018

Berlin has been ranked the top city for investment and development for the fourth year in a row by Europe’s real estate community.

A joint survey by PwC and Urban Land Institute provides an outlook on real estate developments throughout Europe in 2018. The forecast is based on the opinion of more than 800 property professionals.

Some of the results:

German cities have four representatives in the TOP 10 with Berlin at No.1 coming as no surprise. Some of the other interesting placements:

2. Frankfurt and Copenhagen

4. Munich

5. Madrid, performing a jump up by 4 places

6. Hamburg and 7. Dublin, both kicked out of the top 5

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14. Paris

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27. London

The survey demonstrates growing optimism in view of the general macroeconomic development. Especially Germany and Berlin are highlighted:

'Germany has been steady state for a long time now. With Berlin, people truly believe it’s going to become a major city', a pan-European financier says.

The placement of London at the bottom of the ranking seems in contrast to predictions Savills published only recently: Savills: 2017 central London investment set to hit £20 billion – and could set new record.  But the uncertainty of BREXIT clearly reflects the outlook of the panel and could contribute to a self-fulfilling prophecy during 2018.

The DO and DON'T for 2018

Logistics and niche residential sectors such as student housing, senior living and healthcare are seen as the front-runners whereas anything retail is seen very critically.

The survey also addresses non-quantitative issues driving discussions and developments in the real estate community with Technology being top contender:

Key features of the report:

Major non-quantitative topics covered by the survey:

• Risk and return in today's business environment
• Alternative platforms
• Markets to watch
• Impact of Brexit - UK
• Space as a service

The survey:

Emerging Trends in Real Estate®: Europe 2018

is available for download here.

Emerging Trends in Real Estate in Europe 2018

Study: Eastern Germany's mid-sized cities are becoming increasingly attractive

TAG Immobilien AG Housing Market Report 2017

• TAG Housing Market Report Eastern Germany 2017 analyses 27 large and mid-sized cities in Eastern Germany
• Growing demand for housing in areas around major Eastern German cities
• Increase in popularity and new residents drives up rents and purchase prices, while vacancy rates fall 
• Household housing cost burden remains stable or even declines due to strong purchasing power growth

Hamburg, 18 October 2017 - Eastern Germany's housing markets are on course for further growth. Urban populations continue to expand while vacancy rates fall. As a result, rents and property purchase prices are increasing in many locations. The good news: "Despite the fact that rents are rising, dynamic purchasing power growth means that household housing cost burdens remain stable or have even declined in some places", said Claudia Hoyer, Member of the Management Board at TAG Immobilien AG. This has been confirmed by the "Eastern Germany Housing Market Report 2017", published by TAG Immobilien AG today. As with last year's study, the real estate consultancy firm Wüest Partner Deutschland analysed data from 27 large and mid-sized cities in Eastern Germany, including data on population and economic growth, rents and purchase prices, property yields and the financial burden of housing costs across the region.
The report also includes interesting details about the development of gross yields and price development in Berlin.


Further findings, including the complete Housing Market Report Eastern Germany 2017, can be downloaded for free here.

Study: Eastern Germany's mid-sized cities are becoming increasingly attractive

Winning in Growth Cities - Cushman Wakefield Report 2017 and Outlook 2018

Key global cities are winning the race for investment – but which ones? The ‘Winning in Growth Cities’ report, published today, is an annual survey looking at global commercial real estate investment activity.

Key Highlights

• Global property investment rose to $1.5tn in the year to June.
• Led by New York, the US dominates the ranking of global cities but Asian markets made the most impressive gains in the past year.
• London is still the number one global market for cross border players. Paris closed the gap in third place but German cities are the ones to watch.
• While gateway cities again dominated, with the top 25 taking nearly 50% of the market, tier two cities have taken market share.
• The economic background is more encouraging for real estate than many expected, with global growth forecasts raised by the IMF for the first time since 2011.

One of the key factors determining which cities will out perform is technological change. Developments such as virtual reality and big data are set to enable more rapid change and will start shaping cities and tenant demand within months rather than years.

This report aims to identify some of the key enablers and emerging technologies and looks at what will determine which cities are the winners in this radically shifting environment.

For Germany and especially Berlin we support all activities regarding property investment with our experience and specialized network of property professionals.

Download the PDF

Winning in Growth Cities - Cushman Wakefield Report 2017 and Outlook 2018

International Property Handbook - Trends 2017

The International Property Handbook from Deloitte’s Global Real Estate & Construction group tracks real estate capital flow, and provides a view of investment trends and key deals in the most active international markets. It reflects back on 2016 analyzing economic data and real estate investment in 21 countries around the world to provide insights on potential trends in 2017.
Key trends include:

• Overall economic outlook is stronger, and there’s a significant increase in cross-border investments, especially in Europe.
• While the total investment volume remains stable, countries with positive investment volume growth are those in which investors expect growth due to macroeconomic indicators, expectations of rental growth, and yield compression.
  
• Offices continue to be the preference for investors.
• Private and unlisted funds are the most active net investors, followed by institutional funds.
• The capital raised continues to increase and investors are exploring new alternative markets.

Download the handbook to learn about the trends in the market.

International Property Handbook - Trends 2017

City Ranking in Germany for 2017 With Some Surprize Stars in The East

After 2015 the HWWI (Hamburgische Weltwirtschafts Institut) and Private Bank Berenberg have published their City Ranking 2017.

It looks at the 30 biggest German cities using a selection of indicators to determine the dynamics and direction of their development. There are quantitative indicators like demographics and an approach to qualitative indicators like the share of "high skills" jobs in the total number of jobs.

I don't want to make this too dry to read but there are some questions regarding the value of the findings: The indicators are ranked by the diversion from the statistical average for each indicator and then compiled into a summary indicator providing the overall ranking. So 100 new jobs in a city of 500,000 has the same impact as 500 new jobs in a city of 3.5 million.

It still provides an interesting insight into the general direction of the development of cities as well as their surroundings as cities have a growing importance for the development of their region.

So here is the ranking for 2017 in comparison to 2015:

The most remarkable result has to be Dresden, the capital of Saxony going up by 6 ranks and Leipzig in the same state moving up to No.2, both Ex-East-Germany.

Both cities have been the darlings of Anglo investors about 10 years ago driving up prices for investment properties.Subsequently many have abandoned the locations due to high vacancy rates which are now disappearing because of a turn-around in the job market in the region.

The full report is available here: City Ranking 2017

City Ranking in Germany for 2017 With Some Surprize Stars in The East

Have You Recently Bought a Condominium Apartment in Berlin?

Many international investors have bought condominium apartments in Berlin during the last years. Some will have full-service packages taking care of everything, hoping that everything will be alright. Some have bought an apartment, maybe even coming personally for the handover, proudly looking at their apartment - but what now?

Photo by All Bong on Unsplash

Just a few points to be thought of, best done a few months before:

• Who makes sure that any snagging is done right and timely while you are back home?
• How serious will the developer be when his last payment depends on the tick in the box on snagging - do you trust him to be acting in your best interest without supervision?
• Who holds the keys?
• At what rent should the property be rented - or should it be rented furnished with short-term contracts?
• If you want to go down the "Furnished Apartment" road, who takes care of this and who does the marketing for it?
• Who manages your apartment and rent collection, including
  
  • Budgeting
  • rent collection incl. chasing if necessary
  • payment of contributions to the owners association
  • property tax payment (quarterly)
  • tax documentation and handover to tax consultant in Germany
  • representation at annual owners meetings

Critical Point in Your Investment

This is the point in your investment that is as important as the purchase contract. The purchase contract and all the brochures are a promise. Now it comes to the fulfilment of your expectations - don't leave it to the developer and the agent who received a healthy commission - either from you or the developer - to make sure your plans work out. Even more important if reality does not meet brochure - you want someone on your side who knows the game. It also is a critical point for reclaiming some of the money you paid for a promise that was not 100% fulfilled - the clock starts ticking on handover day.

Our recommendation

Be prepared, don't leave it until the last day. But even if your handover has already happened and you are in the midst of having to make decisions by the minute - get some professional support with local experience. Someone with broad knowledge, experience and solutions. Everybody can point out problems, the next step is much more important - what to do? You don't need a lawyer, an architect and a rental agent to identify your next steps, you need someone who "owns" and "lives" your property and then proposes other specialists when needed and with specific tasks. Otherwise, you are likely to receive long documents with lots of possible or even real issues attached to a big fee account and still no solution.

We don't offer off the shelf solutions because every investor has a personal view about the degree of their own involvement. We can go from one-stop-shop including the management of the investment to just the production of a checklist based on the contract and its documentation. We are happy to engage in a conversation to find out what you feel is best for you.

Have You Recently Bought a Condominium Apartment in Berlin?

Global Real Estate Market Perspective August 2017 As Seen by JLL

Renewed momentum extends real estate cycle

Global economic growth has invigorated real estate markets worldwide. Leasing demand remains steady, while investors continue to allocate a larger portion of their capital to real estate. Deal flows so far are in line with what we saw in 2016.

2017 Prospects

Capital Values 6% Increasing

Rents 3% Increasing

Development 28% Peaking

Vacancy Rate 12.1% Rising

Leasing 39 m sqm Stable

Investment US$ 650bn Firm

Leasing, vacancy, development, rents and capital values relate to the office sector. Full-year 2017 forecast values. Capital values, rents and development figures refer to percentage change. Global vacancy rate - percentage value, leasing volumes in million square metres, investment volumes in US$ billions. Source: JLL, August 2017

There is a wealth of analytic information in the most recent report and we will look at it especially as it applies to Germany and compares to other reports. One item that sticks out when looking at residential investment in Europe is the JLL clock:

After all the persistent talk about aproperty bubble in Germany JLL research does not seem to confirm this for Berlin.

Some more headlines from the report:

• Office rental growth quickens
• Western Europe leads as most dynamic leasing market (office)
• Global retail markets facing unprecedented structural changes
• Logistics rents surging

Here is the linkk to the full report: https://goo.gl/RERdk6

Global Real Estate Market Perspective August 2017 As Seen by JLL

What is the best Property Location (In Berlin)?

In my career as a property professional I have heard plenty of advice about property investment and to come to the conclusion right up front -  there just is no lid that fits all pots.

There are investors with various investment philosophies, one that will go for prime locations for investment, put the lid on the pot and see what happened after 10 years. You know what, if it was not a major natural disaster area (take your pick) or politically unwise like Crimea, they will most likely be delighted about the value appreciation.
Now turning that theoretical value appreciation into cash through a sale to someone who believes in this new value is another story. This is an investment philosophy for someone who wants to park their money in a safe and useful way but does not need it for income purposes - this comes from somewhere else. They say that only poor investors look for income from property.

A different weathered property investor in the GERMAN rental market, the emphasis is on purpose, told me once that he would always invest in blue collar areas, anywhere in the world, because these are straight forward people who would do anything to pay their rent and stay out of trouble (eviction) as opposed to white collars who would rather pay a lawyer than their rent.

Let's take another angle:
If you invest 500k in a rented apartment(s) and buy a top tier apartment in Berlin-Mitte it would buy you 1 with about 60 m². How are you going to monetize it? Lock it up, air it once a month and run the taps and hope the authorities will not catch up on you for "housing speculation"? Rent it - furnished or not furnished? What will be the extra cost for furnishing and upkeep and frequent change of tenancy? How big will the gaps be? Did you choose the right location for furnished rentals? What is the cost of vacancy - 100% plus. You don't only not get the rent but you have to pay all utilities charges etc. (Betriebskosten) throughout the vacancy.
If you bought 3 apartments at the same price in a blue collar area you were hedging your bets: How likely is it that all three tenants would default at the same time? Given the current housing market, it is very unlikely that you would be facing a vacancy of more than one month on any of those three units. I think going into more details at this point would be insulting your intelligence ...

Now here comes what you have been waiting for while you were reading: My proposal for the income orientated investor. At this point, I have managed to source two offers for multi family properties that are a fair offer in the current market scenario and have room for improvement in the mid-term. Have a look at some of these locations and maybe you will get interested. ... https://propertylocations.blogspot.de/

What is the best Property Location (In Berlin)?

Deutsche Bundesbank: There is no property bubble in Germany

There are always those predicting doom and if they just keep doing so long enough they might be right one day and nobody counts the false alarms - they hope. The Deutsche Bundesbank (German Central Bank) does not belong in this category but is known for being very cautious about price developments, especially when they have an impact in banks lending policies for properties.

Only in May of this year Dr. Andreas Dombre, a board of directors member at the Deutsche Bundesbank warned about a price bubble building up in the German property market and the fact that you can't predict the actual "pop" only acknowledge when it happened.
Speech transcript in German:  https://www.bundesbank.de/Redaktion/DE/Reden/2017/2017_05_04_dombret.html#doc398274bodyText2

Photo by Markus Spiske on Unsplash

Asked about the topic at a press conference on 30.08.2017 introducing "Results of the 2017 low-interest-rate survey" Dombre stated that the Deutsche Bundesbank currently does not see a property bubble but fears a tendency that financial institutions are considering taking higher risks in residential property financing. Press release: https://www.bundesbank.de/Redaktion/EN/Pressemitteilungen/BBK/2017/2017_08_30_joint_press_release.html

 

Especially in the Berlin housing market, we are successfully sourcing off-market investment opportunities for private investors in the popular segment between 1 and 2 million Euros as well as high-end private homes and villas. For more information please contact us at: http://www.berlin-portfolio.com/feedback.html

 

 

Deutsche Bundesbank: There is no property bubble in Germany