City Comparison Berlin and The Rest of The Top 7 in Germany

One of the results of this year's annual Housing Market Report Berlin 2017, published jointly by Berlin Hyp AG and CBRE. The report is available for download.

http://germanproperties.blogspot.de/2017/01/housing-market-report-berlin-2017.html

The housing market is catching up but purchasing power not yet. In 2015, Berlin gained almost 48,000 new inhabitants due to its positive economic development and attractive quality of life, thereby continuing the development of the past few years. Since 2005, the population of the city has grown by about 270,000 inhabitants. This increase entails a growing demand in the housing market, even if the purchasing power of other large cities in Germany is still well above the Berlin average (Cologne: plus 14.6 percent, Hamburg: plus 18.6 percent, Frankfurt: plus 23.7 percent, Munich: plus 42.5 percent). Despite increased new building activity, the vacancy rate in Berlin is now 1.2 percent, which is only slightly above the Cologne (1.1 percent) and Stuttgart (0.8 percent) but already below the vacancy rate of Düsseldorf with 1.5 Percent. Accordingly, the average supply rent in 2016 rose to € 9.00 per square meter per month but is still below the supply levels of the other Top 7 cities, of which Munich is the highest value at € 15.11 per square meter per month.

"The continued development of Berlin is impressive and offers a dynamism that is unique in Germany, both at the rental and new market as well as at the purchase prices," says Henrik Baumunk, Head of Residential Services at CBRE in Germany. "Nevertheless, there is still room for improvement in Berlin with regard to rents and purchase prices, due to the progressive growth in population, while at the same time moderate new construction and due to the increasing economic power of the city", explains Baumunk.

Offer rents are twice as strong as in 2015. In 2016, the supply rents rose by an average of 5.6 percent and thus reached a dynamic level comparable to 2014, when an increase in the supply rents of 5.8 percent was observed. In contrast, in 2015 the increase was 2.3% much lower. "Growing population numbers and economic growth are putting more tension into the market," says Gero Bergmann, a member of the board of directors of Berlin Hyp. "The offer is becoming ever lower because, in the case of scarcity and price increases, the willingness to move is always decreasing."

Not only the median values of all offer rents but also the mean values of the lower and upper market segments (the cheapest and most expensive ten percent of the offers) show marked differences in the growth rates between the districts. Across all market segments, the rents offered rose most clearly in Neukölln with 17.1 percent. Marzahn-Hellersdorf recorded as the only other district a double-digit growth with 10.2 percent. At 6.70 euros per square meter and month in the median, Marzahn-Hellersdorf was still the district with the most favourable offer rents - in the lowest market segment, there were even offer rents of 5.20 euros per square meter. At EUR 11.04 per square meter, Friedrichshain-Kreuzberg showed the highest average offer with a 7.5% increase. The district with the lowest increase was Charlottenburg-Wilmersdorf with 2.7 percent. In the upper market segment, 17.46 Euro per square meter was the rent advertised in Berlin-Mitte.

These rents result in very different housing costs quotas, the ratio of the purchasing power of residents to the average warm rent of an apartment offered. The housing costs range from just over 17 percent in some quarters in Marzahn-Hellersdorf to almost 47 percent at the Hackescher Markt in the district of Mitte.

The details about the districts will be analyzed and published in our blog http://propertylocations.blogspot.de/ over the next weeks. You might want to subscribe to the blog to receive updates.

For property search, assessment and management please refer to our website www.berlin-portfolio.com.

City Comparison Berlin and The Rest of The Top 7 in Germany

Housing Market Report Berlin 2017 available

Published by Berlin Hyp and CBRE.

The report covers these areas:

• City comparison
• The city of Berlin
• Rents, sale prices, investments, transactions and financing
• Furnished housing
• New Construction
• The city: Expert interviews
• How cities and markets will develop by 2030 – and beyond
• Housing Cost Atlas: Introduction
• Housing Cost Map covering the whole of Berlin
• Berlin's 12 districts and their 190 postcode areas
• Explanatory notes on the rental map
• Rental map covering the whole of Berlin
• Special residential areas

http://www.berlin-portfolio.com

Housing Market Report Berlin 2017 available

Property Sales Tax (Stamp Duty) in the German States as of January 2017

Property Sales Tax in the German States as of January 2017 

http://immofux.com/grunderwerbsteuer-der-bundeslaender-in-deutschland/

Property Purchase Services

Contract, Risk and Financing

For the purchase phase, we provide an Investment Management Service supporting the gathering and submission of any project related information to banks and act as local contact for the investor and the bank. We also assist in finding local finance institutions and possible government subsidies for renovations.
http://www.berlin-portfolio.com/Purchase.html

Property Sales Tax (Stamp Duty) in the German States as of January 2017

South China Morning Post: Berlin Offers Opportunity and Frankfurt, Stability

When looking at your home market it is sometimes useful to hear what others are saying. Especially Berlin seems to be everybody's darling in the forecast for 2017 and there are good reasons for it ... and bad ones.

Here are some quotes from the South China Morning Post (link to full article):

When considering Berlin property, affordability springs to mind – homes are a fraction of the price compared to London and Paris. First time buyers and investors – who may feel intimidated by prices in first-tier cities, but still want a foothold in Europe – are looking to the German capital, where there is good investment potential.

Unfortunately, this reminds of advertisements 10 years ago like: "Buy an apartment in Berlin for the price of a parking garage in London". It did not mention that the rent for the apartments in question was the same as those of a parking space in the top parking zones in London. Why? Let's not go there, you know the Ferraris I'm talking about.

Next quote:

These are exciting times for Berlin. Formerly run-down neighbourhoods have been transformed into fashionable, hip hangouts. Infrastructure development is rolling out, from a new international airport with connections to the Berlin S-Bahn and the wider regional and national railway grid, to new international hotels and retail sites rising up around the city. A large regeneration area directly behind the central train station will bring Berlin another centre of commerce, with integrated retail sites and mid- to high-end residential properties.

The development of so-called "run-down" neighbourhoods has a name, it's called "gentrification". This comment is not about the social impact on the locals but about the fact that apparently investors looking at affordability are lured into regions where there is very likely strong resistance to rents promises in the sales documents and no established environment for high rent tenants. People who look for affordability are not the right trailblazers, especially if they are investing their life savings.

But then Berlin has a lot to offer for investors, international and local - but not the "mid to high end" developments popping up in "no man's land" around Chausseestrasse or around Ostbahnhof. Our recommendation is looking for a single existing property in a mature neighbourhood with social infrastructure, shops and people. It will definitely require more effort than picking "apartment 138" from a glossy brochure that does not exist yet and certainly does not have a tenant paying a net rent of 15 Euros per square meter per month - but then belief is everything in the religion of real estate.

Here is the "I thought so...": We provide support for finding the right property investment in Berlin - but we are not agents, or only in very few cases. Investors can rely on our impartial professionality. We don't only know about the sales process but also a lot about running a property to make it perform at its best potential.

Contact: http://www.berlin-portfolio.com/feedback.html

South China Morning Post: Berlin Offers Opportunity and Frankfurt, Stability

German property investment market ends year with extraordinary strong fourth quarter

In their latest quarterly review (Q4 2016) JLL shows a record 4th quarter but a decline of the total annual transaction volume compared to 2015. Last year had actually the third highest volume.

Transaction Volume Germany quarterly 2017
Source: JLL Research

There was a Slight dip in demand in the Big 7 and Frankfurt reclaims its position as the investment capital. This map shows the Transaction Volume 2016 by Region
:

Transaction Volume 2016 by Region
Source: JLL Research

Further observations mentioned in the report are:

• All asset classes feature on the shopping lists of national and foreign investors.
• Further yield compression with increasing capital values.
• No fundamental change in investment strategy.
• Above-average residential transaction volume despite lack of megadeals

Residential Transaction Volume, Germany
Source: JLL Research

 
The full report is available on the JLL Research website http://www.jll.de/germany/en-gb/research/1472/investment-market-overview

For property search and purchase support please visit our website www.berlin-portfolio.com.

German property investment market ends year with extraordinary strong fourth quarter

AFIRE Foreign Investors Survey 2017: 1. NYC, 2. Berlin, 3. London

US RE Grabs Foreign Investors’ Intentions!
 95% Will Maintain or Increase Investment Levels in 2017

NYC is Big Winner as London and DC Slip
  Washington, DC (January 3, 2017) – Ninety-five percent of the respondents to the new survey taken among the members of the Association of Foreign Investors in Real Estate (AFIRE) and released today say they will maintain or increase their investment in the US.  New York City is in its seventh year as the number one US city among foreign investors and is in its third year as top global city.

Both globally and domestically, Washington DC has fallen out of favour. For the first time since the survey began in 1992, it has dropped from the list of investors’ top five US cities. It has not been among the top five global cities since the 2013 survey and dropped in rank again – from eighth place last year – to fifteenth this year.
 
AFIRE members are among the largest international institutional real estate investors in the world and have an estimated $2 trillion or more in real estate assets under management globally. The survey was conducted in the fourth quarter of 2016 by the James A. Graaskamp Center for Real Estate, Wisconsin School of Business.

Brexit Woes
With concerns about the effects of Brexit on investors’ minds, London, which had been ranked either first or second among global cities for the last five years, slipped into third place. In terms of its potential to offer stable and secure real estate investments opportunities, the UK slipped into fifth place.

Among foreign investors, the top five US cities are New York, Los Angeles, Boston, Seattle, and San Francisco. The top five global cities are New York, Berlin, London, Los Angeles, and San Francisco.

The US: A Strong Market but Not Without Concerns
By wide margins, the US continues to rank as the country offering the most stable and secure opportunities for real estate investment and the country providing the best opportunity for capital appreciation.  Investors cited the country’s sustainable economic growth, strong rule of law, transparency, and relative overall security for investments.  More than 50% of survey respondents said Brexit would have a positive effect on the US real estate market.

Despite investors’ investment intentions, 33%, or one third of respondents said their sentiment about the US market had become more pessimistic; 60% felt their opinion was unchanged, and only 6% considered themselves more optimistic. In last year’s survey, 8% felt pessimistic, 85% had an unchanged opinion, and 8% felt optimistic.

“As uncertainty rises with a new government in Washington and interest rates that have risen dramatically, it is no surprise that investors have signaled a note of caution,” said James A. Fetgatter, chief executive officer, AFIRE. “Previous, comfortable spreads between cap rates and interest rates have narrowed making the investment criteria more selective and difficult. Increased market research and discipline will be required.”

US Investment Market Broadens
Industrial property edged out multifamily to take first place among property types; hotels remain the least favored property type. While “core” properties predominate as an investment strategy, more than half of survey respondents report plans to increase both value-added and opportunistic allocations in the coming year. Similarly, several new cities, including Nashville, Portland, Charlotte, San Antonio, Madison, and Pittsburgh, representing smaller urban markets with strong job growth and young, affluent populations, were cited as having investment potential.

“Washington, DC is a global gateway city with good leasing activity and a growing economy bolstered by a young workforce. The combination of those stable fundamentals will continue to attract capital from around the world," said Catherine Pfeiffenberger, AFIRE chairman and senior vice president of Skanska USA Commercial Development. "The new administration's focus on the defense and aerospace industries is also expected to benefit the DC area in the coming years."

Global Highlights
For the second year in a row, Berlin ranked among the top five global cities, moving to second from fourth place last year. Germany retained its second-place ranking in terms of providing stable and secure investment opportunities; it ranked third in terms of countries offering the best capital appreciation. In terms of providing an opportunity for capital appreciation, Australia joined the ranks in fifth place. China, Mexico, Brazil, India and Chile were again named as investors’ top five emerging markets, although their order shifted from last year.

Survey Snapshot -- US

 
Top Five US Cities

1. New York (#1 last year)
2. Los Angeles (#2 last year)
3. Boston (#5 tied with Seattle last year)
4. Seattle (#5 tied with Boston last year)
5. San Francisco (#3 last year)

Ranking of US Property Types

1. Industrial (#1 tied with multifamily last year)
2. Multifamily (#1 tied with industrial last year)

3. Office (#4 last year)
4. Retail (#3 last year)
5. Hotel (#5 last year)

Survey Snapshot – Global

Top Five Global Cities

1. New York (#1 last year)
2. Berlin (#4 last year)
3. London (#2 last year)
4. Los Angeles (#3 last year)
5. San Francisco (#5 last year)

Most Stable and Secure Countries for Real Estate Investment

1. US (#1 last year)
2. Germany (#2 last year)
3. Canada (#4 last year)
4. Australia (#5 last year)
5. UK (#3 last year)

Countries Providing the Best Opportunity for Capital Appreciation

1. US (#1 last year)
2. Brazil (#2 last year)
3. Germany (tied with the UK this year; #7 last year)
4. UK (tied with Germany this year; #4 last year)
5. Australia (unranked last year)

Top Emerging Countries

1. China (#2 last year)
2. Mexico (#3 last year)
3. Brazil (#1 last year)
4. India (#5 last year)
5. Chile (#3 last year)

AFIRE members have a common interest in preserving and promoting investment in cross-border real estate. Founded in 1988, AFIRE currently has nearly 200 members representing 22 countries. AFIRE is located at 1300 Pennsylvania Avenue, NW, Washington, DC 20004, 202.312.1400. www.afire.org

Interviews:  James A. Fetgatter, chief executive officer, AFIRE.

AFIRE Foreign Investors Survey 2017: 1. NYC, 2. Berlin, 3. London

German Residential Property: Price pressure remains high.

Purchase and lease levels in residential markets across Germany are expected to keep rising in 2017. This is the result published in a market report by Deutsche Bank Research, download the report in German here https://goo.gl/ab33hQ.

Macro-economic conditions that could indicate an end to the current price rally are not moving in that direction: Reversal of interest policy, significant increases in available property, or declining immigration, are not in sight in the foreseeable. The most dynamic city according to the report il be Munich; the high gravity for new residents and very low vacancy rate should keep prices on the rise for several years to come. This also applies to Berlin, in this case, because of the still-low price level and excellent labour market development. Frankfurt is already showing a Brexit effect in anticipation of London bankers with deep pockets, prices of single family homes have climbed 11.25 % compared to the previous year (other metropolitan areas 6%). Hamburg is showing declining lease activity and busy construction dynamics, while Düsseldorf has a relatively high vacancy rate. Rising interest would have a slowing effect on price increases in these cities.

For more in-depth information about the German property market and especially the Berlin Housing Market you might want to subscribe to this blog and visit our website http://berlin-portfolio.com.

German Residential Property: Price pressure remains high.

Are You Paying Too Much Tax For Your Property in Germany?

Through our consultancy assignments, we are frequently coming across avoidable mistakes resulting in unnecessary tax payments. A conversation with your Tax Consultant/Accountant could be a worthwhile investment but it only works if you are prepared to provide the right information and ask the right questions. Depending on how long ago you bought your property, there are different aspects to be considered: Pre-Acquisition phase, Operation phase and Sales phase. In this article, I will focus on the Operation phase, whilst provide some general background on the other two areas.

Pre-Acquisition

In most cases, the documentation of costs incurred before the purchase of a property, we call it Pre-Acquisition phase, is very poor as there is no certainty about the success of finding the right property. This is amplified when the process involves a tax period other than the one a property was bought in.

Here are some examples of items that could be used as deductions on your tax return:

• travel expenses including rental car, taxi and reasonable restaurant expenses;

• advisors for research and due diligence on properties, even if it is for properties not bought in the end.

If these cost items were not part of your returns you might want to find out if the tax assessments for the years concerned are final yet. Frequently tax authorities issue the assessment reserving the right to review documentation at a later point (“Vorbehalt der Nachprüfung”). In this case, you might be able to correct the tax return. For details, you would have to refer to your accountant.

Operations

The focus of attention is on this Operations phase of the property cycle because as with any other issues during the operational phase of a property, any mistake is likely to be repeated year after year. This provides the biggest opportunity secure the financial outcome of a property investment.

Here is a list of items deductions could come from, it is not comprehensive and in some cases might not apply. It is up to you and your accountant to determine your individual situation.

• Travel expenses including car rental, taxi and reasonable restaurant expenses.
  It is recommended to include some notes on property inspections, meetings with the property manager, bank, accountant etc. to document the relevance of these activities for the investment.

• Banking. This might not be obvious to everybody but the cost for a banking account solely for the management of the property for receiving surplus, covering indirect cost etc. can be used as a deduction.

•  Financing. In many cases, funds used as “equity” in a property investment are partially or completely financed through a different source with different collateral at home. If the direct connection with the investment can be shown the related cost can be deducted in your German tax return.

• Investments and payments to tenants. By applying different rules which relate to the size of investment and time proximity to the purchase date, investments can be either written off over a defined period or deducted immediately. Here it is important that there is an established process to ensure that all costs are fed into the tax return. More details on this follow in the next section.

Setting up the Right Processes

Let us start this section with a little case study. We recently received this real life message:

Hi. Having purchased 2 tenanted apartments in 2007 due to old tenancy agreement on one of these properties I eventually had to pay 10k to Tennant to vacate property then I refurbished & sold it. However, the accountancy firm failed to file this with my yearly accounts and I failed to obtain any credit for this outlay. Most frustrating. Is it possible to have a reputable management company & accountancy firm combined? Which would handle all the requirements of a foreign investor’s property in Berlin?

Don’t let the size of the investment distract you from the problems here, as we have plenty of examples of bigger investments with similar situations, I will quote one later on. Back to our little case study:

Paying off a tenant for moving out can be a commercially clever move as in most cases the value of a vacant apartment is significantly higher than a tenanted one. In most cases, the management account with the property manager will not have the necessary funds available (or there is something wrong with the cash management) but if the payment to the tenant is not funnelled through the management account there is the danger that the accountant will never know about it. I wonder what happened to the refurbishment cost in the case above. The suggested solution of a combined management company & accountancy firm would most likely not have solved the issue either unless there was a process in place involving the two and the owner.

Here is another example from our recent consultancy work:

We were representing a client’s interest in a malpractice court case against a property management. The owner received an invoice from his solicitor for an initial fee and filing cost for the court. He paid it from his private account, end of story. Had we not intervened the accounted would have never known about it and it would not have been included in the tax return. Especially painful as the reimbursement by the previous management company (we won the case) will be taxed as income.

There are two very simple processes to choose from to avoid paying too much tax due to lack of appropriate processes and management by the owner:

• Funnel every single cost item through the management account. If there is not enough funding, provide it as you have to pay it anyway. If it is a reimbursement it will flow back to you straight away. There is no better documentation of the relevance for the investment. If your property manager is moaning about it, give me a call I will find a better one for you.

• Provide all relevant invoices and documents for your property directly to your accountant at the beginning of the year for the previous year and check back that everything has been considered and if not why.

Another option could be a service provider like an asset manager who knows your property and everything going on around it. A well-focused service specification could more than earn the fee related to the service.

Unsurprizingly this is a service we provide for our clients. The benefits go far beyond having everything included in your tax return: Most important is controlling the property manager in the client’s interest. Our cost benefit ratio is 25:75, meaning that our clients receive three times the benefit of our cost.

Are You Paying Too Much Tax For Your Property in Germany?