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Investment Booms in Safe-Haven German Property Market

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real estate market  Germany  Real Estate Investment  Standard and Poors  real estate prices  Frankfurt  Organisation for Economic Cooperation and Development  Berlin  real estate finance  Bundesbank  Rudolf Rude  University of Regensburg  Prenzlauer Berg  Plettner and Brecht 

Investment Booms in Safe-Haven German Property Market

By - Tuesday 26 June 2012

According to reports the German real estate market is thriving. During the property boom years many reports predicted that Germany, and particularly Berlin would see a piece of the foreign-buyer fuelled action, but it merely simmered and never really came to the boil. In fact, this had been the case for many years with many foreigners buying in the belief that the market would boom, but being let down time and again. Now, ironically when the property boom has played a big part in laying most property markets to waste, Berlin and Germany are having their time in the sun.

Investors are buying up German properties because the country is seen as a safe-haven, because of its strong economy and apparent immunity to the Euro crisis. According to the Bundesbank German real estate prices rose 5.5% in 2011. The Organisation for Economic Cooperation and Development puts growth at 3.5% in the year to end September 2011.

Despite it not having the same level of industry or strong job market driving other cities, Berlin is one of the leading cities in terms of foreign demand according to reports. German real estate market firm Engel & Völkers report incredibly strong sales in Berlin in January this year, with than half of the properties purchased by Italians, Russians, French, and other international buyers.

"Before there was steady growth in demand, and now it's become a flood," Stirati says of Berlin real estate. Before, Berlin was an insider tip, she says, but in the last two years the city has become the new trend for Italian investors because it's frequently profiled in the media. "Since the crisis there are so many investors who have come to Berlin that the prices are like waves," she says. "One month they are really high and the next month they go down."

After years of price-stagnation in the city that never boomed, buyers are shocked by the sudden spike in prices. "It's too expensive," says Rudolf Rude, a German engineer who dabbles in real estate investment. At the Plettner & Brecht auction in early June, Rude bought a 95-square-meter (1,020-square-foot) store-front in Berlin's trendy Prenzlauer Berg district for €178,000, about 40 percent above the listed price.

Rude attributes the price increases to Berlin's recent development, which puts it on par with Paris and Moscow, leading to more attention internationally. He says that even though he thinks he paid too much for the property, other investments are too risky and the stock market is too uncertain. "I like to put my money in the ground, in the earth, as cement gold," says Rude. He plans to open a high-end cheese shop in the space.

In other boom-cities like financial capital Frankfurt demand is mainly from domestic investors according to the reports.

Of course, a market cannot boom now, or even look like booming without bubbling or at least looking like a bubble and Germany is no different. Some experts are warning that the deepening Euro crisis could yet take its toll on the German economy which would subsequently stall the real estate market.

"You can count on more turbulence in the German real estate market," says the University of Regensburg's real estate finance chair Sebastian. "We are living in uncertain times and what we are experiencing happens once a century. We have seen so much that did not seem possible five years ago. It's not necessarily a bubble, but under no circumstance would I still put all of my savings into real estate."

Despite the fact that German property price growth at its strongest 10-12% (in the major cities like Frankfurt) is nowhere near as pre-boom (pre-bubble) growth in the likes of America, even the Bundesbank is saying things like it is monitoring the situation to keep it from getting out of hand.

However, most analysts forecast that the growth will continue at least in the short term. Germany has always had a high propensity of renting as oppose to buying property, so much so that the government controls rent growth in line with wage growth, which in turn has acted as a controlling factor on price growth. As a result, Germany has a low house price-income ratio. Ratings agency Standard and Poor's predicts that a result of that ratio combined with lower unemployment and sustained low interest rates will see German house prices continue to grow for at least 2-3 more years.

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*This page is provided for information purposes only and should not be construed as offering advice. IPIN is not licensed to give financial advice and all information provided by IPIN regarding real estate should never be treated as specific advice or regulations. This is standard practice with property investment companies as the purchase of property as an investment is not regulated by the UK or other Financial Services Authorities.


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