Brief Market Report on Frankfurt

The Property market in Frankfurt shows a strong interest of private investors which especially in the last four months have noticeably increased in numbers. Private investors want to shift funds from bank property investments with stable value. One especially can notice a strong interest by a buyer clientele in a price region of 100-200.000 €; either owner-used or increasingly also as a rented property. Whilst about two or three years ago the response to rented apartments was near to nil at least by German investors, this has increased enormously in volume in the last months. But even the “small” investor looks precisely for location, features and long-term rentability. Features like balcony, wooden floors like floor boards or parquet, energy consumption and even the apartments direction play a large role in the choice of the right place. Preferred areas of the city are Bockenheim, Nordend, Sachsenhausen and Bornheim. The Westend rather has become a focussed area by buyers of large or very large flats. Our tip: even in the other parts of the city the buyer of two or all apartments on one floor preserves the chance to unite these later to one large apartment which are much sought-after and can sell for a good price. For investors it is also important that when they buy an apartment with an existing tenant they should inquire into the payment of rent by that tenant, if there were delays or defaults, and if the tenant complained about things that may even have lead to shortening of the rent. All in all the investment climate has improved enormously and Frankfurt as a well-known value-stable location of many international banks and other firms is one of the best places to put ones money into. This is known very well by many, also younger buyers.

Interview with Mr. Mirko Otto, Berlin

Mr. Otto, you are working as an expert for built-up and non-built-up grounds and you are active nationwide. Yet as a born-and-bred citizen of Berlin you know the market here especially well. How has this market been developing in the past two years?

Mirko Otto: The residential market is characterized by different developments: while in the district Berlin-Mitte only 1,5% of the apartments are vacant, in the district Hellersdorf it is 8,8%. There is a very large span; even though there are still enough apartments vacant in total, in the inner city you hardly find any more offers, which makes the prices go up notably. This also becomes clear if one looks at the difference between the “Mietspiegel” just published (an issue showing the conditions on the rental market, based on scientific criteria, namely a qualified issue on the subject) and the report on the rental market of the IVD (“Immobilienverband Deutschland” = real estate society Germany) that has been published a few weeks after the Mietspiegel. The final rents are (depending on the age of the building) around 20% higher than the values given in the Mietspiegel. An example: a 65 square meter large apartment in a better location of “Wedding” (a part of the center) costs 6,75 € rent per square meter based on the IVD report. I personally also know such prices from my practical experience – not just as single values but rather often being the final price of refurbished old style building apartments. Yet based on the Mietspiegel, these apartment should only cost between 3,65€ and 6,00€ per square meter. This shows that the Mietspiegel is a politically (and probably by variety of rental objects) guided instrument which does not show the rent on the market however. A matter of fact is that in several quarters of the inner city the rental prices have gone up by as much as 10% per year. Even though this is just an indicator, since the properties do not necessarily get rented out for the prices they get offered, it still shows the increased pressure on the real estate prices in the area of the inner city.

As to freehold apartments, you still have many areas in which vacant apartments are much more expensive than apartments which are rented out. In some locations the prices rise moderately, in other parts of the market they remain static. Where I see it gets problematic is real estates becoming more expensive through the law of special depreciation (for example monument protection) and which are mainly bought for the sake of tax advantages. In many cases it is doubtful if such investment decisions are really economically effective.

The market of residential buildings and commercial buildings is marked by the cutback of foreign investors. The prices today have clearly gone down; it would not be possible now to sell the properties bought in 2007 for the same price they were acquired. Yet the offer has not sunk as much as the buyers would become interested. As a result, the number of properties dealt with has decreased by 50%. Another reason for it is the bad terms of financings from the banks. By this I don’t mean the interest conditions but the requirements the banks set as to one’s own funds.

When it comes to the commercial areas, Berlin is characterized by a weak industry. In top locations commercial estates are still wanted, yet in worse areas the demand has clearly dropped.

Are the effects notable that the financial crisis has on the market?

Mirko Otto: Factually it is much more difficult to get a credit today than two years ago. Sometimes banks repel the credit requests with extremely high demands of own funds or through a very bad valuation of the objects by bank-internal real estate assessors. In my opinion, doing this they go past the purpose. One of our clients had a hard time acquiring a residential building with 30% of own funds, the house I am speaking of had a factor below 11 (meaning it was sold for less than 11x the rent). The reason of the banks being: he, the client, already had so many properties (which, by the way, had been financed with similar amounts of own funds).

How have the apartment rents been developing?

Mirko Otto: In some parts they have been developing very vibrantly (in the inner city locations, see above) and in other parts stably. There are hardly any locations where the rents are decreasing.

What city districts could you point out to be positive, and what could you point out to be rather negative?

Mirko Otto: Due to the historical development of the city with the Wall, those areas which have been the outer districts of Western Berlin for decades (Wedding, Tiergarten, Neuköln and Kreuzberg) have at once become the centre. This doesn’t have an instant effect, yet by now one can observe a positive development in those areas. Not everywhere yet, but in broad parts. Always when people invest, the rental prices go up and the clientele improves. My personal favourite area is Wedding, but also Kreuzberg shows a large increase of rental prices.

What are the factors (x-fold annual rent) at which you can acquire multiple dwellings currently? What are the offers currently?

Mirko Otto: Here you have the discrepancy between the demands of the sellers, which often want to get too much, and (partially) the idea of a very low sales price on side of the buyers.

You can’t make a universal statement in this regard. There are properties which are still worth 14X the rent (for instance when there is yet sufficient potential for the rents to be raised) but there are also properties for which I myself would not pay more than 10X, since the maintenance is very costly or there is a large backlog of maintenance to be done.

How costly are investments for modernizing actions usually in relation to the purchasing price?

Mirko Otto: There is no “usual”, no rule in this case. In some cases one can acquire un-renovated old style buildings for 300 to 400 € per square meter, in which case there is a lot to be done there, but one can also purchase a modernized old style building for 1.000 € per square meter or more, in which case there is no backlog of maintenance to be done.

Currently, is it worthwhile to purchase a property in Berlin and then partition and re-sell it?

Mirko Otto: It is, especially when part of the property is vacant and it is located in an area which is in high demand. As to outer areas or very simple areas, I would be more cautious since partitioning and maintenance in itself are costly actions.

What deficiencies of buildings do you find the most in Berlin?

Mirko Otto: Mostly you find that the technical instalments of the house are too old. Thusly, the electrical devices, water- and wastewater instalments, bathrooms and heating systems are not up to date with the latest technology. From time to time you also find a flaw in the roof, partially going along with wood pests (for instance boletus destructors). All in all, an experienced assessor will usually know where to look for flaws when seeing the house first. In the case of specific house types (such as built in the 60es or 70es) you hardly ever find infestation by pests or damp cellars. Here you usually just need to get the technical devices and the standard of the energy checked.

Why, especially in Berlin, is it advisable to get an assessor to look at the property before purchasing it?

Mirko Otto: Because usually the renting structure is in need of checking and because hardly any other market I know is as differentiated as the one of Berlin. Something that may be called good in one street might be considered much less worth only a few meters away. In small enclaves it can happen that positive developments occur years or decades later because the population structure doesn’t allow any faster development.

How do you estimate the development in Berlin? Will the prices go up or drop?

Mirko Otto: Generally the prices will go up in broad areas. This especially applies to the districts in the inner city, which are still very cheap as of right now (Wedding for instance). I am sure that those areas which are expensive already will remain good, but I find it questionable whether they will keep developing as those areas that are still cheap at the moment.

Do you have any other advices for people investing in Beriln, Mr. Otto?

Mirko Otto: Cash is King, at the moment! Whoever has enough own funds should invest into a real estate property in Berlin. I will be glad to be your advisor!

Kontakt: www.ottoundkollegen.net

Might have been wondering why you didn’t get comments on the German property market recently on our website. Well, that does not mean that there were no news, but we are currently working on a pretty extensive market research project and will give you the results shortly. Right now, what might be of interest to you, is a study published in the German economic magazine CAPITAL (not DAS KAPITAL pls, this is stale dated by centuries and its author does not really have a good name here….), which you can find online in German here. If you need assistance with translation, please send me an email. It breaks down the property market in Germany by looking into 180 cities of Germany and 1800 city regions. The main article gives an interesting overview of the market in Germany. As I said, comments from our viewpoint will follow here shortly and of course comments from you are very welcome.

Bellevue Property Magazine has published their annual analysis of the Frankfurt property and rental market. With the permission of  BELLEVUE AND MORE GmbH we publish our translation of this article here on our website.  We thank the publisher for being permitted to print excerpts from their great magazine. The Mag is in German language, but you must not miss reading this market analysis which we are happy to share with you. Read here about how the Real Estate market is doing in one of the Banking Centers of the World these days. Do we have to expect a shock wave or is it business as usual? And how is the rental market doing and its yields in “Mainhattan”?

Well, today we can refer to an interesting headline of a press release from Reuters; its apparently only availabe in English, at least I did not find its German pendant. “German homes as good as Gold” is what it says. We advise to study that article in its full length. As a comment: We have been saying since the year 1999 on our international website that the German market is stable, secure and attractive for foreign investors. And we focussed on residential not commercial property as this is the really stable market. Read the rest of this entry »

We mentioned in our entry of 22 February that the German property market seems pretty unimpressed by the International financial crisis. Just yesterday we received an email from Global Property Guide – which is a company completely independent from ours – stating that the German property market is doing well despite the crisis. Read the rest of this entry »

How is the property market in Berlin doing these days? Contrary facts and opinions are the order of the day. But also really good news. In this article we publish an interview which we had with an architect, who overlooks the “scene” from his office in Friedrichstrasse “Am Checkpoint Charlie”.

Ingo Ronski leads the office “Ronski + Burke Architects and Engineers” together with his Partner Fergus Burke.

Mr. Ronski, you as architect and project development planner know the Berlin real estate market since many years. What changes did you notice in the recent months?

I.R.: Recently quite obviously a much smaller number of International Investors is searching to buy on the Berlin market. Subsequently the prices dropped and the situation once again has become interesting for buyers.

Read the rest of this entry »

The European Central bank has lowered the prime rate yesterday to 1.5%. Does that mean the general interest rates will go down on property financing? Not really as due to the refinancing means being short the interest rates on real estate mortgages will still be above 4% on 10 years fixed in average. Once the trust in the banking system has come back the interest rates may go down further but thats totally dependent on the general development of the economy. At a rate of 4.3-4.5% with a ten years fixed interest financing of property is recommendable now.

The German newspaper FAZ (Frankfurter Allgemeine Zeitung) referred in its Friday 20 Feb. 2009 Immobilien Property section to a recent study done by the Deutsche Städtetag (German council of Cities) where they did a research on sales prices of real estate houses and apartments in 2008. (The full study can be viewed online on their website as PDF-file in German.)* Read the rest of this entry »

Owners of residential property in Germany who are not familiar with the rental laws and interpretations thereof, especially in the residential market, can be put at some very unfriendly surprises. Not so much by the fact that the law is supposedly tenant-friendly – that is the case today in many countries of the world and it does have a certain value to protect tenants against arbitraries – no, rather by the fact that one or two small mistakes in a lease contract can have consequences like a clause becoming totally invalid and be costly for the landlord. Such “booby-traps” can be hidden in agreements about contract length, notice periods, monthly utility payments, repairs, wear and tear and last but not least, renovation and decoration. We do not want to go at length into any of these details, but what if you have a newly built or freshly renovated apartment and want to rent it out and get it back in such nice condition at the end of the lease? Virtually piles over piles of court cases have accumulated about quarrels on this subject, until finally one decision of the Supreme Court rolled like and earthquake over Germany in 2004. Since then landlords are very concerned to have the right and correct wordings in their lease contracts.

If you are about to rent out an investment property, make sure that the agent preparing the contract is familiar with the exact wordings needed and also knows about the very latest case decided to the favour of a landlord on 14 January 2009 (BGH, Urteil v. 14.01.2009, Az. VIII ZR 71/08) as this can help you ensure that the renovations be done by the tenant in the end.

Email us if you have any question on this.