How is German Property doing in 2012?

The property market in Germany has experienced a boom the like of which had never happened before in such a short period. Does that mean that prices in Germany have now reached a high and will move level or slightly down in 2012? How active is the  house buying market in the country and in the large metropolitan cities like Munich, Berlin, Frankfurt especially? To answer those questions one has to know the following remarkable statistic: The number of search advertisements by real estate brokers has consumed almost as much advertising space and in some cases even more than the number of space for sales ads. This means that all agents are suffering from a shortage of “stuff to sell”! In our agency the most remarkable issue of 2011 was the case of one 4 bed flat “Altbau” in Frankfurt for 395.ooo Euro where we had 55 inquiries within less than 24 hours after publishing the advertisement online! Out of the 55 about 50 came to visit the flat and it finally went for the best bid which was remarkably above the asking price. Whereas that was the most excepti0nal single case we might still say that if we had another five or six 3-4 bed flats “Altbau” in the traditional locations in Frankfurt we could easily repeat the experience at this time in the market again. To conclude however that this means “all property is searched after like crazy at any price in any location in Germany” now is the wrong conclusion. Read the rest of this entry »

Latest article from Bellevue Europes Largest Property Magazine confirms what we observe since two years. Read the article here.
Our comment: The article delineates the general trend on the Frankfurt market quite precisely. However, the situation is even more dramatic on the day to day business as a realtor: there is a huge buyers clientele who crave to buy and find nothing. Unbelievable, but true; some are searching since over one year and do not find what they want. And that despite of quite a number of newly built projects in the Frankfurt area. How come? The majority of clients who want to buy owner-used and who are in the upper income section, are focussing exclusively on Nordend, Westend, Sachsenhausen-North and Bockenheim as well as Bornheim. And there the number of properties on the market is extremely low. That has virtually driven the prices by 30-40% in five years – or better, in the last two years – in those areas.

On the other hand, whole blocks of residential or mixed use are almost none on the market. If you own one and want to sell, its a good time now. If you are an investor and want to buy one, its difficult. We search continuously for new offers coming on the market, also with our colleagues who confirm the same. Actually, all failed sales in this and last year in our company were solely because the seller withdrew in the last moment or because the seller had a much better offer. Mostly the asked-for prices are being paid and sometimes even more on such blocks.

But there are also bad areas and locations to avoid as investor and to tell the difference between the two we offer our service to you as realtor. We also manage rentals and from that point of view know a lot to tell about good and bad locations as well as good and risky tenancy areas. If you are interested, contact us.

We have been asked many times by investors how the market is right now in regards to selling property one owns in Germany. Providing the property is located in the right city (Munich, Frankfurt, Berlin in certain areas, Dusseldorf, Hamburg), the market is on a good uptrend. Speaking of selling also means however, as is usual in German, to consider the factors financed loan on a fixed term and tax issues. If you sell before the fixed loan terms are over, high penalties are unavoidable. And mostly almost uncalculable. As an example: We had two sales where the loan had another five years fixed terms. In one case the penalty was about 11.000 € on a 150.000 loan, in another about 12.000 € on the same loan amount. So beware of that factor and rather check with your bank before you sell…

The other factor is taxes. If you bought for investment and rented the property (i.e. not owner-used) you have to keep it for ten years in order to sell tax-free on the profit. Profit is calculated purchase price plus purchase cost (like notary, stamp fee, tax and brokers fee) against sales price. But: If you rented and had depreciations in your tax declaration, these are added to the profit! That can mean that you make a profit even when you do not sell for more than what you paid – and have to pay tax on it. After ten years the sale is tax-free as of current legislation.

So, to sum it up: If you consider selling, check into these two main factors first. And then get a good advise on the possible sales price. Both clients mentioned above still made a good profit from the properties they sold, even after penalties and taxes. And that is remarkable, after five years only – in Germany! The reason: The properties were in best locations in Frankfurt. We noticed price increases of up to 20% last year in some areas, but the average was around 10% in the last two years.

If you need help in selling a property or just advice, feel free to contact us.

Has Germany come back into the focus of International Investors? Will there be a similar run as in the years 2005-2007? More to be read in the next few weeks here….but one thing is for sure: German economy is on an unbroken uptrend and it’s real estate market has some good chances to offer. For a first look see here and here.

More first hand information later!

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 good. 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 inclination; 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 “Mietenspiegel” 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 Mietenspiegel. The final rents are (depending on the age of the building) around 20% higher than the values given in the Mietenspiegel. 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 Mietenspiegel, these apartment should only cost between 3,65€ and 6,00€ per square meter. This shows that the Mietenspiegel 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 partially 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 installments, 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 Berlin, 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!

Mercers annual Quality of living survey shows a good ranking for several German cities. Whereas Vienna keeps its unchallenged number 1 position, Zurich (2), Geneva (3) and Düsseldorf (6) are the other top World Wide Europeans under the top ten. But Frankfurt (7), Munich (7) and Bern (9) almost make the top 10 a European only affair. Only Vancouver, Auckland and Sydney can challenge Europe on the places 4 and 10. Read the rest of this entry »

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.

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 »