Investment Property Berlin
Is Now The Right Time To Invest?

Some of the biggest property investors around the world have a term that they use to describe the investment property Berlin market…

A sleeping giant.

Of course, being who I am, I had to see what this "sleeping giant" talk was about with the investment property Berlin market.

Luckily for me, in March 2007, the Royal Institution of Chartered Surveyors organized a visit to Berlin for some of its members.

This was a great opportunity for me to check out what the Berlin property market had to offer.

The group consisted of property professionals from some of the top UK real estate companies, university lecturers, research consultants, and CEOs of UK property development companies. During the three-day trip, we heard presentations from the following people and companies in Germany:

• The senator of Berlin Investment Coordination
• The head of the Engel & Volkers real estate company
• The CEO of the ORCO group
• The CEO of the Berlin Brandenburg International Airport
• The Federal Agency for the Berlin State
• The CEO of Stadt & Land, a social housing company
• Local firm that survey commercial property

The discussion was mainly focused on the East German economy and, in particular, the investment property Berlin market.

At the end of the three-day event, I couldn't help thinking that the property market in East Germany had many similar attributes to that of Northern England in the mid-1990s.

If you're familiar with Northern England, you may have noticed a few changes since then. After several decades of decline and sub-par performance, the region is now benefiting from a regeneration program, led by the Northwest Regional Development Agency (NWDA). You may have seen the transformation of Manchester's city centre and Liverpool's waterfront. Recently, millions of pounds have been invested in these regions to revive the local economies.

Germany's economy (and in particular that of the capital, Berlin) is currently undergoing the same process. There is considerable structural change and investment in infrastructure, such as motorways, housing, airports, and tram systems. Even the larger, prettier cities are benefiting from these investments.

Check out this video on Berlin and its economy

Germany has the world’s third largest economy and is a country known for its high quality of life. Berlin, in particular, has a vibrant cosmopolitan and cultural orientation.

When you walk down the streets of Berlin, it doesn't feel as crowded as in the UK. The place seems much cleaner and the Germans seem to be a friendly bunch of people. You don't even see traffic congestion or speed cameras.

After 13 years of sharp decline, the investment property Berlin market may be considered to be the world’s most undervalued property market. However, it's now at a turning point. It's no mistake that this property market has attracted unprecedented attention from the world's largest property investors.

Property in Berlin is sold at some of the lowest prices in all of Europe. This, coupled with high German incomes, represents staggering affordability for German citizens.

It's this fantastic value for the money invested (properties are currently sold at prices that are less than their construction costs) that has recently been attracting multi-billion-Euro investments from global property funds and large institutional investors.

However, at this stage, I'm not convinced that the investment property Berlin market offers small private individual investors better returns then do the property markets in other countries. I reckon you can get a better return on your investment in some of the other emerging European countries.

Here are the issues I have with the residential Berlin property market:

• The laws relating to residential tenancies are complicated, and 85% of the laws are in favour of the tenant.

• The catalysts required for a widespread uplift in the German residential property are complex and numerous.

• There is a cultural mindset that favours renting, and this mindset would need to be changed to stimulate home purchases by individuals.

• The German residential market has been flat for two decades, while most other European markets have enjoyed strong growth. The market remained flat even during two economic growth cycles in the German commercial property market.

• The German financial industries are very cautious in their lending practices. Residential finance is currently only available at 70% LTV and the paperwork is tedious and time consuming.

• Property transaction costs are high at 12%. This erodes the investors return on investment.

• Unemployment is still high in Berlin. People receive good benefits from the government and hence are reluctant to look for work.

These factors make me feel that the investment property Berlin market, in comparison with other markets around the world, may not yet offer the best returns to the small private investor.

Watch our meeting video clip of a Berlin notary discussing Berlin property law.

I know that was boring!

For example

Let's say you have £40,000 to use as a deposit. You're not sure whether to invest it in Latvia (as an example) or in the Berlin property market. In both of these countries, you’ve found a property that is up for sale for £60,000, returning a yield of 7%. The increase in capital value is predicted to be 10% per year in both markets.

Which country will you invest in?

In my opinion, the best returns are to be made in Germany's commercial property market, which looks very promising at this stage.

» Investment property in Germany
You've heard that investment property in Germany is good for high returns and that Berlin looks like a city which is too good to be true – find out whether this is the case here!

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