The German real estate market in 2015
The German property market has received a larger inflow of international money in 2015. The political and economic crisis and instabilities in Syria, Ukraine, Greece have motivated a larger number of private property investors to secure their cash in German real estate.
The properties that have enjoyed the largest demand were studios and 1 bedroom apartments in Berlin, with yield between 3-4% per year. The average price range for small apartments was between 190.000€ up to 280.000€. We measured the highest demand in Berlin Mitte, Berlin Charlottenburg and especially in the last Quarter 2015 in the booming district in Berlin Moabit.
Below is the average increase of property prices in Berlin from January 2015 provided by the largest German Property Portal. The graph indicates EUR per square meter from 2007 until the last quarter 2015 in the district Berlin Mitte. The total increase in the last 9 years was 96%, the increase only in 2015 was 12%. The average market price for a Berlin Mitte apartment is now at 4.470€ per square meter.
For private investors who were planning to invest more equity into the German property market, the multi family houses and smaller commercial properties with returns between 4-7% per year in booming cities such as Bremerhaven, Chemnitz and Leipzig and smaller cities close to the capital Berlin were the hot spots in 2015. Prices for multi family homes start at 450.000€, prices for commercial properties start at around 550.000€.
German banks have adopted their business model and made finance for international clients easier. Typically buyers in 2015 had around 3% interest rate and could raise finance up to 54% of the purchase price.
Transaction costs in some parts of Germany have again increased in 2015, as some local authorities have raised their stamp duty to 6,5%.
The Current Market Situation
The market today is currently under a lot of pressure by new regulations that came to effect in January 2015.
New regulations are protecting the tenants even further and limit the right to increase the rent by the landlord. The rent is now fixed to the local rental average per square meter of living space. For example: the local average rent is at 6€ per square meter and the apartment is currently let for 5€ per square meter. The landlord can not raise the rent over the local rent, even when the tenant is moving out and a new tenant is moving in.
The fees for letting agents are now regulated since January 2015. It was common, that the tenant paid commission between 2 – 3 times the monthly rent to the agent for finding the property. Now the landlord has to pay the commission when he instructs the agent to let his apartment. The fee is negotiable but not more then 2 times month rent.
Besides these legal changes, we strongly advise international buyers to consult a local based real estate agent with international clients before purchasing a property in Germany. The good real estate agent will check the particular situation and will avoid any bad surprises and pitfalls. We also suggest to consult a local solicitor and the notary to double check your contracts, especially when you are buying the first time a residential property in Germany.
In the city of Bremerhaven the demand from Russian buyers is historically strong and now English and Chinese investors are looking to invest into this city.
Bremerhaven has enjoyed a huge cash injection in the past 10 years by European Union, they have opened to new universities with over 6.000 new students, the employment rate went up significantly and the biggest employers is the naval industry and the German army. All this combined has increased the amount of people moving to Bremerhaven and the properties went up in price. You can find recently refurbished multi family houses in the city centre for around 450.000€. The gross profit per year after deduction of property costs is typically between 5%-7%. If you raise finance of up to 54% of the property, you can increase your returns to 10%-16% per year.
In the German capital Berlin a bunch of luxury properties will be completed later next year. This is a good chance to snap up vacant apartments in prime locations, as the developers need to sell their remaining stock in these projects. You need to budget 550.000€ or minimum 5.500€ per square meter for these luxury properties in Berlin’s prime locations.
Below the average demand and supply of property divided into different price ranges. The statistic is provided to us by the largest German Property Portal in December 2015.
Supply and Demand Berlin properties
Forecast & Recommendations:
We forecast for 2016 a moderate price increase for properties in Berlin as well as cities like Bremerhaven, Chemnitz, Leipzig and Potsdam. As the European Central Bank has again flooded the markets with cheap money, the interest rate for international property buyers just went down to 3% -3,5% per year in average.
Many international clients will benefit from the comparable weak EURO to US Dollar and British Sterling exchange. We suggest to focus on small to medium sized apartments under 500.000€, as these properties are easy to let and sell. A good estate agent will help you to find the right sort of properties for you.
We also suggest to go for a fixed rate mortgage with a 10 year contract and to raise as much finance as possible with the German banks to increase your leverage and use the cash for your other investments. The rental income should cover your interest and the costs of the property.
Therefore, please do not buy any property that is below 3% yield. If the rental income is below 3% the price of that property is too high and you will suffer from a negative cash flow investment.
The author is director at one of Berlin’s leading real estate agents specialising in international clients. He holds an Full Time Executive MBA from Henley Business School.
For more information contact Mr. Achim Amann