Berlin Residential Property Market - Why Invest in 2008?

By: Uwe Falkenberg

The economic environment
The outlook for the German economy is positive and the economic upturn is continuing. 2008 will see a change from purely export driven growth to more growth support through domestic demand. For the first time in years significant raises in salaries are currently negotiated and the consumer climate can be seen as friendly. This will be associated with further reduction in unemployment, as companies are prepared to take on staff. Growth in the economy can be expected to stimulate the German property market.

The Local Aspect
In 2006 the Berlin economy grew by 1.9 % and 7,000 new jobs were created. While the growth is below the German average the increase in jobs and decrease in unemployment is well above the average. These figures reflect that numerous businesses have decided to grow their business in Berlin or set up new offices and branches here. The focus is on media and innovative technology.

The population is stable at 3.4 million after a period of migration in the 1990's into the newly available suburbs after the fall of the wall.

The German Property Market
Germany has seen a major influx of international capital to its property market over the last 2-3 years with record year 2006 which was considered a record year still being outranked by 2007. The year 2008 is seen by most market players as a year of consolidation. Increasing numbers of institutional investors will become sellers which should offer interesting opportunities for smaller and private investors as it is unlikely that all sales will be in large packages.

The Berlin Property Market
After years of stagnation the Berlin property market started a boom phase in 2006 which has carried on into 2007. Especially international investors have absorbed record numbers of undervalued properties. The turnover in 2006 went up by 50% to a record value of 15.8 billion Euro;. Naturally this has led to a price increase the initial yields of 8 to 10% are no longer achievable in acceptable locations. The yields in top locations are below 6% whereas good locations like Steglitz still produce offers between 6.5 and 7%, many of them with short term development potential (upside).

The new rent table 2007 ("Mietspiegel 2007") has already shown increases in residential rents. The picture is variable though between stable and increases.

Is it not too late to jump on the train?
No, it is not too late! Attractive property, even at entry level is still coming into the market, with positive cash flow and a realistic expectation for capital appreciation. Careful research is required to make sure the information provided is met by the reality after the purchase. Market knowledge is required or local support is recommended.

Conclusions
The economic situation in Germany is positive with the prospect of a longer period of prosperity. The Berlin property market has three main value drivers:
# Stable population development accompanied by new jobs.
# Long term commitment to the location by the government and international business.
# Still low prices compared to other European capitals with yields that allow a positive cash flow after financing.

With a follow-up article I will provide information about the rent in different parts of Berlin and different types of buildings. You will find this article on the authors website below.

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