Property Locations in Berlin

Property Locations in Berlin

Tuesday, 17 January 2017

German property investment market ends year with extraordinary strong fourth quarter

In their latest quarterly review (Q4 2016) JLL shows a record 4th quarter but a decline of the total annual transaction volume compared to 2015. Last year had actually the third highest volume.

Transaction Volume Germany quarterly 2017
Source: JLL Research
There was a Slight dip in demand in the Big 7 and Frankfurt reclaims its position as the investment capital. This map shows the Transaction Volume 2016 by Region
:
Transaction Volume 2016 by Region
Source: JLL Research



Further observations mentioned in the report are:
  • All asset classes feature on the shopping lists of national and foreign investors.
  • Further yield compression with increasing capital values.
  • No fundamental change in investment strategy.
  • Above-average residential transaction volume despite lack of megadeals
Residential Transaction Volume, Germany
Source: JLL Research
 
The full report is available on the JLL Research website http://www.jll.de/germany/en-gb/research/1472/investment-market-overview

For property search and purchase support please visit our website www.berlin-portfolio.com.


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Monday, 16 January 2017

AFIRE Foreign Investors Survey 2017: 1. NYC, 2. Berlin, 3. London

US RE Grabs Foreign Investors’ Intentions!
 95% Will Maintain or Increase Investment Levels in 2017

NYC is Big Winner as London and DC Slip
  Washington, DC (January 3, 2017) – Ninety-five percent of the respondents to the new survey taken among the members of the Association of Foreign Investors in Real Estate (AFIRE) and released today say they will maintain or increase their investment in the US.  New York City is in its seventh year as the number one US city among foreign investors and is in its third year as top global city.

Both globally and domestically, Washington DC has fallen out of favour. For the first time since the survey began in 1992, it has dropped from the list of investors’ top five US cities. It has not been among the top five global cities since the 2013 survey and dropped in rank again – from eighth place last year – to fifteenth this year.
 
AFIRE members are among the largest international institutional real estate investors in the world and have an estimated $2 trillion or more in real estate assets under management globally. The survey was conducted in the fourth quarter of 2016 by the James A. Graaskamp Center for Real Estate, Wisconsin School of Business.

Brexit Woes
With concerns about the effects of Brexit on investors’ minds, London, which had been ranked either first or second among global cities for the last five years, slipped into third place. In terms of its potential to offer stable and secure real estate investments opportunities, the UK slipped into fifth place.

Among foreign investors, the top five US cities are New York, Los Angeles, Boston, Seattle, and San Francisco. The top five global cities are New York, Berlin, London, Los Angeles, and San Francisco.

The US: A Strong Market but Not Without Concerns
By wide margins, the US continues to rank as the country offering the most stable and secure opportunities for real estate investment and the country providing the best opportunity for capital appreciation.  Investors cited the country’s sustainable economic growth, strong rule of law, transparency, and relative overall security for investments.  More than 50% of survey respondents said Brexit would have a positive effect on the US real estate market.

Despite investors’ investment intentions, 33%, or one third of respondents said their sentiment about the US market had become more pessimistic; 60% felt their opinion was unchanged, and only 6% considered themselves more optimistic. In last year’s survey, 8% felt pessimistic, 85% had an unchanged opinion, and 8% felt optimistic.

“As uncertainty rises with a new government in Washington and interest rates that have risen dramatically, it is no surprise that investors have signaled a note of caution,” said James A. Fetgatter, chief executive officer, AFIRE. “Previous, comfortable spreads between cap rates and interest rates have narrowed making the investment criteria more selective and difficult. Increased market research and discipline will be required.”

US Investment Market Broadens
Industrial property edged out multifamily to take first place among property types; hotels remain the least favored property type. While “core” properties predominate as an investment strategy, more than half of survey respondents report plans to increase both value-added and opportunistic allocations in the coming year. Similarly, several new cities, including Nashville, Portland, Charlotte, San Antonio, Madison, and Pittsburgh, representing smaller urban markets with strong job growth and young, affluent populations, were cited as having investment potential.

“Washington, DC is a global gateway city with good leasing activity and a growing economy bolstered by a young workforce. The combination of those stable fundamentals will continue to attract capital from around the world," said Catherine Pfeiffenberger, AFIRE chairman and senior vice president of Skanska USA Commercial Development. "The new administration's focus on the defense and aerospace industries is also expected to benefit the DC area in the coming years."

Global Highlights
For the second year in a row, Berlin ranked among the top five global cities, moving to second from fourth place last year. Germany retained its second-place ranking in terms of providing stable and secure investment opportunities; it ranked third in terms of countries offering the best capital appreciation. In terms of providing an opportunity for capital appreciation, Australia joined the ranks in fifth place. China, Mexico, Brazil, India and Chile were again named as investors’ top five emerging markets, although their order shifted from last year.

Survey Snapshot -- US
 
Top Five US Cities
  1. New York (#1 last year)
  2. Los Angeles (#2 last year)
  3. Boston (#5 tied with Seattle last year)
  4. Seattle (#5 tied with Boston last year)
  5. San Francisco (#3 last year)

Ranking of US Property Types
  1. Industrial (#1 tied with multifamily last year)
  2. Multifamily (#1 tied with industrial last year)
  1. Office (#4 last year)
  2. Retail (#3 last year)
  3. Hotel (#5 last year)

Survey Snapshot – Global



Top Five Global Cities
  1. New York (#1 last year)
  2. Berlin (#4 last year)
  3. London (#2 last year)
  4. Los Angeles (#3 last year)
  5. San Francisco (#5 last year)

Most Stable and Secure Countries for Real Estate Investment
  1. US (#1 last year)
  2. Germany (#2 last year)
  3. Canada (#4 last year)
  4. Australia (#5 last year)
  5. UK (#3 last year)

Countries Providing the Best Opportunity for Capital Appreciation
  1. US (#1 last year)
  2. Brazil (#2 last year)
  3. Germany (tied with the UK this year; #7 last year)
  4. UK (tied with Germany this year; #4 last year)
  5. Australia (unranked last year)

Top Emerging Countries
  1. China (#2 last year)
  2. Mexico (#3 last year)
  3. Brazil (#1 last year)
  4. India (#5 last year)
  5. Chile (#3 last year)

AFIRE members have a common interest in preserving and promoting investment in cross-border real estate. Founded in 1988, AFIRE currently has nearly 200 members representing 22 countries. AFIRE is located at 1300 Pennsylvania Avenue, NW, Washington, DC 20004, 202.312.1400. www.afire.org

Interviews:  James A. Fetgatter, chief executive officer, AFIRE.


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Wednesday, 11 January 2017

German Residential Property: Price pressure remains high.



Purchase and lease levels in residential markets across Germany are expected to keep rising in 2017. This is the result published in a market report by Deutsche Bank Research, download the report in German here https://goo.gl/ab33hQ.

Macro-economic conditions that could indicate an end to the current price rally are not moving in that direction: Reversal of interest policy, significant increases in available property, or declining immigration, are not in sight in the foreseeable. The most dynamic city according to the report il be Munich; the high gravity for new residents and very low vacancy rate should keep prices on the rise for several years to come. This also applies to Berlin, in this case, because of the still-low price level and excellent labour market development. Frankfurt is already showing a Brexit effect in anticipation of London bankers with deep pockets, prices of single family homes have climbed 11.25 % compared to the previous year (other metropolitan areas 6%). Hamburg is showing declining lease activity and busy construction dynamics, while Düsseldorf has a relatively high vacancy rate. Rising interest would have a slowing effect on price increases in these cities.

For more in-depth information about the German property market and especially the Berlin Housing Market you might want to subscribe to this blog and visit our website http://berlin-portfolio.com.


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Monday, 2 January 2017

Are You Paying Too Much Tax For Your Property in Germany?

Through our consultancy assignments, we are frequently coming across avoidable mistakes resulting in unnecessary tax payments. A conversation with your Tax Consultant/Accountant could be a worthwhile investment but it only works if you are prepared to provide the right information and ask the right questions. Depending on how long ago you bought your property, there are different aspects to be considered: Pre-Acquisition phase, Operation phase and Sales phase. In this article, I will focus on the Operation phase, whilst provide some general background on the other two areas.






Pre-Acquisition

In most cases, the documentation of costs incurred before the purchase of a property, we call it Pre-Acquisition phase, is very poor as there is no certainty about the success of finding the right property. This is amplified when the process involves a tax period other than the one a property was bought in.
Here are some examples of items that could be used as deductions on your tax return:
  • travel expenses including rental car, taxi and reasonable restaurant expenses;
  • advisors for research and due diligence on properties, even if it is for properties not bought in the end.

If these cost items were not part of your returns you might want to find out if the tax assessments for the years concerned are final yet. Frequently tax authorities issue the assessment reserving the right to review documentation at a later point (“Vorbehalt der Nachprüfung”). In this case, you might be able to correct the tax return. For details, you would have to refer to your accountant.

Operations

The focus of attention is on this Operations phase of the property cycle because as with any other issues during the operational phase of a property, any mistake is likely to be repeated year after year. This provides the biggest opportunity secure the financial outcome of a property investment.
Here is a list of items deductions could come from, it is not comprehensive and in some cases might not apply. It is up to you and your accountant to determine your individual situation.
  • Travel expenses including car rental, taxi and reasonable restaurant expenses.
    It is recommended to include some notes on property inspections, meetings with the property manager, bank, accountant etc. to document the relevance of these activities for the investment
    .
  • Banking. This might not be obvious to everybody but the cost for a banking account solely for the management of the property for receiving surplus, covering indirect cost etc. can be used as a deduction.
  •  Financing. In many cases, funds used as “equity” in a property investment are partially or completely financed through a different source with different collateral at home. If the direct connection with the investment can be shown the related cost can be deducted in your German tax return.
  • Investments and payments to tenants. By applying different rules which relate to the size of investment and time proximity to the purchase date, investments can be either written off over a defined period or deducted immediately. Here it is important that there is an established process to ensure that all costs are fed into the tax return. More details on this follow in the next section.

Setting up the Right Processes

Let us start this section with a little case study. We recently received this real life message:
Hi. Having purchased 2 tenanted apartments in 2007 due to old tenancy agreement on one of these properties I eventually had to pay 10k to Tennant to vacate property then I refurbished & sold it. However, the accountancy firm failed to file this with my yearly accounts and I failed to obtain any credit for this outlay. Most frustrating. Is it possible to have a reputable management company & accountancy firm combined? Which would handle all the requirements of a foreign investor’s property in Berlin?

Don’t let the size of the investment distract you from the problems here, as we have plenty of examples of bigger investments with similar situations, I will quote one later on. Back to our little case study:
Paying off a tenant for moving out can be a commercially clever move as in most cases the value of a vacant apartment is significantly higher than a tenanted one. In most cases, the management account with the property manager will not have the necessary funds available (or there is something wrong with the cash management) but if the payment to the tenant is not funnelled through the management account there is the danger that the accountant will never know about it. I wonder what happened to the refurbishment cost in the case above. The suggested solution of a combined management company & accountancy firm would most likely not have solved the issue either unless there was a process in place involving the two and the owner.

Here is another example from our recent consultancy work:
We were representing a client’s interest in a malpractice court case against a property management. The owner received an invoice from his solicitor for an initial fee and filing cost for the court. He paid it from his private account, end of story. Had we not intervened the accounted would have never known about it and it would not have been included in the tax return. Especially painful as the reimbursement by the previous management company (we won the case) will be taxed as income.

There are two very simple processes to choose from to avoid paying too much tax due to lack of appropriate processes and management by the owner:
  • Funnel every single cost item through the management account. If there is not enough funding, provide it as you have to pay it anyway. If it is a reimbursement it will flow back to you straight away. There is no better documentation of the relevance for the investment. If your property manager is moaning about it, give me a call I will find a better one for you.
  • Provide all relevant invoices and documents for your property directly to your accountant at the beginning of the year for the previous year and check back that everything has been considered and if not why.
Another option could be a service provider like an asset manager who knows your property and everything going on around it. A well-focused service specification could more than earn the fee related to the service.
Unsurprizingly this is a service we provide for our clients. The benefits go far beyond having everything included in your tax return: Most important is controlling the property manager in the client’s interest. Our cost benefit ratio is 25:75, meaning that our clients receive three times the benefit of our cost.


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Friday, 16 December 2016

Which is the Best German Real Estate Sector for Investment in 2017?

The Emerging Trends Europe survey 2017 conducted by Urban Land Institute and PwC identifies the property sectors which are favoured by the market participants and which ones should be avoided. The preferences differentiate between investment and development.
For Investment the No.1 is Healthcare followed by Retirement/assisted living, Student housing and Private rented residential and at the very end of the scale Self-storage facilities which are rated by some as "very poor".

The agent community has a very different view of some of the market segments, e.g. JLL Germany posted on Twitter that there is great potential in the self-storage market segment in Germany.



For Development the No.1 is Student housing followed by Private rented residential, Affordable housing, Retirement/assisted living with Out-of-town shopping centres at the end of the list also listed as "very poor" by some members of the panel group.


Do download the full report with many more aspects of the European Real Estate Market please go to this post on this blog: http://germanproperties.blogspot.de/2016/12/urban-land-institute-and-pwc-berlin-no1.html






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Thursday, 15 December 2016

The German Real Estate Finance Index (DIFI): Finance Providers' Expectation Drop Again

The German Real Estate Finance Index (DIFI) reflects survey participants’ assessments of the current situation in (past six months) and expectations (coming six months) for the German real estate finance markets. It is produced quarterly and is calculated on the basis of an average of the results for the office, retail, logistics and residential real estate market segments. These figures reflect the percentage of positive and negative responses received from survey participants relating to the current situation in and financing expectations for the German real estate market. DIFI is produced and published in cooperation with JLL and the Zentrum für Europäische Wirtschaftsforschung (Centre for European Economic Research, ZEW). Sign up with the authors for receiving the full report here.


The German Real Estate Finance Index (DIFI) reported by JLL and ZEW has once again dropped in the 4th quarter by 2.3 points to 4.4, which is the third decline in a row.

Click for the full report


Another interesting table in the report are the interest expectations which I would take with a pinch of salt as no one can predict the US policy at this point and this might have significant impact on any economic development including interest rates.





For information on current investment opportunities in all property market segments in Berlin please contact us using the contact facility on our website: http://berlin-portfolio.com/feedback.html




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Tuesday, 13 December 2016

Urban Land Institute and PwC: Berlin No.1 for Real Estate Investment and Development in 2017



German Cities are Safe Bets for Real Estate Investment and Development in 2017

Download your copy of the report

Berlin, Hamburg, Frankfurt, and Munich take top spots in ULI and PwC’s annual city rankings
FRANKFURT (3 November 2016) – In the search for safe havens, German cities will be Europe’s most preferred real estate investment and development destinations in 2017, according to Emerging Trends in Real Estate® Europe 2017. Berlin, Hamburg, Frankfurt, and Munich occupy four of the top five spots for 2017 investment and development prospects in the annual forecast published jointly by the Urban Land Institute (ULI) and PwC. The report is based on the opinions of almost 800 real estate professionals in Europe, including investors, developers, lenders, agents, and consultants.
According to the report, Germany is currently the most popular destination in Europe for real estate investors and developers, with recent data from Real Capital Analytics confirming that Germany has overtaken the UK in post-EU-referendum investment volumes. While remaining Europe’s primary magnet for global capital, attracting €31 billion of capital inflows in the 12 months to end September 2016 (according to Real Capital Analytics), London has fallen from number 11 in 2016 to number 27 in 2017 in the Emerging Trends Europe city rankings for investment and development prospects.
The dominant performance of German cities in the Emerging Trends Europe rankings demonstrates the strong fundamentals of the German market. Berlin has maintained its top position for the second year in a row, cementing its place as a trendy and dynamic global gateway. Hamburg, seen as a solid bet amidst economic uncertainty in Europe, also repeats its number two ranking from last year. Frankfurt, Germany’s business centre, has soared 11 places to number three, pushing Dublin into the fourth position, while Munich holds steady at number five.
This positive outlook for German cities comes in the aftermath of the EU referendum outcome, which has left investors and developers uncertain about the UK’s immediate and medium-term future. Ninety percent of industry leaders surveyed in Emerging Trends Europe predict that UK investment and property values will fall over the next 12 months.
However, despite this short-term uncertainty over London, most interviewees have faith in its medium-to-long-term future as a key global city, the report says.
“The fallout from the Brexit vote gives an extra boost to the already-strong German real estate market,” said ULI Europe CEO Lisette van Doorn. “With considerable political and economic uncertainty in Europe, many real estate investors are willing to sacrifice some yield in return for lower risk. In this risk-off environment, the stability of German cities becomes even more attractive.”
Not surprisingly, international political instability is expected to pose significant challenges in the coming year, with 89% of respondents listing it as their top concern for 2017. Forthcoming elections in France, Germany, and the Netherlands, as well as concerns about migration and terrorism, add to this uncertain outlook. Forty-six percent of respondents believe that the migration crisis will get worse in the coming year, and interviewees reported terrorism as a key threat to investor confidence. This international political instability is not expected to dissipate quickly: nearly two-thirds of survey respondents expect political uncertainty in Europe to worsen over the next three to five years.
As well as geopolitical risks and economic growth prospects in both the short and long-term, the report draws attention to a number of potentially more significant influences that are taxing the minds of Europe’s real estate leaders.
“Given the timing of this year’s report, which coincided with a period in which people are coming to terms with the result of  the UKs referendum on the EU, it was inevitable that this would become be a common reference point for the real estate industry’s uncertain view of the future,” said PwC’s Real Estate Director Gareth Lewis. “But after taking the pulse of the real estate industry’s leaders, it’s clear that below the surface, there are complex and significant influences at play beyond today’s geopolitical issues. These are changes which are altering society and our industry’s view of the future role of the built environment. Technological disruption and the growing relevance of the sharing economy is shifting the centre of gravity from financial asset to product, or more broadly ‘real estate as a service’.”
Despite high levels of uncertainty and change in Europe, however, respondents are only slightly less confident about their business prospects than they were last year. Just under half expect no change to confidence, profitability, or headcount in 2017. Furthermore, the report finds that capital flows will remain strong and investors will continue to value European real estate for yield in comparison to the risk/return expectations in other asset classes.
Sector-wise, the report notes that despite the challenges associated with investing in alternative real estate sectors, they are growing in popularity and are predicted to offer some of the best returns. Urbanisation and changing consumer habits have paved the way for alternatives such as hotels, student housing, and assisted living facilities. Eight out of the top ten sectors for investment prospects in 2017 relate to residential real estate —leaving traditional offices and shopping centres to be classed among the riskiest assets.

Top Markets for Real Estate Investment and Development in 2017

According to the report, the top five European markets for real estate investment and development[1] in 2017 are predicted to be:
1. Berlin– The German capital scored the highest in all four survey categories: investment, development, and prospects for a rental and capital growth. Berlin has established itself as a large, highly-liquid real estate market with global appeal—evidenced by the €3.9 billion invested in the city in the first six months of 2016 according to Real Capital Analytics. Despite steep pricing, the office and housing markets are still thriving due to their strong growth potential.
2. Hamburg– At number two for the second year running, Hamburg’s success is due in part to the local government’s massive investment in transport and the development of new, high-quality urban districts along its waterfront. Hamburg’s liveability and its diverse economy, which encompasses manufacturing, media, life sciences, and information technology, also bolster its high standing. The rental growth of 4% over the past year helps to explain the popularity of Hamburg’s office market, together with yields of 3.75% for prime assets, which although expensive are still cheaper than those achieved in the city’s German rival, Munich.
3. Frankfurt– Investors are largely optimistic about Frankfurt, which has climbed 11 places to number three. Not only is it considered a stable market amid post-Brexit uncertainty, but it is also predicted by many investors to provide an office destination for bankers relocating from the City of London. However, questions remain about the potential consequences of relocating large banking operations to Frankfurt, as Germany is already over-banked.
4. Dublin– While it has slipped one place to number four, Dublin is still seen to be an overall beneficiary of Brexit. One private equity investor predicted that while the city will likely not pick up financial services headquarters from the UK, it will pick up back-office functions, which could still have a big effect on the market. Continued economic growth, foreign direct investment, and strong demand in the housing market also play an important role in Dublin’s prospects for 2017.
5. Munich– Rounding out Germany’s near-dominance in the top five is Munich. Investors perceive Munich as a perennially solid bet, a quality that is particularly valuable in a risk-off environment. Survey respondents indicated that buying property in cities like Munich allows investors to take on more risk without worrying about the basic security of their investment. While vacancy rates in Munich are at a 14-year low of 4.8%, finding assets to buy is challenging and the city remains one of the priciest markets in Europe.

Top 10 European Cities for Property Investment and Development

2017 Ranking
2016 Ranking
Change
1    Berlin
1
↔0
2    Hamburg
2
↔0
3    Frankfurt
14
↑11
4    Dublin
3
↓1
5    Munich
5
↔0
6    Copenhagen
4
↓2
7    Lisbon
16
↑9
8    Stockholm
6
↓2
9    Madrid
8
↓1
10   Lyon
25
↑15

Emerging Trends in Real Estate® Europe
Emerging Trends in Real Estate® Europe is a joint report published annually since 2003 by the Urban Land Institute (ULI) and PricewaterhouseCoopers (PwC). The report provides an outlook on European real estate investment and development trends, real estate finance and capital markets, as well as trends by property sector and geographical area. It is based on the opinions of almost 800 internationally renowned real estate professionals, including investors, developers, lenders, agents and consultants.
About the Urban Land Institute
The Urban Land Institute is a non-profit education and research institute supported by its members. Its mission is to provide leadership in the responsible use of land and in creating and sustaining thriving communities worldwide. Established in 1936, the institute has almost 40,000 members worldwide representing all aspects of land use and development disciplines. For more information, please visit europe.uli.org.
About PwC
At PwC, our purpose is to build trust in society and solve important problems. We’re a network of firms in 157 countries with more than 223,000 people who are committed to delivering quality in assurance, advisory and tax services. Find out more and tell us what matters to you by visiting us at www.pwc.com.
PwC refers to the PwC network and/or one or more of its member firms, each of which is a separate legal entity. Please see www.pwc.com/structure for further details.
©2016 PwC. All rights reserved.
[1] The way cities are ranked in Emerging Trends Europe has changed. This year, the ranking table is based on the scores awarded for both investment and development prospects. As last year’s rankings were based on investment prospects alone, they have been adjusted to reflect both investment and development potential.



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