Friday, 17 February 2017

What are your personal information requirements regarding the German Property Market 2017?

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There was a flood of reports and surveys about the outlook on the German Property Market 2017, "Quo Vadis..." and whatever the titles might be. We are guilty, we have tried to cover as many as possible, mea culpa ...

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Wednesday, 15 February 2017

German Housing Market Study Spring 2017

Investors have to expect a further rise in rent levels, as otherwise an acceptable yield could not be expected despite the low interest rates.

Berlin is currently losing its swarm town position

The immigration from inside Germany to Berlin, Hamburg and Munich has weakened considerably and is no longer enough to compensate for the increasing suburbanization. This is not the end of the swarm behavior, but the swarm continues to move into relatively more favorable cities such as Leipzig, Rostock, Erlangen or Regensburg.

"Lucky" sequence of different immigration waves

The cause for Berlin, Hamburg and Munich nevertheless experiencing almost constant immigration, is due to a "lucky" succession of different immigration waves from abroad. These, however, have reached their climax. If there is no further immigration wave from abroad, the three cities are expected to experience a sharp slump in the growth of housing demand.

Falling demand with increasing supply.

At the same time, as the "housing construction machine", especially in Berlin, is increasingly taking off and larger and larger projects are being planned, under construction or near completion, the housing supply will be expanded strongly in the near future. As a result, the rise in the new contract rents will soon come to a halt.

A free summary version of the study is available at this link:

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Friday, 3 February 2017

Trend Barometer for the Property Investment Market in Germany 2017

The EY Trend Barometer for the Property Investment Market in Germany 2017 predicts a moderate decline for the second year in a row due to lack of offers:
Demand for German real estate will remain high through 2017, led by the search for good office space in Berlin, Stuttgart, Hamburg and Munich – while in the residential sector, Frankfurt will see the strongest demand, according to the latest Real Estate Trend Barometer published at the beginning of the year by EY Real Estate.
EY partner Christian Schulz-Wulkow comments in the survey that "all the lights are still showing green in Germany", with real estate valued at between €60bn and €65 billion expected to change hands this year, still well ahead of the average of the last 10 years (€44.3 billion), but down on the €79bn seen in the peak year of 2015 and down marginally on last year.
However, the EY researchers add the proviso that much of this is dependent on the political climate, both in an election-filled year in Europe, and in the United States after the advent of Trump.
For one thing, interest rates in the US are expected to rise faster than in Europe making the US more attractive – important for Germany, given that 43% of all commercial real estate transactions last year were made by foreign investors. The EY consultants are recommending to their clients to boost their liquidity reserves, in case interest rates rise faster than expected, resources are withdrawn from the market, or tenants experience problems.
The Brexit effect is most clearly to be seen in Frankfurt, where the residential market shows little sign of cooling down. Schulz-Wulkow comments in the report that this has to do with the narrowness of the market, with the office market not quite as sensitive, given both available vacancy and the attraction of alternative centers such as Paris or Dublin.
Co-author of the study Paul von Drygalski comments that despite the danger of overheating in certain segments, the German market has lost little of its attraction for international investors. If anything, Germany is still seen as economically and politically stable, with real estate benefiting from the low interest-rate environment, which 98% of respondents viewed as unlikely to change noticeably in 2017.
Another factor causing optimism among German investors is the likely smaller transactional size expected in 2017. Here, 91% of respondents agreed this could be an advantage for German investors, as the big Asian competitors tended to focus on very large transactions – for example, the purchase of the Commerzbank Tower in Frankfurt by Samsung in 2016 for €660 million and the takeover of the BGP residential portfolio from the biggest Chinese sovereign fund CIC for €1.118 million.
Leading the drive among investors are the insurance companies and pension funds, among whom the survey found that 96% rated the German market 'attractive' or 'very attractive'. However, high demand is being met with constrained supply, meaning deal size is getting smaller. The most sought after assets are parking houses, healthcare properties, student apartments and micro apartments, in addition to the classical hotels, retail properties, offices and residential apartments. Offices and residential in the better locations are expected to get even more expensive particularly in cities like Berlin, which is still benefiting from the dynamism of its startup sector.
Germany's recent real estate boom reached its zenith in 2015, when real estate volume of €79 billion was transacted. This compares with the €13.4 billion transacted in 2009, after the onset of the financial crisis, and the €65.7 billion transacted in 2016, where the figures were flattered slightly by giant takeovers such as Blackstone's taeover of OfficeFirst and Vonovia's takeover of Convert.
In the German residential and office sector in 2016, German buyers were the dominant force. Of survey respondents, 80% expect rising prices in residential, as well as in logistics and hotels. Yields in the office segment have fallen to 3.3% in Berlin and Munich. Banks are becoming more generous in providing financing, with loans of 80 to 90% of the purchase price no longer an exception – well up from the 60% of only fairly recently.
The EY survey shows that 90% of respondents view project developers to be the likely main winners from the current market situation. Likewise, 90% believe that investors are increasingly likely in the future to secure properties via forward deals – in contrast to three or four years ago, where German institutional investors such as insurance companies shunned any involvement with project developments. Now, given the shortage of available product, investors are prepared to take on higher risk and to expand into other geographical territories that offer higher yields.
When questioned which investor groups were most likely to be on the selling side in 2017 respondents were of the majority opinion that opportunity and private equity funds along with other international funds would be among the most active sellers. They are selling for profit-taking and for portfolio optimization. According to Schulz-Wulkow, "it is now a market for exiting, with many opportunity funds having already sold."
However, with 1/3 of all respondents saying they plan no exit this year, even from individual assets, supply is likely to remain very tight for primarily insurance companies and pension funds as well as open-ended funds and family offices most looking to buy.
Adding to the shortage of supply, unrealistic price expectations and the reassessment of risk exposure are acting as brakes on transactions. EY cite the example of asbestos, which in the past would have led to the immediate break-off of discussions, but now it might be accepted at an appropriate discount. A further example of how sellers at the moment have the upper hand, the report suggests.
Respondents expect retail properties to show a sideways price tendency at best, even in fairly prime locations. 62% of respondents believe that office property will be the hottest segment and the preferred asset class, up from 49% believing that last year. Berlin property is particularly in demand, while overall residential is falling out of favor with investors, down to 28% from last year's 65%. The key reason for this is what is viewed as excessive political regulation, with 94% of respondents expecting even tighter rental constraints.
The report is in German and available at this link.

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Monday, 30 January 2017

City Comparison Berlin and The Rest of The Top 7 in Germany

One of the results of this year's annual Housing Market Report Berlin 2017, published jointly by Berlin Hyp AG and CBRE. The report is available for download.

The housing market is catching up but purchasing power not yet. In 2015, Berlin gained almost 48,000 new inhabitants due to its positive economic development and attractive quality of life, thereby continuing the development of the past few years. Since 2005, the population of the city has grown by about 270,000 inhabitants. This increase entails a growing demand in the housing market, even if the purchasing power of other large cities in Germany is still well above the Berlin average (Cologne: plus 14.6 percent, Hamburg: plus 18.6 percent, Frankfurt: plus 23.7 percent, Munich: plus 42.5 percent). Despite increased new building activity, the vacancy rate in Berlin is now 1.2 percent, which is only slightly above the Cologne (1.1 percent) and Stuttgart (0.8 percent) but already below the vacancy rate of Düsseldorf with 1.5 Percent. Accordingly, the average supply rent in 2016 rose to € 9.00 per square meter per month but is still below the supply levels of the other Top 7 cities, of which Munich is the highest value at € 15.11 per square meter per month.

"The continued development of Berlin is impressive and offers a dynamism that is unique in Germany, both at the rental and new market as well as at the purchase prices," says Henrik Baumunk, Head of Residential Services at CBRE in Germany. "Nevertheless, there is still room for improvement in Berlin with regard to rents and purchase prices, due to the progressive growth in population, while at the same time moderate new construction and due to the increasing economic power of the city", explains Baumunk.

Offer rents are twice as strong as in 2015. In 2016, the supply rents rose by an average of 5.6 percent and thus reached a dynamic level comparable to 2014, when an increase in the supply rents of 5.8 percent was observed. In contrast, in 2015 the increase was 2.3% much lower. "Growing population numbers and economic growth are putting more tension into the market," says Gero Bergmann, a member of the board of directors of Berlin Hyp. "The offer is becoming ever lower because, in the case of scarcity and price increases, the willingness to move is always decreasing."

Not only the median values of all offer rents but also the mean values of the lower and upper market segments (the cheapest and most expensive ten percent of the offers) show marked differences in the growth rates between the districts. Across all market segments, the rents offered rose most clearly in Neukölln with 17.1 percent. Marzahn-Hellersdorf recorded as the only other district a double-digit growth with 10.2 percent. At 6.70 euros per square meter and month in the median, Marzahn-Hellersdorf was still the district with the most favourable offer rents - in the lowest market segment, there were even offer rents of 5.20 euros per square meter. At EUR 11.04 per square meter, Friedrichshain-Kreuzberg showed the highest average offer with a 7.5% increase. The district with the lowest increase was Charlottenburg-Wilmersdorf with 2.7 percent. In the upper market segment, 17.46 Euro per square meter was the rent advertised in Berlin-Mitte.

These rents result in very different housing costs quotas, the ratio of the purchasing power of residents to the average warm rent of an apartment offered. The housing costs range from just over 17 percent in some quarters in Marzahn-Hellersdorf to almost 47 percent at the Hackescher Markt in the district of Mitte.

The details about the districts will be analyzed and published in our blog over the next weeks. You might want to subscribe to the blog to receive updates.

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Wednesday, 25 January 2017

Housing Market Report Berlin 2017 available

Published by Berlin Hyp and CBRE.

The report covers these areas:

    • City comparison
    • The city of Berlin
    • Rents, sale prices, investments, transactions and financing
    • Furnished housing
    • New Construction
    • The city: Expert interviews
    • How cities and markets will develop by 2030 – and beyond
    • Housing Cost Atlas: Introduction
    • Housing Cost Map covering the whole of Berlin
    • Berlin's 12 districts and their 190 postcode areas
    • Explanatory notes on the rental map
    • Rental map covering the whole of Berlin
    • Special residential areas


      Tuesday, 24 January 2017

      Property Sales Tax (Stamp Duty) in the German States as of January 2017

      Property Sales Tax in the German States as of January 2017

      Property Purchase Services

      Contract, Risk and Financing

      For the purchase phase, we provide an Investment Management Service supporting the gathering and submission of any project related information to banks and act as local contact for the investor and the bank. We also assist in finding local finance institutions and possible government subsidies for renovations.


      Wednesday, 18 January 2017

      South China Morning Post: Berlin Offers Opportunity and Frankfurt, Stability

      When looking at your home market it is sometimes useful to hear what others are saying. Especially Berlin seems to be everybody's darling in the forecast for 2017 and there are good reasons for it ... and bad ones.

      Here are some quotes from the South China Morning Post (link to full article):

      When considering Berlin property, affordability springs to mind – homes are a fraction of the price compared to London and Paris. First time buyers and investors – who may feel intimidated by prices in first-tier cities, but still want a foothold in Europe – are looking to the German capital, where there is good investment potential.
      Unfortunately, this reminds of advertisements 10 years ago like: "Buy an apartment in Berlin for the price of a parking garage in London". It did not mention that the rent for the apartments in question was the same as those of a parking space in the top parking zones in London. Why? Let's not go there, you know the Ferraris I'm talking about.

      Next quote:
      These are exciting times for Berlin. Formerly run-down neighbourhoods have been transformed into fashionable, hip hangouts. Infrastructure development is rolling out, from a new international airport with connections to the Berlin S-Bahn and the wider regional and national railway grid, to new international hotels and retail sites rising up around the city. A large regeneration area directly behind the central train station will bring Berlin another centre of commerce, with integrated retail sites and mid- to high-end residential properties.
      The development of so-called "run-down" neighbourhoods has a name, it's called "gentrification". This comment is not about the social impact on the locals but about the fact that apparently investors looking at affordability are lured into regions where there is very likely strong resistance to rents promises in the sales documents and no established environment for high rent tenants. People who look for affordability are not the right trailblazers, especially if they are investing their life savings.

      But then Berlin has a lot to offer for investors, international and local - but not the "mid to high end" developments popping up in "no man's land" around Chausseestrasse or around Ostbahnhof. Our recommendation is looking for a single existing property in a mature neighbourhood with social infrastructure, shops and people. It will definitely require more effort than picking "apartment 138" from a glossy brochure that does not exist yet and certainly does not have a tenant paying a net rent of 15 Euros per square meter per month - but then belief is everything in the religion of real estate.

      Here is the "I thought so...": We provide support for finding the right property investment in Berlin - but we are not agents, or only in very few cases. Investors can rely on our impartial professionality. We don't only know about the sales process but also a lot about running a property to make it perform at its best potential.