|
Time to invest in German property?
After over a decade of being left out in the cold, recent media reports would suggest that the German property market is now one of the hottest prospects on the investment block. Is now the time to invest in German property?...
Between 1996 and 2006, while other European markets such as the UK, France and Spain were growing at eye-opening rates, German property prices halved. Since, 2005, however, many large institutional investors have bought up significant swathes of German residential property prompting a frenzy of media speculation that the German property market could well be Europe’s Next Big Thing.
This raised media profile has sparked a massive amount of interest from private investors, reflected in movements in this month’s Top of the Props chart. Germany has risen 4 places to break into the Top 10 and reach 7th place.
The Top of the Props chart reflects the share of overall monthly enquiries to TheMoveChannel.com each country receives.
Germany’s wilderness years
In 2005, analysts at investment bank Merrill Lynch observed that Germany had “conspicuously failed to join in the global housing boom in the past ten years.” Indeed, in contrast to the rest of Europe, property prices in Germany fell by as much as 50% in the period 1996 – 2006.
This might strike you as odd, given the fact that Germany is the largest economy in Europe. However, there are several reasons peculiar to Germany which help explain how this unusual situation came about.
After reunification in 1990, the German economy had to shoulder the financial burden of restructuring former socialist East Germany into a market economy. Substantial subsidies were cut, German industry suffered and economic growth stalled. Things were particularly tough in former East Germany where around unemployment was as high as 20% in the 1990s.
Another decisive factor has been the country’s prevailing rental culture. Unlike many other developed economies, most Germans rent, subsidised by the state; around 44% of Germans own their own homes in comparison to around 70% in the UK. It’s also been difficult for Germans to get on the property ladder due to high buying costs and a lack of finance from German banks.
The charge of the institutional investors
Last summer, as host of the 2006 World Cup, Germany was basking in the warmth of the world’s attention. It was also around this time that the country’s property market was starting to generate considerable interest in the international media.
From 2001 onwards, large institutional investors such as Nomura, Fortress and Morgan Stanley started to buy up thousands of German residential units from the German government and housing corporations. Now, with the German economy starting to show signs of a sustained recovery and Germany’s government expressing commitment to creating a home ownership culture, investment is pouring into the country’s property market. Citywire recently reported that the residential market was the strongest performing property sector in Germany last year for the first time since 1996; broadsheets such as the Independent and the Financial Times have both also recently confirmed Germany’s current property boom.
Julien Lu, Regional Director at Imoinvest commented, “Germany is an excellent place to invest at present because of the secure legal framework and the excellent capital growth potential it offers to property investors. Unlike the real estate markets of most the rest of the world’s developed economies, Germany has seen property values falling over the last 10 years. This means that prices now are very low, offering solid long-term term growth prospects as the German economic recovery gathers momentum.”
Lu continued: “Germans are starting to buy their own homes and move away from the culture of renting they are used to. This shift is being supported by state landlords who are offering apartments to their tenants for very good prices. There is much more information around and prospective German buyers are being given an increasing number of opportunities to purchase their own home. As domestic demand for home ownership in Germany gathers speed, property prices will really start to rocket.”
A major European capital finding its feet
Investor interest is centred on Germany’s capital, Berlin. After the upheavals of the 1990s, this vibrant city is emerging as a major centre in European politics, culture, media and science. Germany’s government moved its principle operations to Berlin in 1999 and the city enjoys an expanding tourism market; Berlin is now the third most visited city in the EU. Property prices here are incredibly low in relation to other European capitals and investors are piling in, anticipating strong capital growth prospects.
Many commentators are warning that German property will only deliver in the long-term, however. Chris Davidson, Product Manager at E-Quity.com cautioned, “Berlin is certainly attracting a huge amount of interest at present as investors work on the assumption that prices have to rise at some point. However, Berlin investments may only really begin to deliver if the investor can commit to the long-term.”
Davidson continued: “Germany has an entrenched rental culture and at present the only buyers appear to be foreign investors. This group is dominated by large institutional investors who are able to obtain price discounts by buying in bulk and for the individual investor, buying costs remain high and rental yields low. German banks are still very cautious in their loan to value ratios (50-60% typically although 70% is possible) and so in the short-term, obstacles to solid returns remain.”
Davidson added: “However, things are indeed changing and Germany’s government is currently encouraging Germans to buy houses as part of their retirement provision. Once Germany’s domestic population really starts to become interested in home ownership, capital appreciation will definitely be on the cards. So the big question is not if, but when.”
Other risers and fallers in this month’s Top of the Props chart
This month’s highest climber was Canada, rising 18 places to reach 21st place. Other high risers included South Africa (up 12 to 15th), Australia (up 10 to 25th) and India (up 9 to 19th).
Countries which fared less well this month included Argentina (falling 19 places to 38th), Egypt (down 14 to 26th) and Bahamas (down 13 to 37th).
To view current opportunities in the German property market, go to www.themovechannel.com/property/germany.
|