Property Futures

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Investment in German Real Estate Recommended for Renal-Income Investors

Article: The strength of the German economy makes real-estate investment in all forms attractive.

A recent report showed that Germany has overtaken Britain as the most attractive property market in Europe in 2013 as the receding fears about a breakup in the Euro zone has encouraged investors to come back to the European property markets.  </intro>

The survey of 362 investors showed that 35% picked Germany followed by 24% who chose Britain.

  • London has retained its position as the most favored city ahead of Munich and Berlin.
  • One property adviser expects commercial property worth EUR €21 billion (USD $27.3 billion) to come into the market by 2017 because of liquidation by open-ended funds in Germany.
  • Offices of the most popular investment at 29% followed by 20% for logistics and 14% for shopping centers.
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Residential property in Germany

Most Germans live in accommodation that they have rented and the proportion compared to the total population at 55% is among the highest in the world.

  • Private landlords while social housing and cooperative rentals account own around 45% of the stock of housing for about 6% each.
  • Owner occupation has risen from 43% to 46% last year and is expected to overtake the proportion of renters in the next few years.
  • This shows that investors in property have considerable confidence in the future after investment.

Because German banks have been conservative about mortgages, home prices have continued to grow despite the global economic downturn.

  • The market has also been bolstered by strong economic growth, which has drawn many immigrant workers and the relatively low rates of unemployment.
  • In some parts of Munich in Bavaria, home prices have risen by between 30% and 40% in the last few years.

Figures for growth in the other major cities are:

  • Cologne – 18%
  • Berlin – 37%
  • Frankfurt – 26%
  • Hamburg – 43%

The outlook for 2013 for Germany

German property markets are expected to remain stable compared to the general weakness in other European property markets.  There is potential for capital growth in some areas but stable prices and rents in others and no possibility of a real-estate bubble developing.

The limited supply of quality housing assets contributes to the stability, though high-quality assets in locations in inner cities have become relatively more expensive.

  • Growth is no longer limited to the large cities such as Berlin and Hamburg and can be found in almost any city with a population of over 100,000 people.
  • Yields are down to about 3.5% in places like Munich and Berlin but can increase to between 5% and 6% in smaller cities.

Another sign that no housing bubble is developing is because prices and rents in Germany are still lower than the neighboring countries.

Here are some figures on how much of income is spent on rent:

  • 49% in Rome
  • 44% in Warsaw
  • 40% in London
  • 25% in Munich (the most expensive German city)

You must also view this against the fact that affordability is increasing along with rising wages in Germany.

The bottom line

The strong economy and the low rate of unemployment mean that property markets will continue to be stable and strong.  Rent increases have grown faster than property prices rising by around 13% between 2000 and 2010 compared to an increase in average prices of housing of around 11%.  All this makes for attractive investment especially if you are looking to buy income properties.


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