Berlin is now a global property investment hotspot, with high levels of institutional and personal investment. Large banks are buying huge amounts of both commercial and residential real estate situated all over Germany but especially in Berlin. Many of these institutional purchases are made based only on metres square, price per metre and yield, essentially treating real estate like an equity or share with no interest in the character or exact location of the properties involved. Personal investors are also looking for a piece of the action. Buyers from all over the world, but especially Ireland and the UK are taking advantage of the huge increase in property equity in their own countries and investing in Berlin. These buyers are typically purchasing a second home for rental income or weekends away, but some are so interested in this exciting city, they are upping sticks and, attracted by the low prices and high standard of living, are moving permanently to Berlin.
Why invest in Berlin?
The German economy is the biggest in Europe but has been depressed for several years, this is often wrongly attributed to the adoption of the Euro currency, but can be more accurately be put down to the huge cost of reunification. When Germany was reunified, the exchange rate between the two German currencies was artificially inflated to be one-to-one. This act of goodwill by the west meant that they had to foot an enormous bill. Of course, a depression in the overall economy has led to a stagnant property market, for the last few years, the German property market has failed to grow by even small amounts annually, while other European countries such as the UK, Ireland and Spain have had double digit percentage growth for several years in a row. This situation has led to massive disparity with prices in Berlin now being, in some areas, less than 10% of the cost in London and less expensive than former Eastern Bloc capitals like Warsaw and Prague.
There are now signs that this giant of European commerce is now awaking from its slumber. Business confidence is at its highest since the booming 80s and Berlin has changed beyond recognition, revelling in its role as the nation’s capital. There is now a strong belief that the real estate market is due a sharp upturn and that the time is right now!
How to invest
There’s really only one thing for it, if you want to invest, you’ve got to stump up the cash and buy somewhere. This. of course, is a huge over-simplification. There is a lot of research and learning you need to do first.
Buy to Let or Home?
This decision is often made for you based on your current situation and where you want to live. The vast majority of investors will be purchasing to BTL. They expect to get long term capital growth and also get an income from the yield from renting the property out. We’ve stated that before that Berlin is a renter’s market, with around 70% of the population renting, there is not the same interest in owning property as found in the UK or the US, in fact some commentators have mentioned that Berliners see owning property as bourgeois! If you buy an apartment in Berlin, it’s likely to already have a tenant, while this is good news in terms of your yield, if you ever want to get rid of your tenant, it’s not as easy as you may think. Berlin tenancy agreements are often indefinite with no time limit. The huge number of renters in the city means that you should have no problem renting your property out, just as long as you buy the right property in the right area!
Which neighbourhood?
As you can see from our neighbourhood section, Berlin’s districts can be quite different from each other. Similarly, so can the prices of the properties and the rental yields. The rental market in Berlin is so large, that the prices are low and the yields can be low also. It is essential that is you are buying for rental income, you do your research.
German Estate Agent Websites
No matter where you are in the world, one of the best ways of viewing many properties for sale in a short amount of time, is by using the internet and Berlin is no different. There are many online estate-agents or “Immobilienmakler”, while some of these are in English, unsurprisingly, most are in German. This isn’t as scary as it first sounds, with an understanding of just a few phrases, you can easily navigate around a site and understand the adverts. To help you get started we have included a glossary of German property terms. You can also find estate agent links on our “Berlin property links” page.
Property budget
This goes without saying really! Property in Berlin is cheap, but you still must decide what you are prepared to spend. Of course, this will influence the size of the property and the neighbourhood you can buy in. Also remember to budget in fees and stamp duty. Germany is unusual in so far as the buyer pays the Estate Agent’s fees. There are also some special laws about stamp duty which will affect how long you are planning on owning the property.
German mortgages
Getting a mortgage to buy a German flat or apartment is not as easy as in some other European countries such as Spain or France. In general, you have two choices, you can get a mortgage with an overseas bank or you can approach German banks and see if you can secure a mortgage as a non-resident. Both of these options can be problematic. Typically, overseas banks are hesitant to lend money to buyers investing in Germany, this is due to the low growth in this market over the last 20 years. While there are some banks who are opening up to the idea of Berlin, do not dream of applying unless you have a regular income and willing to put up at least 40% down payment.
Talking to the large German banks and trying to get a loan through them is another option. The German mortgage market is more traditional than others in Europe and while it is in a process of liberalising, you are still going to find it hard going. Again, expect to put down at least 40% of the value of the property.
Of course, as with all countries, the easy way to finance your property purchase is to pay with cash! And with prices as low as they are in Berlin, this is may be not as crazy as it sounds.
The German property buying process
Once you’ve found a property and secured your mortgage, you need to get an understanding of the German property buying process, you can start to do this by reading Buying in Germany.
Germany Property Funds
Some investors believe there is long-term value in the German real estate market, but for whatever reason, don’t want to buy property. This may be because of stamp duty worries or the fact they do not have any freely available capital. Others may also be worried about having capital tied up for so long. However, these people can still invest in the German property market through investment funds. Several large banks offer German property bonds which can be traded like normal equities or shares. Examples of these funds include one by Cordea Savills traded on the UK. As far am I’m aware, there are no funds especially for the Berlin market, but I’m sure generic German property fund will be heavily weighted towards the new capital.
Why I shouldn’t invest?
While it seems that a lot of the world’s media is reporting on a possible property boom, there are some people who are suggesting that the Berlin market is over-hyped and your investment money would do better elsewhere. In the interest of balance, let’s have a look at some of these arguments against investing in Berlin.
Some argue that while the German market is under-valued and is worthy of investment, this investment would do better in one of the other German cities such as Frankfurt or Munich. West Germany thrived for years without Berlin. Even though West Berlin was part of West Germany, the logistics of serving a city deep inside a communist country meant that Berlin was practically ignored. This effect is still seen today and many German companies have their main offices in other German cities and will continue to do so. There is the belief that Berlin is simply not set up for commerce and it is this that ultimately drives a property boom. In support of the argument, key metrics such as unemployment and income per capita demonstrate that Berlin simply doesn’t have the financial strength to support a booming rental market. All in all, you could say that while property in Berlin is cheap, it is cheap for a reason.
