Germany: optimistic forecasts provoke demand even more

Germany: optimistic forecasts provoke demand even more

Real estate market in Germany is experiencing an unprecedented boom: nowadays every expert starts to speak about this country with these words. Facts confirm that in 2013 the amount of investments in German real estate reached a record €25 billion. Average annual price growth in cities is from 5 % up to 15 %. Analysts make the most optimistic forecasts, provoking demand even more.

According to the government’s forecast, German GDP will increase in 2014 by 1.8%, and in 2015 — by 2%. Economic growth, budget surplus, shortage of quality housing in major cities, job growth, wage growth, consumption growth and low inflation are integral parts of the visible German prosperity. Naturally, it influences positively the property market, leading to higher rent rates and growth of profitability. The experts promise that there will be no bubbles on the German real estate market.

There was and will be price increase

Germany is one of the few European countries tat has not suffered from the economic storms of the recent years," says Anatoly Shkolnikov, director of KC-Immobilien. "Politics of the country and German banks government is careful and reasonable. No promises, no exorbitant prices and no high bank interest. Another factor: recently there has not been a lot of construction, housing is sorely lacking, and new projects are sold out at the design stage. Investors can expect that real estate prices will increase. But not much: the market is stable. There has never been and never will be a "bubble".

"Amid other countries Germany seems an island of safety"

The average price of new housing in Munich, the most expensive city in Germany, is €4,800 per square meter, and in some places it rises up to €6,000 and more. For 2013 a square meter in Munich has risen by 4%, in Berlin — by 9%. Over the last three years one can see the growth in Dusseldorf, Frankfurt and other cities. In 2012, according to realtors’ data, the cost of a square meter in the primary market of Munich, Cologne, Stuttgart, has grown by 10-12%.

Price increase is observed in smaller cities such as Nuremberg, Würzburg, Regensburg. "If a couple of years ago €1,000 per square meter of housing on the secondary real estate market of Nuremberg was normal, now the average price is around €1,200 per square meter, and the upward trend continues," said Lyudmila Belykh, realtor and financial consultant from Munich.

Who needs German square meters?

The main buyers are in any case the Germans themselves, but in Berlin, according to experts, about 30% of real estate transactions are made by foreign investors from more than 30 countries, including Russia, China, Israel and the United States.

"The part of Russian buyers in general is not significant, but it is clearly growing. The market is very dynamic. Many people use real estate in Germany as a defensive asset in the period of the unstable economic situation in the world. I think it's really one of the most stable investment tools," said Natalia Kotova, head of "Real Estate in Germany" of consulting company "Strana Plus".

Demand for residential and commercial real estate in major cities, according to the experts, exceeds the number of offers: in Berlin it is quite hard to find a good commercial property, in Munich — even harder. "Properties are sold out within few weeks. On the market of housing under construction in Munich and Berlin it happens quite often when a house is only beginning to be built, but 70-80 % of apartments are sold out," says Natalia.

"In 2013 real estate was the most desirable investment for the Germans, ahead of bank deposits, gold and shares"

"One of the reasons for the increased demand is a change of sentiment in German society", said Anatoly Shkolnikov. "Now the Germans not only tend to have their own housing, but they also consider real estate as a way to save and increase fortune. Perhaps, priority changes of the population are affected by the rush, created by non-resident investors. Amid many developed countries that can’t cope with the economic problems for a long time, Germany seems an island of safety for many private and institutional investors. And it is right."

Buyers against their will

According to research of the Association of German Banks, in 2013 real estate was the most desirable investment for the Germans, ahead of bank deposits, gold and shares. In 2012, the number of people willing to invest in real estate was only 17 %, and in 2013 - 46%. In previous years, the Germans were not normally keen to buy houses, preferring to rent it and showing almost the highest density of tenants among local population in Europe. Economists believe that the activation of buying mood is partly due to extremely low (from1.5% up to 2.5%) bank interest on deposits and the absence of other clear and effective investment tools.

As for the Russians, they are active in various market segments. Realtors provide lists of basic queries: cheap apartments in small towns and suburbs of major cities for renting out, small apartments in big cities, apartments and houses in German resorts, income apartments in the central cities of the federal lands, leased commercial properties with a guaranteed income, commercial properties for business immigration to Germany.

"Many people use real estate in Germany as a defensive asset in the period of the unstable economic situation in the world"

"A simple example," says Anatoly Shkolnikov, "the cost of an apartment house with ten apartments in Nuremberg is about €1 million. The average cost of renting out a three or four-room apartment is €450-600 per month, so for one apartment you can get about €6,000-7,200 per year, for ten apartments — €60,000-72,000. So, profitability may reach 6-7 % per year. No European bank will give you such interest. If you need, you can sell some of these apartments separately, and mind you, for a higher price than you bought them. If you're buying this apartment house, each apartment will cost €100 million, but if you sell them separately, you can get €140,000-150,000 for each".

In the next three years, according to the experts, the greatest increase of housing prices will be in Hamburg (15.7%), followed by Munich (11.3%), Dresden (10.1%), Stuttgart (9.8%) , Mainz (9.7 %) and in Leipzig (9.6%), and also Frankfurt (8.4%) and Berlin (8%). Experts predict 9-10 % of rent rates growth over the next three years.

Text: Julia Lozovskaya, especially for