[soldintime]

Dogbox,

He I am not saying not to invest, but I have noticed 30% price rise for Berlin, in just 3-4 months time. This is enormous. The good stuff is already sold before you guys on this forum can even have a look at it. What is left is poor yield a lot combined with a lot of work, you will find that the banks will not finance 80% of it, more like 50%. I have tried hard and seen over 100 properties. I still believe the German market is a good one, but properties sold at 3-4% yield and 1700-1800 euros per SQM as advertised here are just not a good deal. The problem is the rent it is between 4.50 and 6.00 euro per sqm no matter where you are in Berlin.

Take london for instance a flat in mayfair would rent for £6 per sqm according to the renttables and restrictions. If you think you can raise it a lot. Beware 4-5% per year is what you can achieve. Do you think you can kick the renters out and sell it, forget about it. They will all stay because the area is good and the rent is ultra cheap supported by lots of rules and regulations. The rental market is not dynamic and does not force people to buy.

The capital growth story is a hard one. Take Berlin municapal properties, they have or will sell out to large investment companies. These companies will do anything to lower the vacancy rates thus depressing the rental market. With low rents why would you buy when 89% is still renting. Plus Germany is shrinking and the east is shrinking faster.

And what if *** will happen, I think germany with low rents and 8% yield might be what will be the standard in the UK after the crash. With the global economy running at 5% germany just gets back out of recession at 1.8% growth. A lot more reform is needed and this government will not do it. The voters were split and so will this government be.

Yes I have bought 3 apartment blocks in Germany, with 10% or more rental yield. I feel OK with this. They are done up properties by owners that all have gone bust, because the rents where not covering the interest.

[dogbox]

soldintime, on May 16 2006, 12:05 AM, said:

Dogbox,

but I have noticed 30% price rise for Berlin, in just 3-4 months time. This is enormous.

The capital growth story is a hard one. Take Berlin municapal properties, they have or will sell out to large investment companies. These companies will do anything to lower the vacancy rates thus depressing the rental market. With low rents why would you buy when 89% is still renting. Plus Germany is shrinking and the east is shrinking faster.

I agree the capital growth story is very much in the balance.

My take on this is that the German capital will suck - in investment and its cultural significance will develop a momentum that will draw people in. The cultural momentum is buiolding now with more and more press focus on Berlin.
People constantly say the 'East is shrinking', I disagree, this is reversing now. The 'East' is now the emmerging power house of Europe. Estonia and Poland for example are seeing significant GDP growth and this is spreading to Lithuania, Latvia and just about everywhere else in the East.

Berlin is a well placed hub, JUST AS IT WAS PRE - COMMUNISM. I have confidence it will regain its strategic commercial importance and that the post communist pain will come to an end.

People said investing in the North of England was folly in the 1990s. They too cited shrinking populations and high unemployment.

Foriegn Institutional investors have flocked to Berlin in the last year - this is the beginning.

If Im wrong Ill eat my todger again

[Janet Berlin]

Very interesting to follow all the comments. We have read through what Soldintime has had to say on the subject and disagree. My boss is writing up her comments to all of this. I will gladly publish it probably tomorrow!

dogbox, on May 16 2006, 11:04 AM, said:

I agree the capital growth story is very much in the balance.

My take on this is that the German capital will suck - in investment and its cultural significance will develop a momentum that will draw people in. The cultural momentum is buiolding now with more and more press focus on Berlin.
People constantly say the 'East is shrinking', I disagree, this is reversing now. The 'East' is now the emmerging power house of Europe. Estonia and Poland for example are seeing significant GDP growth and this is spreading to Lithuania, Latvia and just about everywhere else in the East.

Berlin is a well placed hub, JUST AS IT WAS PRE - COMMUNISM. I have confidence it will regain its strategic commercial importance and that the post communist pain will come to an end.

People said investing in the North of England was folly in the 1990s. They too cited shrinking populations and high unemployment.

Foriegn Institutional investors have flocked to Berlin in the last year - this is the beginning.

If Im wrong Ill eat my todger again

[Janet Berlin]

Sorry, it took a bit. My boss is German and I had to translate your comments into German and her comments from German to English.

Hello Soldintime

The Managing Director of our company would like to pass on a few words to you concerning your comments on the forum:

It was very interesting to read that you believe you know quite a bit about Berlin.

A lot of things you have said were correct, but sadly you are drawing wrong conclusions! I cannot let what you commented stand as is.

Yes, it is correct that Germany has a lot of rules and regulations and almost everything is regulated by law. This does have disadvantages but an investor has many advantages from that also:
1. Private owned property is protected in Germany (with that the private owned property of the Irish and British here in Germany!) substantially through laws which protects the influences over depreciation of value and vandalisation (BGB, StGB…). All doors are open to investors here. The private property and its protection are in first place in Germany. Believe me, I know what I am talking about because my profession is a lawyer.
2. There is a law specifically for private owned property (the “Wohnungseigentumsgesetz”). It is here that the rules and regulations concerning the rights and obligations amongst property owners are stipulated and how and which way property is to be managed. If you, as a private property owner have problems with the other property owners or with the management, then you have a good tool here in Germany to achieve your interests (in court too).
3. When it comes to home property in Germany (selling/purchasing) nothing works without it being notorized. It may be a bureaucratic process, but for that it ensures that none of the parties will handle haphazardly and that none of the parties shall suffer an economic damage. The notary is an impartial official who closely monitors the legitimacy of practices concerning the property. This protects you against any bad surprises. Especially you - who does not live here in Germany and does not know the legalities, who does not speak the language and has little experience with the mentality of our country and especially little experience with the persons (sales agents) who you are buying from who are usually very clever businessmen – should be grateful to have the law, the notaries, official people and the land registry behind you to make sure that you do not experience unjustness!!!!
Please do not underestimate the fact that we have different rules here which you cannot possibly be in any place to entirely evaluate yourself. This is already difficult enough for a German to do, let alone a foreigner.

In Germany to own property means maximum legal security for the owner irrespective of where he comes from.

4. You are right when you say the the rental laws in Germany mainly protect the
tenants and not the landlord. But, just food for thought, the tenant really is the person
who needs to be protected. The tenant is in a normal case a private person and doesn’t stand a chance against a profit oriented company who is the landlord.
In the past (i.e. the rental law reform in the year 2000) we already saw changes which allowed both contractual parties more independent freedom of structure. So things are definitely moving forward for the landlord. Please pay attention to the fact that: as little as the rents could develop, for reasons of the consistent state subsidies, the less the law for rents here in Berlin could develop “healthy”! The social aspect didn’t stand upfront up until recently without compromises.
The “normal” development which includes sufficient consideration for the economic interests of the landlord has only recently started to happen.

Please consider this when looking at the “disadvantages” of the German rental laws:
If you want to reach a profit in your investment, especially through a long-term rental, without outfall and risks, then it is important to have a tenant who is consistent and lives in your apartment a long time and pays his rent permanently. If the tenant is well protected through the legal system and he is satisfied – satisfied tenants in the end bring in the good yields!

Yes, that is correct, you can get good yields if you buy blocks of apartments in comparison to buying an individual apartment. I believe that you don’t have to tell everyone that because it is probably something totally logical. You will always receive a discount from the seller if you buy more in bulk than if you were to buy a single object. Which means you pay i.e. a price of 10 apartments (block) less per apartment than if you were to buy one of them individually. This in itself raises the total yields. Not only in Berlin, but in the whole world!
The question is, can everybody afford to buy 10 apartments in one go??? If not, does the small or medium investor then have to do without an investment?

Sorry to say, but you have no idea what you are talking about concerning rental raises here in Germany. To make an agreement on Staffelmiete (rent echelon) gives the landlord a wide range of possibilities to construct rental contracts.
Your comments on the Mietspiegel (rent table) are also not very exact.
One should be very careful with ones indoctrinations. You should do your homework better before making such utterances!
We would gladly supply you with information on that if necessary.

Yes, you are correct concerning the unemployment in Berlin.
BUT, that is only a small factor why the property prices are cheap in Berlin!
This means, that if we didn’t have such high unemployment, then you wouldn’t be able to buy property cheap here!

If you had studied the media beforehand, then you would know why Berlin at this moment is at its turning point.

All other cities in Germany – except Berlin – were able to immediately develop after WW II. Berlin – the divided city of East and West – were subsidised by the government till the fall of the wall in 1989/90. People paid very low rents here in Berlin. The level of rents were extremely lower than anywhere else (the level of an inconsequential small town).
Berlin started from scratch as of 1990. Big industries, culture and tourism started to move to Berlin. It was then decided that the subsidies for Berlin would be cancelled. The subsidies ran out everywhere approx. as of the year 2000 so that the landlord now had to see to the rental income himself. The rents began to rise. However, presently we comparably have low rents even so they have started to rise as of 2000 (in Berlin the average rent is € 4,50 - € 5,00 per sqm).
So you see, the reason for the low rents and with that the low purchase prices, does not lie in the property being bad or that Berlin has less economic potential. No, rather it has to do with the fact that the development had to start from scratch, at a very low price level, and now has to adjust to the price level of other cities in Germany and to the level of a capital city.

You really don’t see a development chance for rents and property prices in Berlin??? Open your eyes and read the papers..!!!
Answer one question: why shouldn’t Berlin be able to request the same prices as Hamburg, Munich, London and Dublin? Is the city less interesting, less cultural, less of a location for politics, sport and art??? Quite the opposite!! We are experiencing a definite economic upswing. In Munich, Frankfurt, Cologne and other cities the prices for rents (and with the the property prices) have reached the highest level. There is no more progression level (in Munich a businessman pays 3 times the rent of office space than in Berlin, he has to pay the double amount of a secretary than here). The result: companies and their employees are moving to Berlin more and more because the prices are still so reasonable! And that is Berlin. Result: apartments and office space will become scarcer and scarcer throughout the time. Result: the prices of rent and property prices will rise.

Don’t only look at the market isolated but global! You have to look at everything combined together to get a clear picture! (JUST TO LOOK AT THE DÖNER KEBAB ON ITS OWN IS NOT ENOUGH FOR AN INVESTOR!!)
Show me any major city in the world that is not expensive! Why is Dublin or London so expensive???? Does Dublin have 4 million tourists a year…???

If Berlin develops to the level of these comparison cities – and this will definitely happen – then the rents and property prices will double in the next 8 – 10 years.

Vacancy of apartments in Berlin? This fact is also correct. One must know how to explain the vacancy of apartments. Most of the vacancy of apartments boils down to the fact that the GDR had built vast amounts of Plattenbauten, buildings with precast building slabs, in the 1960’s around Berlin (Marzahn, Hohenschönhausen) which cannot be renovated anymore and are therefore having to kick out the tenants because the buildings are being torn down. If you take out this portion of tenants, then one definitely doesn’t have a bigger vacancy than anywhere else.

You are also right when you say that one has to view the yields that individual estate agents offer very carefully. It is a fact that there have never been any realistic yields as high as 12% for individual property purchases (blocks, as already mentioned, are a different story and yields for the purchase of commercial property have to be viewed differently). This nicely portrayed picture is mostly connected with hidden additional costs for the investor: 1) renovation costs, which incurred after the purchase 2) agent fees and the costs for the actual purchase like notary costs, land registry costs, property purchase tax. Good and honest yields always have been around 4 – 5 %. With property which has been extensively renovated in the past and offer long-term secure rental income, the yields have been even less. (security has its price everywhere and that permits the total purchase price of the property to increase). So??

Basically the following applies:
The measure of a decision for property is not the beginning yield. The development potential concerning the appreciation value is the most important factor of all.

There is – as already mentioned – no reason not to believe that the rents and property prices in Berlin will increase.

Why do you think why all of the big investors that you are talking about have been buying here here like crazy? Do you think they are really that stupid doing that without the true belief that they will not gain through appreciation value? Why do you think the experts have bought property with yields of approx. 5,5 %? Because these starting yields only play a role in long investment time periods.

So it is not “stupid” to purchase property which is high in material value, has no renovation work to be expected in the coming years, is well managed, offers security for rental income even if the tenant doesn’t pay his rent, in well-chosen and good locations with good infrastructure, industry and a location that has maybe “only 3%” starting yields!
Don’t ignore everything that is connected over the ENTIRE investment time period as a whole in terms of the appreciation value in proportion to what all is involved, costs and possible losses. This way in the end everything is relative when it comes to seemingly high yields that you believe you should find!
………….in the end you have to pay !!

It is true: because of the strong demand of purchasing by big investors it has caused an economic increase in Berlin recently and the prices are starting to increase.[i]

Whoever wants to be a part of this boom, should hurry up
….and my urgent appeal: look for qualified consultants and support services here on location!!
Best wishes from Berlin.
Managing Director of Stadt Konzept Betreuungsgesellschaft mbH
Silke

[Janet Berlin]

Just for your interest to show you that people ARE making money with their property investments!! This was in the papers today:

SHOPPING MALL SOLD
[i]London - The British property investor Hammerson is pulling out of Germany. "Our main focus will be markets in Great Britain an France", so John Richards, Board of Directors.

This is what happens in the property sales. The shopping mall "Märkisches Zentrum" in Berlin was sold to Dubai Investment Group for 88 Million (size 54 700 sqm). The purchase price adds up to 22 times the yearly rental income of the amount of 4 Million Euros. Also the Factory-Outlet-Center B 5 was sold for 21,8 Million to Henderson Global Investors. "Forum Steglitz" is having Hammerson decorate the place. After the decoration work, this property is to be sold.

SO, look what money can be made!!!

[soldintime]

Janet Berlin,

Yes I appreciate all your comments. If it was my own money I would not invest into a 3% yielding property. Take management cost and maintenance cost off plus the hassle factor and I am better off putting money on the stock market or a high interest savings account. Mortgage rates at 4.5% will give me a net loss. Plus the fact that the buying cost are 12% it makes no sense to me.

When you buy property in Berlin I would use an independent Property Management service (Haus verwaltung) instead of opting for one that comes with the estate agent. They can look at your rent and tell you the likely hood of you increasing it, they can also look at maintenance and bad paying tenants. Expect to pay about €25 per appartment per month.

The fact of the matter is that I am purchasing properties from bankrupt people that have bought property on 1995 for 2.7 million euros and is now selling for 1.2 million. A flexible rent system would have prevented some of this pain for this seller. Property sold at very high prices in 1995 based upon the optimism that and heavy investment after the fall of the wall. The hype did not materialise. What I am seeing now is a similar hype but now from cheap money. I have seen yields fall for neukoln and wedding areas from 11% to about 8% now in just a 4 month period. That is an increase of 30-40% in property prices. That is hype.

Yes global money is chasing everything that provides yield and this has driven cheap money to Germany and Berlin in particular. Cheap money will stop soon with the global interest rates rising. What we need to see in Germany is some real reform only that will restore the job market and lead to healty property investment. With the grand coalition government I think it is not happening now. Maybe with CDU FDP in later elections.

All I know is that rules allow you only to increase rents 20% over a 3 year period. So when you buy a property it is good to see the past rental increases.

I have heard professional investors in the UK saying that the good times to invest in Berlin are already over. The best time was a year and a half ago. There are still some good opportunities but they are very hard work.

My opinion is to look at Leipzig (20% unemployment and 10-11% yielders readily available) and Dresden (14% unemployment, Florence on the Elbe and 7-8% yielders readily available). Both these cities have stopped shrinking and are growing again. They both have been able to attract lots of investment from companies to setup.