Jump to content
House Price Crash Forum
nagalka

Berlin Visit - Decision Time Or Not?

Recommended Posts

Just returned from 4 days in Berlin - spent 3 intensive days with a number of agents (mainly Berliners, but one UK turnkey operator to get a flavour) visiting and getting a feel for the various areas, which included: Prenzlauer (hotspot but overpriced); Friedrichshein (long way behind the former, very mixed area); Kreuzberg; Tiergarden (or was it really Moabit?!); and over to the west including Charlottenberg and Wilmserdorf.

I've spent a couple of hours devising a spreadsheet - calculating all the relevant indices. Had a session with my wife (fnarrr!), took her through each possibility - describing the locale, checking the specs; my photies and of course all the fine detail and indices.

The conclusion? More damned confused than ever? Pros and cons all over the place.

Out of nearly 20 properties (in the areas described above) nothing is barely less than 1500e sq metre, most between 1550 and 1650 - net rental return is less than 4.75e sq m - and yields barely break 4%.

The best returns are where properties are vacant, and the estimated return will be 6e per sq metre - but of course not guaranteed. Most, but not all, of the properties are recently refurbished (usually where a developer has bought a whole block, then of course selling off the individual units).

Ironically the best immediate return with the guarantees was the turnkey (full package) operator, where net yield was nearly 5% and 5.5e rent per sq m - 80% of all rental increase would come our way; also a sink fund of 200e per metre can be used for further renovations in the future,or full refund on sale.

I am not doing this for the immediate return, but for the longer term investment and asset growth, but I would like at least my monthly outgoings to be more or less covered?

Are these prices highly inflated - should I be attempting to knock the agents down by 10-20% I would soon find out!

Any of you guys conducted a similar exercise?

For those of you that do know the city - I am swayed towards a unit in Friederickshein right near the lively Simonsachstrasse - also one 1/2 way down to Alexplatz just off Karl Marx Allee - I am also swayed to the Tiergarden (if it is Tiergarden? Essenerstrasse) - almost Mitte - very central.....

I was very enthused during my days there, but in the cold light of day - I'm now less decisive - any advice ?

Share this post


Link to post
Share on other sites

I haven't been to Berlin and amn't watching the market closely, but I do have some simplistic observations from what you have posted. Observations that have led to assumptions. Assumptions that may not be appropriate. You'll know if they are or not.

You are clearly in this for the longer term and you would not have selected Berlin on the basis of rental returns (Leipzig and other places would provide much better rental.) Your post included a lot of detail on rental returns. In the long run does it really matter if rental started off at 4.5% or 5.5% of purchase price? The difference between the incomings and outgoings each month shouldn't be huge and even if you are having to dip your hand in your pocket for the first few years you know that rental should increase while, if you have fixed rate mortgage, your monthly expenses shouldn't change so much. My point? Go for where you feel the capital appreciation lies over the term you are looking at. There are other considerations and you are right throwing them into the equation, but it always helps to keep focussed on your goal which I imagien to be appreciation.

Share this post


Link to post
Share on other sites
Just returned from 4 days in Berlin - spent 3 intensive days with a number of agents (mainly Berliners, but one UK turnkey operator to get a flavour) visiting and getting a feel for the various areas, which included: Prenzlauer (hotspot but overpriced); Friedrichshein (long way behind the former, very mixed area); Kreuzberg; Tiergarden (or was it really Moabit?!); and over to the west including Charlottenberg and Wilmserdorf.

I've spent a couple of hours devising a spreadsheet - calculating all the relevant indices. Had a session with my wife (fnarrr!), took her through each possibility - describing the locale, checking the specs; my photies and of course all the fine detail and indices.

The conclusion? More damned confused than ever? Pros and cons all over the place.

Out of nearly 20 properties (in the areas described above) nothing is barely less than 1500e sq metre, most between 1550 and 1650 - net rental return is less than 4.75e sq m - and yields barely break 4%.

The best returns are where properties are vacant, and the estimated return will be 6e per sq metre - but of course not guaranteed. Most, but not all, of the properties are recently refurbished (usually where a developer has bought a whole block, then of course selling off the individual units).

Ironically the best immediate return with the guarantees was the turnkey (full package) operator, where net yield was nearly 5% and 5.5e rent per sq m - 80% of all rental increase would come our way; also a sink fund of 200e per metre can be used for further renovations in the future,or full refund on sale.

I am not doing this for the immediate return, but for the longer term investment and asset growth, but I would like at least my monthly outgoings to be more or less covered?

Are these prices highly inflated - should I be attempting to knock the agents down by 10-20% I would soon find out!

Any of you guys conducted a similar exercise?

For those of you that do know the city - I am swayed towards a unit in Friederickshein right near the lively Simonsachstrasse - also one 1/2 way down to Alexplatz just off Karl Marx Allee - I am also swayed to the Tiergarden (if it is Tiergarden? Essenerstrasse) - almost Mitte - very central.....

I was very enthused during my days there, but in the cold light of day - I'm now less decisive - any advice ?

5% is a bit on the low side but not horrific - I have seen poor foreigners duped into buying places on simon-dach strasse at 2000 a sqm - I'd say an instant significant loss. If you strike a good deal you'll get more like 6 to 7.5%. Make sure that that this is the cold rent you collect and that there is no silly small print in there.

Agents charge a premium for their knowledge - do it yourself (or if you use an agent find one that does not take advantage because you are foreign) you should be able to get prices down quite a bit. 1500 on simon-dach-strasse doesn't sound too bad though - that it is if it is a beautifully renovated building, vacant (or recently rented at full cold rent acheivable at 6 to 7 a sqm). To be honest though you can pick up one of the amazing apartments on karl marx/Frankfurter allee around teh corner at 1500 a square metre, vacant, historically protected and like nothing else you've seen before - much more potential. That's what I did (Ok I got mine at 1200 after negotiating very hard and threatening to walk away from the deal several times - I think they needed the cash). In fact there is quite a lot kicking about at 1200 to 1500 - depending on street/quality. Remember - no need to rush this - spend a few months to get it right - you are buying into an opaque market and it is difficult to make comparisons.

PS Why do you only collect 80% of the rent increases - surely it should be 100% + whatever their managment fee is (and if they don't manage it properly you should have the right to move it to another agent - it's your apartment)

PPS If borrowing from a german bank the most your likely to borrow is x10 the annual income in rent so keep this in mind

Share this post


Link to post
Share on other sites

Sorry my mistake - you said near Simon Dach Strasse - not on it!!!

1550 to 1650 definitely overpriced - you should be aiming for 1200 to 1400. (And Ok if you get it really low you may need to spend 50 psqm on minor interior renovation).

Seriously, try the apartments on the famous communist champs elysees (karl marx allee and frankurter allee) - 2 minutes walk to simon-dach strasse, views of the boulevard and the TV tower at alexander platz and they are beutiful buildings - the walls are about half a meter thick!!! At 1500 they are rather special for the price.

http://en.wikipedia.org/wiki/Karl_marx_allee

is the wikepedia link

Share this post


Link to post
Share on other sites

I personally take a different approach. I seek those properties which have the best capital appreciation. 1% yield difference is failry irrelevant in the great scheme and yiled alter over time anyway.

Evidence from the UK and other post boom areas demonstrate the real reward is in the capital gain.

There is a tendancy amongst some to over pontificate and complicate matters.

Think about which areas have had the greatest appreciation since our last crash then attempt to identify such high potential areas in Berlin. Always keep in mind places such as Islington had a significant proportion of trashy locales prior to the boom. The same could be said of Notting hill etc.

So my start point would be with capital gain potential and then trying to get a reasonable yield from that short list.

PS - I think the really smart money is in commercial property - for one the restrictive tenancy and LL obligations are nearly as detrimental.

Share this post


Link to post
Share on other sites

Dogbox, Lexter and Soup Dragon,

Thanks v much for your feedback - some excellent considerations....much appreciated.

Right....where's that spreadsheet?!

nagalka.

Share this post


Link to post
Share on other sites

I was in Berlin last month to investigate the market but the place was empty.

The underground was abot 20% full if that.

There is a serious oversupply of property there and the debt that the city are in is huge. Very reminisent of New York in the 70's.

The southern cities are probably the best invest in Germany.

Berlin isnt the great investment that everyone thinks. If your going to invest there then West it has to be, like Charlotenberg. I would stay well clear of the East despite the cheap prices. Value not cost is what its about.

Share this post


Link to post
Share on other sites
Guest An Bearin Bui

I would agree that Berlin isn't the great investment everyone thinks: I should really be hyping the market as I own a property there myself (personal reasons) but in 6 years of ownership I haven't seen the slightest whiff of capital appreciation. Things to remember with Germany / Berlin are:

1. Prices may be low but that's for a very good reason. Germans don't generally go in for speculative property buying unless they are professional property developers and the economy has been weak in Berlin for a number of years now so unemployment is high and consumption power is low to due to high taxes. I personally can't see any reason why property would go up in Germany in the short-term (could be different in 10 years time) as even if the economy is picking up slightly, the culture there is very anti-buying as it's seen to be high-risk.

2. Most Germans rent and rent long-term. That's great if you want to buy a flat cash-down and rent it for a 10-year period, after which you pay no capital gains tax (if you're registered in the German tax system) on the sale but if you're looking for rental yield then you'll be disappointed. Rents don't go up unless the tenant leaves (there are strong tenant rights laws that won't allow you to either evict or put up the rent) and even then there are rent controls (as far as I know) so your potential profit is capped.

3. The tax and legal situation of being a property-owner / landlord in Germany is different to the UK and I would make sure you hire a tax consultant / relocation adviser before buying. You shouldn't just lump yourself with a property in a foreign country where you don't speak the language and have no idea of the laws or tax obligations. For example, a ground tax (Grundsteuer) is payable quarterly on all property and you need to ensure you're paying this as an owner. It's about 120 EUR per year - not much but these are all things you need to be aware of. It could be I'm being patronising here as you might have ties to Berlin / Germany or be German and know as much as the next person but if you're buying in Berlin, I'm assuming you're not since Germans / Berliners just aren't interested in property speculation (unless they're bankers from Frankfurt)!!

All in all, I would say that no-one should get too excited about the apparently low prices in Berlin. Yes, it's a European capital and, yes, the rental market is strong but ultimately there is a reason why prices are low and that's dependent on local market conditions that I don't see changing for a while. If you're happy to use the property as a savings account and get back your 1500 / sq m price at the end of c. 10 years then that's fine but I wouldn't plan on great capital appreciation. Unless anyone has any other evidence? If you do, then please post it as I would love to hear that the market prospects for my flat there have improved - believe me 6 years of capital depreciation or at best stagnation have been painful when everyone else has been making money hand over fist from property in the UK... :angry:

Share this post


Link to post
Share on other sites

I would agree with the points listed by An Bearin Bui - the Berlin market has been overhyped, of course. After such a long period of stagnation, it's a safe bet that prices can only increase now, but it will most likely be a modest increase over a long period of time, and won't resemble the UK market at all.

On a brighter note, I bought a flat in Kreuzberg in 2005 and am now seeing identical properties advertised by the same agent for 30% more than I paid. I'm not sure this is typical of the current market, but it's a good indicator. I should add that I bought with the 'long term savings account' mindset and because I've always loved Berlin.

I guess An Bearin Bui will have suffered several years of falling/stagnating value, but surely the advice now is to sit tight for the long haul. Even the Germans I speak to say that nobody should sell up now :)

Interesting point about capital gains tax too - I don't rent out and just use my place as a second home. I'm assuming I'd only have to register with the German tax system if I was doing the landlord thing?

Jason

Share this post


Link to post
Share on other sites

I agree that the German market is a bit hard to read right now. It has had a lot of positive press abroad but the Germans themselves seem less excited.

I bought a flat here beginning 2006, also in Kreuzberg, and spoke recently to some estate agents when deciding whether to have a balcony fitted (am also thinking about turning it around in a year or so to buy something bigger).

Everyone agrees that rents are going up. But on sales they seem to divide into two groups - one is firmly embedded in a the outlook of the last ten years (prices haven't risen and shouldn't be expected to much), the other seems more optimistic (the demand for purchases has gone up, as have prices somewhat, these ones are also more keyed into the foreign buyers market, which seems lively).

I bought my flat at around €1300 per sq m, I noticed the same sellers are advertising a slightly worse flat in the building at the moment for €1500 per sq m, so they must think something has improved.

Share this post


Link to post
Share on other sites
I agree that the German market is a bit hard to read right now. It has had a lot of positive press abroad but the Germans themselves seem less excited.

I bought a flat here beginning 2006, also in Kreuzberg, and spoke recently to some estate agents when deciding whether to have a balcony fitted (am also thinking about turning it around in a year or so to buy something bigger).

Everyone agrees that rents are going up. But on sales they seem to divide into two groups - one is firmly embedded in a the outlook of the last ten years (prices haven't risen and shouldn't be expected to much), the other seems more optimistic (the demand for purchases has gone up, as have prices somewhat, these ones are also more keyed into the foreign buyers market, which seems lively).

I bought my flat at around €1300 per sq m, I noticed the same sellers are advertising a slightly worse flat in the building at the moment for €1500 per sq m, so they must think something has improved.

I can remember when the French thought the Rosbifs were crazy for coming in and taking all sorts of rubbish off their hands while they all fled to their nice little rented flats on the edge of the cities. It took years and a couple of hundred thousand outsiders coming over and all but stealing their country from them to wake them up to the benefits of property ownership. Go and buy a place in France now and you'll find just as many French looking for bargains as you will Brits.

The same can be said of some parts of Italy.

I can remember talking to a Sicilian in Erice who was amazed that a foreigner was looking for investment properties in Sicily. Who in their right mind would want to buy here? was a loose translation of what he said. I turned around, looked out over the landscape below and told him, "Anyone who could see this view" He just didn't get it.

Are the Germans that different to the rest of the human race? Of course not - those that embrace what is inevitable and is coming will benefit, those that don't will wish, ten years from now, they had taken more notice of what the stupid foreigners were about.

Share this post


Link to post
Share on other sites

Join the conversation

You can post now and register later. If you have an account, sign in now to post with your account.

Guest
Reply to this topic...

×   Pasted as rich text.   Paste as plain text instead

  Only 75 emoji are allowed.

×   Your link has been automatically embedded.   Display as a link instead

×   Your previous content has been restored.   Clear editor

×   You cannot paste images directly. Upload or insert images from URL.

Loading...

  • Recently Browsing   0 members

    No registered users viewing this page.

  • 351 The Prime Minister stated that there were three Brexit options available to the UK:

    1. 1. Which of the Prime Minister's options would you choose?


      • Leave with the negotiated deal
      • Remain
      • Leave with no deal



×
×
  • Create New...

Important Information

We have placed cookies on your device to help make this website better. You can adjust your cookie settings, otherwise we'll assume you're okay to continue.