Understanding German’s Soaring real estate market

By : Nick Marr

In today’s economic climate, there aren’t many real estate markets that have seen such a massive rise in investment since 2010 as Berlin has. City data shows that there has been growth into double digits over the last eight years. In the last 12 months, the average residential property price has risen by 20.7%, according to a survey by Knight Frank.

If you look around Berlin today, every corner is flooded with new developments. These range from massive luxury blocks of condos, to the careful renovation of buildings that date back to before the Second World War. Lots of the properties on the market come complete with luxury amenities and have transformed Berlin into a gentrified property hotspot.

Sustained increase
This real estate boom is partly fuelled by Berlin’s ever-increasing population, along with a massive shortage of new homes being built. In very recent years, overseas investment from across Asia and Europe have also poured into Berlin, which has inflated property prices and put the city firmly on the map as an investment hotspot.

The past ten years has seen a lot of development in Berlin, and now we’re seeing a sustained sales increase, as the city continues to attract new people, new buyers and ever-more investment.

New developments
There is a growing demand for premium and affordable real estate across the whole of Germany, as well as in Berlin. This is partly due to Germany’s relative economic stability and comfortingly solid regulation. It is also a reflection of the increase in buyers and investors from the ‘baby boom’ generation, who have spare cash and an interest in quality real estate.

An example of the kinds of new developments that are answering the call for real estate, lies in Living Levels. This development is brand new and right in the centre of Berlin over the river Spree. It’s a 14-storey building boasting 56 luxury apartments, including a 4,5000 square foot penthouse. The investor will also have access to an interior designer so that the space is crafted in exactly the way they need. It will have amenities including a rooftop pool, sauna and concierge service. And the price at € 22,500 is one of the most expensive in Berlin.

This is one of many projects forming a total redevelopment of an area of the city and is an example of how areas that have been neglected for decades are seeing a rising amount of investment.

Interest rates
As well as exciting development projects in cities like Berlin, and plenty of good quality investment opportunities, the increasing gap between interest rates in the United States and Europe is opening opportunities for global real estate investors.

Recently in the US, interest rates went up from 2 to 2.25%, and in Europe they’re currently locked at 0%. It’s likely that Europe’s interest rates will stay like this until next summer, while in the US and UK they will rise. This will push the two countries into a different rate environment than in Europe, meaning investors in Eurozone real estate will be in a good position.

Tax incentives

In addition, the Government in Germany is backing new tax incentives to further encourage private developers to build more affordable housing projects. Since 2015, more than one million asylum seekers have been welcomed into Germany from wars in Africa and the Middle East.

However, while luxury developments are rising in cities like Berlin, there is still a need for affordable rental properties. The Government wants to encourage investors to put construction of affordable property first. This should give Germany’s booming construction a further boost and open up even more opportunities for overseas investors.

The Government aims to allow investors to reduce their taxation by deducting around a third of the construction costs over four years. This is dependent on the new flats being built being let out for ten years. This tax incentive is limited to apartments with costs of less than 3,000 Euros per square metre.

As a result of this, Germany is proving a very attractive location for international investors who can look ahead to doing deals in the country with relative equanimity.

Nery Alaey

Nery Alaev is the current Director of ESN Investments GmbH, which engages in acquisition and development of commercial and residential property in Germany and Austria.