The German real estate market has been on a boom for a number of years now, so I decided to investigate the situation and see whether it’s potentially a good investment.
It turns out that German cities are forecast to be Europe’s most highly favoured real estate investment in 2017, as investors seek out well performing safe haven assets.
Berlin, Hamburg, Frankfurt and Munich will represent four of the top five European markets for real estate investment and development; the other being Dublin.
Recent data from Real Capital Analytics confirms that Germany has overtaken the UK in post-EU-referendum investment volumes. Although London remains Europe’s primary market for global capital – attracting EUR31 billion between September 2015 and September 2016 – the report notes that it has fallen from number 11 in 2016 to number 27 in 2017 in the Emerging Trends Europe city rankings for investment and development prospects.
Since the Brexit vote, Germany has enjoyed a pick-up in interest with EUR13.6 billion of inflows into German real estate in Q3 2016 compared to EUR10 billion for the UK according to Real Capital Analytics. Meanwhile, real estate investment trusts in Germany and Scandinavia have risen since the Brexit vote to trade at premiums to the value of their assets, a sign that investors feel their cash is safer there, found the Emerging Trends in Real Estate Europe 2017 report.
With more than 80 million people, Germany is Europe’s highest populated country. It boasts Europe’s strongest economy, which is now the fourth largest in the world, and has approximately 42.8 million people in employment.
Factor in that Germany has one of the most productive economies in the world and a booming export market and it becomes understandable as to why its property market attracts large amounts of international capital. A total of EUR70 billion was invested in the sector, for example, between 2010 and 2015, with Germany attracting nearly half of the capital invested in Europe’s residential property sector.
The German Real Estate Situation
As I was doing research on the German real estate market, I learnt some surprising facts. Apartment viewings often turn into mass events, with 50 or 60 would-be tenants turning up at an appointment. Many bring application portfolios with detailed information on their earnings, their creditworthiness and their family situation. It can be insanely difficult to find an apartment, and you are still expected to pay a deposit of 2-3 months rent. At least the agency fee is paid by the landlord, which is not the case in Spain, for example. One other curiosity is that most apartments don’t come with a fitted kitchen; you have to install it yourself.
In Hamburg, apartment prices rose by 70 percent between 2010 and 2015. They are expected to surge by another 50 percent by 2030. A three-room flat can cost around $450,000 (400,000 euros) in residential areas close to the city center.
Louis Hagen, Chairman of the Münchener Hypothekenbank and President of the Association of German Mortgage Banks (VdP), sees no risk of a property price bubble in Germany.
Firstly, Hagen pointed out that not all regions have registered rapid property price increases. Even in cities like Berlin, Hamburg and Munich, high rental prices in the newbuild segment have not necessarily been matched by high rents in the existing rental property sector.
Secondly, price increases have been driven by population growth, the ongoing trend towards urbanisation, and strong economic fundamentals, combined with historically low interest rates. At the same time, Germany’s rental housing sector has seen vacancy rates fall close to zero.
Finally, loan-to-value ratios are typically no more than 75 percent, which underscores the financial soundness of the German market.
Let’s have a look at some of the major cities and how they’re faring. One important rule of real estate investing is that you need to be looking at cities rather than countries in general, as the dynamics can be totally different from one city to another with the same country.
Berlin: Full boom at the moment, with a rapidly growing demographic as more people move into the city from all over Europe given its development in sectors such as technology.
Frankfurt: Another city that is in full swing, it is benefiting from Brexit news and the promise to become the financial centre of Europe in the coming years.
Cologne: Demand exceeds supply in this city, so the forecast is good for investment in the next few years.
Dusseldorf: The luxury property market is getting saturated, but there is still demand for basic housing.
Hamburg: Gentrification is underway in several areas and this is paving the way for further growth in the property market.
Munich: Prices have risen very far and are approaching London territory. Locals find it very hard to keep up with rental prices and are even more priced out when it comes to buying. Rent has not yet risen as much in comparison to purchase prices.
The PB3C website is an excellent source for updated news about the real estate market in Germany, it is worth following.
How to Invest in German Property – The Easy Way
The volume of investment raised by crowd-investing platforms for property developments and redevelopments surged by 92.5 percent in 2016.
iFunded is the leading property crowdfunding website in Germany. They have a very nice interface and all the information is well presented in German and also in English. They are open to investors all over Europe and signing up is super easy.
To get verified, you will need to download the Deutsche Post app and then arrange for a video chat through the app. A Deutsche Post employee will call you and take a photo of yourself and your passport in order to complete verification. It’s one of the swiftest and most straightforward ways of verification that I’ve encountered so far. In this sense, the platform lives up to the German standards of professionalism and organised way of working.
iFunded offers two types of investments: bonds and loans.
Bonds belong to the investment class of securities under the German Securities Trading Act (Wertpapierhandelsgesetz, WpHG), in which creditor rights, in particular interest and repayment of the borrowed money, are securitized.
A subordinated loan is a debt to the receiver which ranks below senior loans and is regulated under the provisions of the German Investment Provisions Act (Vermögensanlagengesetz, VermAnlG).
The minimum investment is EUR500 and the maximum is EUR10,000 as a private investor. Returns can be as much as 7% per year.
The investment is paid back at the end of the investment term, which varies from project to project but is already determined during the Funding Phase. Interest is either paid during the project in the course of the year or at the end of the term. This depends on the project. The iFunded platform receives marketing fees from the project developers. These include a one-time fee per project and ongoing fees depending on the duration of the project.