Rental yields and the financial crisis

New York Times article – Great Homes and Destinations, Germany

MARKET OVERVIEW

Though there was a construction boom in the 1990s after the unification of East and West Germany, the property market in Germany has been relatively flat over the past decade, according to Tobias Just, head of real estate research for Deutsche Bank. Prices are growing slightly in desirable markets like Berlin and Munich, but Mr. Just said most markets were holding steady or experiencing a slight downturn. “We haven’t had a rapid growth period like other markets,” he said, “so there is nothing to correct.” The stability may also be ascribed to Germany’s conservative mortgage system. Over 90 percent of the mortgages issued in Germany have fixed interest rates, and borrowers typically put down 30 percent of the purchase price. “This is a nice cocktail to prevent prices from going through the roof,” Mr. Just said.

Germany’s tenant-friendly laws are another factor in keeping property prices down. Rent control is strict, and evictions are slow and expensive for property owners. The laws favor tenants because “most of the electorate is renting,” he said. Roughly 50 percent of all residential units in Germany are rentals, and many are owned by the government or by nonprofit public welfare agencies. Although there was an influx of foreign investors buying rental units from 2003 to 2006, prices stayed stagnant because of an oversupply of rental units.

The market for luxury homes in the Munich area is small but strong, according to Christian Ehbauer, owner of Re/Max Exclusive in Gruenwald. Older luxury condominiums in Munich cost 6,000 to 9,000 euros per square meter ($695 to $1,040 per square foot), but some new units sell for as much as 12,000 to 16,000 euros per square meter ($1,390 to $1,850 per square foot).

Well-appointed single-family homes in Gruenwald or Starnberg, suburbs south of Munich, cost 1.4 million to 2.8 million euros ($1.7 million to $3.5 million), but Mr. Ehbauer has seen mansions with lake frontage in Starnberg sell for as much as 8 to 12 million euros ($1 million to $15 million).

Berlin Residential Real Estate Market Outlook 2009

A survey of 118 cities in Germany has seen the average rent level in Berlin at 5.58 Euro per sqm per month net rent. This takes Berlin to rank No. 55 with Munich in the lead with an average net rent of 11.36 as shown in a study published by the association of the Berlin-Brandenburg housing corporations. Even in small cities like Jena (7.06), Greifswald (6.49) or Lübeck (6.07) the average rent is currently higher than in Berlin.

Yet another indicator for the development potential of the Berlin residential market. With the current price level for Investment Property at early last year’s level and growing numbers of pressured sales due to “De-Leveraging” where investors sell properties to generate fresh cash the yields have improved significantly. Recently some big investors in the Berlin market like ORCO Germany have sold properties between 2 – 20 % below their book values.

The take-up by the market is relatively slow as most banks require up to 40 % equity to match their lending. “Equity is king” and those who have it can cherry-pick. Any relaxation in this area will depend on the development of the financial crisis and any forecasts on this a currently very vague.

Credit Crunch Could Boost German Property Market

(OPENPRESS) November 26, 2008 — According to a survey by travel portal kayak.co.uk 60 percent of Britons have no intention of canceling their winter holiday plans because of the economic downturn. Meanwhile, Grahame McKenzie of tourism website Travel Mole, has predicted that the global downturn will cause Britons to holiday in locations within Europe, such as Spain and Italy, naming France, Italy and Germany, he added:

“Potentially there may be an upsurge in ferry bookings, so people will be able to shove all their stuff in a car and just jump in with their kids and everything.”

Liam Bailey, chief market analyst for overseas property portal Property Abroad gave us his views on the reports:

“Firstly, it is possible that the findings from the Travel Mole survey go against Grahame McKenzie’s predictions — for this winter anyway — of course depending on whether or not some of the 60 percent have made their winter holiday plans to go further afield than Europe, which I believe is a fairly safe bet. McKenzie’s statements give no indication of whether he meant this winter only or winters for however long the ‘credit crunch’ lasts.” While it is highly likely that some people will decide to holiday in Europe, most Britons already do holiday in Europe, so I can’t see there being a ‘massive upsurge’, but even a slight upsurge could generate a boost in European property markets.”

“McKenzie being right would make the biggest difference to Germany, because German property traditionally has very low rental yields, because of government restrictions, and because of the fact that very few Germans own their own homes meaning that most rentals are residential. This would — possibly very quickly — give Germans the ability to raise their rental rates on short-term leases only, because the government would see the positive effect this could have on the economy combined with the increase in tourism.”

More on Altbau: Berlin article in DOVE Case

After the Il Sole 24 Ore supplement, also the patinatissimo DOVE magazine dedicates a special section to Berlin beautiful flats. Once again, I think this is only a partial point of view of what one can find in Berlin…but it’s worth having a look…

Check it out on the Speciale Centro Storico link…The high ceilings, the Eiche parquets, the stucco well represent the Altbau we love. As per the information on flats, normally Expose’ contain more info, so consider that just an excerpt of what you would normally receive from your Makler.

On the same magazine, in the Archive, you can find an article on house boats in Berlin (there are also a couple of hotels like that, I’ve been told by friends!).

And, after Zehlendorf and the 50s, the Aufbau-style, some material about living in a Plattenbauten 70s flat….bof bof…

Well. This is all very nice and informative. Now back to old, dear Schoeneberg!

Germany postpones privatisation of property firm TLG

from The Guardian Online….

BERLIN, Nov 6 (Reuters) – Germany has postponed the planned privatisation of state-owned property company TLG Immobilien GmbH due to difficult market conditions, the Finance Ministry said in a statement on Thursday.

The delay follows last month’s postponement of the multi-billion euro initial public offering (IPO) of rail operator Deutsche Bahn due to market turbulence.

TLG Immobilien, which was originally created in 1991 to handle the sale of real estate belonging to the former communist state of East Germany, was due to be privatised later this year.

The firm, which has been active as a buyer on the market since 2000, had property assets worth more than 1.4 billion euros ($1.8 billion) as of the end of 2007. It is one of the largest real estate companies in eastern Germany.

“Due to difficult conditions in the international financial markets, there are currently no expectations for a successful privatisation,” the Finance Ministry said. “The company will thus remain in government hands for the time being.

“But the in the medium-term the privatisation remains on the agenda,” it added.

Just days ago the ministry said preparations for the privatisation were heading toward their final stages.

According to media reports, potential buyers of TLG included U.S. investment companies Lone Star and Oaktree.

In 2007, TLG made a net profit of 52.4 million euros, according to figures on the company’s website. (Reporting by Gernot Heller and Dave Graham, editing by Will Waterman)

Functional flats from the 50s

When we started visiting flats we noticed that the first clivage is between Altbau und Aufbau.

The majority of flats that are featured in ads online and on the newspapers are those that we nicknamed “Aufbau”,  since they date from the 1950s or the 1960s and were built following standardized plans. The use of space is intensive and clever, ceilings are not particularly high (still, they are higher than in Paris), and even small surfaces do have a nice layout.

Once you have visited a dozen of them you already know what to expect when you visit another one. The smallest flats feature a functional bathroom, a small but effective kitchen, and a Wohnzimmer with a balcony (sometimes as small as 1 sqm, a smorker’s balcony, but definitely there) that doubles as a bed room.

In some cases there are indeed surprises, like this flat’s interesting small hot house for the plants. Our Maklerin (and good friend) F. explained to us something quite logical, ie that in post-war Berlin people spent their holidays on the balcony: having dinner outside, doing some gardening. The small hot house was conceived for storing plants in the winter. In-house it would be too hot and they would take up too much space, whereas the small hot house provided a transitional temperature ideal for storing the pots of plants.

Our architect B. said that he is always amazed by the generally very good quality of design of these 50-years old flats. Very rational and functional, but never poor. You clearly have the impression that through standardization the administration needed to re-build vast amounts of the city and to house thousands of people, but good design was provided together with housing. In every Kiez you can spot the 50s flats, even in the middle of Altbau compact blocks you can still spot where the odd bomb cancelled one building, the 50s geometric lines mend up the shattered urban texture.

During our first flat expedition in august 2007, we “missed” two flats like these. The first was really small but in a fantastic location, in Motzstrasse close to the beautiful Viktoria-Louise Platz. Our bid for the flat was preceded by someone else’s…this was our first disappointment. Because disappointments happen, all the time, when you are looking for a flat. You fall in love with a location, a layout, a sort of je-ne-sais-quoi and then…it’s gone.

The second was close to Rathaus Schoeneberg, facing a nice small piazza, a standardized 1950s building. Recently renovated, and with a nice black marble staircase. Because these buildings are indeed simple, but they were conceived very well at the time. Space for storing your bicicles in the courtyard, Keller downstairs, very frequently they have lifts (quite rare in Berlin), they have nice stairs, made of stone and with windows. Simple, but very dignified and easy to maintain, never grotty. These are dignified buildings.

This time we were the first on the list! We had very clear ideas about the flat we had just visited, we did the offer after less than one hour by fax and confirmed it by visiting the Makler in her office before lunch. We did notice that this Makler looked somewhat unsure or hesitating, but when we handed her the duly filled in form with our signature and offer (she was selling formerly State-owned flats at a fixed price, on a first-come first-served basis) she said that we were the first to have done a bid, so it was just a matter of checking data and starting to talk about notary issues.

We went back to Rome, expecting an e-mail to kick-start the purchase process, but never heard anything from her anymore…she would not answer e-mails or phone calls, nor return messages. Eventually she sold to someone who did an offer after ours. Just because she didn’t feel comfortable in “dealing with foreigners”.

So we discovered that even in the reliable Germany it happens to meet The Unreliable Makler. I must admit, all the flats we visited fitted at a 99% rate the description in the Expose’. Both the Expose’ and the Makler talk are very, very transparent and reliable, reality fits description, a nice feeling compared with our past experiences when renting in Paris and Rome, where Makler equals absurd jargon and unrealistic descriptions.

We did meet with so many Makler in Berlin and the vast majority of them do not speak a single word of English, but are extremely helpful and professional. We make an effort in German, they reduce the speed of their talk, and the discussion goes on. Their Expose’ are immaculately detailed, full of pictures, so the visits are quite easy.

But apparently, there is 1 dumb Makler in Berlin, and we met her!

Bottom line: sound disappointment, feeling of being cheated on, loss of time and opportunities. Because we had seen other interesting flats, but then committed to this specific one and did not pursue the other transactions. Our first expedition to Berlin in august 2007 (10 days of our holidays) ended up with a lot of research and a big disappointment…But research is never a loss of time. You will capitalize on it.

Nevertheless, we still are fascinated by the quality of design of the 50s. Our friend in Moabit with the help of Mr B. (the architect) renovated one of these flats and the result is absolutely gemuetlich…on the balcony there is space for pots of Erika and Hypericum.

Considering all the criticism attracted by the balcony-missing Schlange or Snake-building between Moabit and the Spree, during the 50s they had an idea or two on how to build apartments, even on a tight budget…

O. Reuter / Luftbildarchiv Berlin

thrilling choices

Well, no, we are not thinking of having 39 Stufen (steps) in the flat, but just one…

During our June trip to Berlin, our architect B. came up with an original solution. Why not fitting a step between bed room and living room? That would give a bit of movement to the flat and help solving electrical and plumbing issues, since we do need to build a step in the bathroom anyway…so half of the flat would be raised by 17cm and that would be quite nice.

Our project was perfected by B. during the summer and eventually we were discussing about having sliding doors between living room and bed room (you can’t fit double-winged doors if there is a step in between two rooms, right?).

The polish-berliner Firma confirmed to us that it would be feasible and it would look quite nice (eine sehr schoene Wohnung!).

But after careful thinking we had to call it off this week. The step in the bed room would cause a couple of technical problems which were not visible on paper. The biggest problem is that we had not realized how much our windows in the bed room to-be are…low. These used to be kitchen and bathroom windows, and they were accessible laterally so to say. But once kitchen and bathroom are destroyed (well…they’ve been bombed last week) and you can actually face the windows…oh boy, are they low!

Add on top of that a floor raised by 17cm, a shiny new parquet…and opening the window in the morning would cause a vertigo!

So, keine Stufe. But the positive side of it is, we can go back to double-winged doors…and our charade is solved.