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.”

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