German market still 'ripe for picking'

Published 16th Aug 2007

The burgeoning German property market is still attracting investors, although the best returns are to be found in areas other than the usual investment hotspots, investment broker London & Capital has claimed...

Most investors in the German market would probably confine themselves to looking at properties in large population centres such as Berlin or Munich. In fact, London & Capital spokesman Iain Keyes says that buyers can get "great off-market yields" if they "look outside the five big cities".
The recent convergence of the ten-year euro swap rate with prime office yields has pushed up the cost of borrowing for the purposes of investing in a property. However, Mr Keyes says that his company's German real estate fund "is still buying at a margin above interest rates".

Furthermore, he predicts that the "general growth" currently being witnessed in the German economy "will run through into rents".

Inflation rising

Rents in Germany - where property ownership is on the whole rather low - are closely linked to inflation. Analysis of German data in the form of the Consumer Price Index shows that inflation is up, which means the rental market will benefit.

Not everybody is advising investors to look outside the big five cities however. Real estate agents Feri Rating & Research are predicting that average rents in Berlin, Düsseldorf, Frankfurt, Hamburg and Munich are likely to go up by nearly nine per cent over the next decade.

And the smaller cities of Dresden, Heidelberg, Leipzig, Munster and Wiesbaden are going to see growth in excess of that seen in the major cities, spokesman Wolfgang Kubatzki has declared. He expects German rental growth on the whole to increase at a rate higher than the European average.

Housing supply ‘bottleneck’
In the past ten years, average household incomes have gone up by ten per cent, while rents have remained fairly steady. Mr Kubatzki sees this as a sign that rental growth is going to be pronounced over the next decade.

In addition, a shortage of housing supply has prompted major construction projects in areas such as Munich and he predicts that "the bottleneck to be expected for the housing supply in the growth centres will cause the level of realisable rent rates to rise".

In Berlin, rental figures are exceptionally high and expected to rise. As much as 85 per cent of the property in some areas is rented and according to Paul Collins, property editor at Buy Association, it offers "very reasonable property prices".

Source: ' Assetz '

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