90 BOLD | March 2014

RealEstatE

erlin, increasingly the unofficial political capital of Europe, is fast becoming the top spot for real estate in-vestors as still-cheap

prices combine with surging demand to create hot opportunities for property buyers.

Cities across Germany are experienc-ing a rapid rise in values, but the gains are most pronounced in the capital, even as prices remain just 20% higher than they were at the country’s reunification back in 1990 and several times lower than its peers across the continent and channel.

The mean price of an apartment in the center of Berlin is €2,900 per square meter, according to numbeo.com. That’s 275% less than in London and 345% less than in Paris.

But the opportunities for investors may not last long. Rents and sale prices in Berlin are rising at the fastest pace in more than 20 years, according to the 2013 GSW Housing Market Report. Rental prices for listed apartments climbed 13% in 2013 from the previous year, with the sharpest increases in the highest-quality units in the center.

“Berlin real estate prices are general-ly 1/3 of Paris’ prices and way below any

EuropE’s unofficial capital is bEcoming onE of thE hottEst markEts for rEal EstatE invEstors thanks to a combination of still rElativEly low pricEs, a strong Economy and soaring dEmand

writes Ivana Hindi

BoomingBerLin

33% HoW MuCH CHEAPER BERLiN

REAL ESTATE PRiCES ARE GENERALLy CoMPARED WiTH PARiS AND oTHER EuRoPEAN

CAPiTAL

3% LoCAL LoNG-TERM FiNANCiNG

CoSTS iN THE GERMAN CAPiTAL, ABouT THE LoWEST oN RECoRD

10% JuMP iN PRiME CoMMERCiAL

RENTS iN 2012 AND 2013 — yET THEy’RE STiLL WELL BELoW

THEiR 2001 PEAK

8% RiSE iN RESiDENTiAL RENTAL PRiCES iN 2013, THE BiGGEST

GAiN SiNCE uNiFiCATioN iN 1990

3% BERLiN’S RESiDENTiAL VACANCy

RATE, THE LoWEST iN MoRE THAN 14 yEARS

B

BOLD | March 2014 91

other European capital,” said Karim Sal-ameh, founding partner and chairman of Real Capital Holding and one of the big-gest real estate investors and fund man-agers in the Middle East.

That has turned Berlin into one of the prime locations in Europe attracting in-ternational real estate investors, giving them a chance to benefit from the gains — though they better hurry. The Price-waterhouseCoopers Emerging Trends in Real Estate 2013 report for Europe ranks Berlin as the second-best city in the region for investment prospects, be-hind fellow German city Munich. While Munich and other hot spots in Germany such as Frankfurt and Stuttgart are rela-tively expensive, Berlin still looks cheap, according to Deutsche Bank, which in 2012 called it one of the most interesting cities in Europe.

One of the top neighborhoods attract-ing interest is Berlin-Mitte, the city cen-ter, where high demand is mostly con-centrated in new construction projects

that offer stable yields and potential for generous capital appreciation. Another is Prenzlauer Berg, located in east Ber-lin, where investors are targeting sec-ond-hand property at lower prices but in need of renovation.

“One of the reasons for this is the state of the properties themselves alongside a lack of development in these areas, where high renovation costs are not taken into account when calculating the ‘higher’ promised yields,” according to Thomas Zabel, managing director at Berlin Cap-ital investments. ”Yields in these areas are advertised up to around 8% annual-ly, but in reality were just under 4% after evaluating the necessary costs incurred.”

Analysts credit Berlin’s population growth of about 15,000 households a year as a primary factor behind the rapid price appreciation, coupled with their growing purchasing power. The city currently boasts a population of about 3.4 million people, a million less than its pre-war peak, according to Bloomberg Business-

week. Germany’s strong economy — it’s still the engine of Europe — is also boost-ing migration rates as residents of neigh-boring countries look for opportunities elsewhere. And it also boasts a relatively low cost of living, giving residents 59% more purchasing power than in London.

That’s turned Berlin into a sellers’ mar-ket, according to Alexander Korte, a real estate broker who runs BerlinInvestment.com. Demand is high from both national and international investors, he says, al-though the luxury segment attracts most of the foreign buyers.

“Berlin has a very good outlook and all fundamental parameters are very good,” he explained. “Also, the prices are still be-low any other locations investors would consider right now. And any foreigner can buy in Germany without any restric-tions.”

Korte expects prices will continue to climb, but more slowly than in recent years as politicians begin to implement regulations aimed at curbing the rapid growth in rents and prices to limit spec-ulation and keep housing affordable. He recommends investors focus on buying properties that are planned but yet to be built to avoid legal and technical prob-lems. He also says wealthier buyers with available cash of more than €1 million should invest in an entire apartment block or project development, rather than an isolated condo — and stick with resi-dential real estate.

“I personally invest in B-locations within Berlin, as A-locations became too hyped and the premium you pay for prime locations is too high,” he says. “Demand here is by far exceeding the supply.”

1. BerLin-MiTTe (city-center)

The high demand in the heart of Berlin is concentrated in new construction projects, which provide stable yields and high capital appreciation potential. Even if the prices are higher compared with other neighborhoods, they're still much lower than the other capitals of Europe such as Paris and London.

2. PrenzLauer Berg (east Berlin) investors in this area are typically seeking a second-hand property in need of renovations, but at lower prices than Berlin-Mitte. There's high demand for rental apartments located here, specially for young families, making them ideal for subletting.

3. CharLOTTenBurg (west Berlin)

This is a conservative, glamorous district in the west, where there is lots of wealth and a high demand among Germans to buy into a lifestyle.

Source: Berlin Capital investments

hot spots

“Alexander KorteBerlinInvestment.com

The PriCes Are sTiLL BeLow Any oTher LoCATions invesTors wouLD ConsiDer righT now