Mittwoch, 27. Dezember 2006

Berlin realty finally waking up

Foreigners enter the market after 8 years of price declines

By Patrick Donahue Bloomberg News
Wednesday, December 27, 2006

BERLIN: Yngve Fredheim, a 60-year- old civil engineer from Norway, bought an apartment in the Prenzlauer Berg district of Berlin last year for €300,000, or about 60 percent less than a comparable apartment back home in Oslo.

He is among a wave of foreign buyers lured by some of the lowest property prices in Europe and signs of an economic revival in Germany. Real estate pages of British newspapers, including The Times and The Telegraph, have labeled Berlin a good market for buying a second home.

"It's really cheap, and it's one of the best locations in Berlin," Fredheim said of his four-room residence, which measures 112 square meters, or 1,200 square feet, and has been renovated for the first time since the reign of Kaiser Wilhelm II. "It's a metropolis. It has something similar to Paris and London, so if the Germans get the economy going, it'll be a good investment."

Berlin, a city of 3.4 million people, is an anomaly among European capitals: It has the country's biggest population but is not the financial or industrial center. After hopes of becoming the hub for European trade and politics after the collapse of the Berlin Wall 17 years ago were not realized, residential real estate prices dropped every year from 1996 to 2004. Real estate values in London climbed 80 percent during that time.

The tide may be turning. A total of €6.33 billion, or $8.36 billion, was spent on Berlin properties in the first nine months of 2006, up from €2.95 billion a year earlier, according to the local government's Web site. By the end of the year, the figure may reach a record of more than €10.8 billion, the newspaper Tagesspiegel reported last week, citing a member of the government's survey board.

One destination for homebuyers is the eastern neighborhood of Prenzlauer Berg -- prized for its leafy, cobbled streets, trendy cafés and proximity to the city center. Apartments cost about €2,500 to €3,000 a square meter, 20 percent to 25 percent of London prices, said Wolf-Dieter Lahmann, director of the real estate agency BIST Immobilien.

Other districts where foreigners are shopping include Köpenick, one of the most prosperous in the eastern part of the city, and the western areas of Wilmersdorf, Zehlendorf and Steglitz.
"Last year it really took off," said Lahmann, whose agency concentrates on Prenzlauer Berg. About 25 percent of its sales are to non-Germans --mostly Americans, Britons, Italians, Irish, Scandinavians and Greeks.

Many of the investors have jobs that bring them to Berlin regularly and want to avoid staying in hotels, Lahmann said. Others buy apartments for children who are studying at Berlin universities. Still others are moving to the German capital.

Quick profits may not be on the horizon, though. Lahmann said that investing in Berlin real estate required a 10- to 20-year commitment.

Tobias Just of Deutsche Bank said: "In the long term, Berlin is very positive because it has a good infrastructure. It's not as much so in the midterm. In the short term, you'd have to think twice about it."

For foreign investors who rent out their apartments, the current prices may bring higher returns.

Berlin landlords are able to charge annual rents that yield 6.5 percent to 7 percent of the purchase price, said Frank Schollenberger of Jones Lang LaSalle, a realty agency based in Chicago. Yields in London and Dublin are half that, he said.

"You couldn't even imagine such a thing in London," Schollenberger said.

The German economy is also helping, as rising consumer confidence drives demand for housing. Gross domestic product is expected to increase 2.3 percent this year, the strongest result since 2000. Unemployment fell in November to the lowest level in four years, while business confidence surged to match a 15-year high.

Private equity funds are interested in Berlin real estate. Cerberus Capital Management and Goldman Sachs's Whitehall investment fund bought 65,700 units of public housing in the city in 2004, mostly in lower-rent districts, for €2.1 billion, an early bet on climbing prices.
Such purchases have started to affect prices, according to David Milleker of Allianz Dresdner Economic Research. He said the trend would continue nationwide.

Because of the stagnant prices, he noted, rental yields are up 2 percent since 1995. In Britain, yields are 40 percent of their 1995 level, Milleker said.

"The appearance of big buyers from abroad can thus certainly be seen as tending to have a positive impact on price developments," Milleker wrote in a report.

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