Christine Munch, a 31-year-old graphic designer from Norway, last year bought an apartment in Berlin's Mitte neighbourhood for 157,000 euros ($203,000), or less than at least three times the amount she would have paid for a comparable place in Oslo.
"Owning an apartment that's really cheap in the middle of such a vibrant and culturally rich city is a dream come true," said Munch of her 100-square-meter (1,080-square-feet) home located on the 19th floor of a prefabricated high-rise close to where the Berlin Wall once stood.
The apartment, which offers sweeping views of the city, is five minutes away from a subway station in the city's centre.
Flood of foreign homebuyers
Notwithstanding Berlin's sluggish economy and high jobless rate, Munch is among a wave of foreign buyers lured to the German capital in recent years by some of the lowest property prices in Europe. Most of the investors are from Britain, Ireland and the US, followed by Spain, Norway, Sweden and France.
Jürgen Michael Schick, vice president of the IVD Real Estate Association of Germany said that over 10 billion euros were spent on Berlin properties in 2006. "Foreign investors accounted for more than 66 percent of those transactions," he said.
The surge in interest is fuelled by coverage in the international media with British dailies such as The Observer and The Daily Telegraph labelling Berlin a good place to buy a second home and the property pages of newspapers in France, Spain and Ireland routinely advertising real estate in the German capital.
"Cheapest metropolis in Europe"
"Berlin is the cheapest metropolis in Europe. Real estate values are significantly lower than those in London, New York or even Prague and Moscow," said Philipp C. Tabert, head of Berlin-based real estate consultancy Winters & Hirsch, whose firm generated annual revenue of 220 million euros last year. Almost 95 percent of Tabert's clients are from Britain, Ireland, America, Spain, Italy and France.
The dramatically low-cost nature of Berlin's property market is obvious when compared with other European cities.
According to statistics, real estate prices for Berlin dropped every year from 1996 to 2004. For that same period, real estate values in London climbed 80 percent. One estimate said a square meter for a renovated apartment in a prime area in Berlin today costs around 1,500 euros, while in London it's no less than 15,000 euros.
It's a difference that's hard to ignore.
Gary Savage, a teacher from London, said his 87-square-meter apartment in the heart of the coveted Mitte district -- for which he shelled out 145,000 euros -- was a real bargain.
"You couldn't even buy a garage or a shed in London today for that price," he said.
Eastern neighborhoods still popular.
Foreign homebuyers are attracted to the neighbourhoods of Friedrichshain, Prenzlauer Berg and Mitte in former Communist-ruled East Berlin -- famed for their fashionable cafes, lively clubs and central locations. But investors are also increasingly shopping around in districts in western Berlin such as Zehlendorf and Steglitz and other outlying neighbourhoods, experts say.
In recent years, not only private homebuyershave been flocking to Berlin but also increasingly private equity funds, such as New York-based Cerberus Capital Management and Goldman Sachs Group's Whitehall investment fund. In 2004, the two together bought 65,700 units of Berlin's public housing for 2.1 billion euros.
In 2006, other big investors included Swedish insurance company Akelius and GE Real Estate.
"Today foreign investors aren't just looking for high yields and quick profits but are more interested in sustainability with a long-term commitment of 10 to 15 years," Schick said, adding that Berlin's home-ownership rate of just 13 percent also meant that the market still had potential to grow.
Experts point out that foreign investors are also emboldened by signs of an overall economic revival in Germany as rising consumer confidence drives demand for housing. The country's economy is expected to increase by 2.5 percent this year, unemployment fell to the lowest in four years in November and business confidence surged to a 15-month high.
Most agree that Berlin's present property boom is here to stay as opposed to the upswing of the 1990s, which was marked by a spectacular crash when a state-owned bank had to be bailed out by the city as a result of failed real-estate investments.
"In the long-term, Berlin property investments will turn out to be very positive," Schick said.
"We're expecting them to reach a new record in 2007."