Dienstag, 20. März 2007

Walls of investment come down in Berlin

While property soars around the world, one country's prices are actually falling. So is this the time to snap up a bargain in Germany? Graham Norwood reports

Professional property investors say that if house prices have already risen in an area, they've missed the boat - and the bargains - and should move on to lower-priced locations. In which case, there must be an awful lot of investors staring at Germany.

At first sight, its feeble housing market performance seems inexplicable. Prices have fallen since 2000, while across the whole of western Europe values have risen by an average 90 per cent and those in Britain by 120 per cent.

Germany still limps along at the bottom of estate agent Knight Frank's Global Price Index, too, the latest results from which are revealed exclusively in The Sunday Telegraph.

Latvia tops the chart, with prices in the capital, Riga, rising by 66·6 per cent in a year. It is followed by Poland - a new entry because reliable figures were not previously available - and Denmark, up 33 per cent and 22 per cent, respectively.

Both are neighbours of Germany, yet there it sits at the bottom of the Global Price Index, with prices actually falling by 3·2 per cent. This is despite it having the EU's biggest economy and largest population, making it appear ripe for canny investors.

Three problems have held Germany back, at least until now. Firstly, supply of homes has far exceeded demand. After reunification between East and West in 1990, there was ferocious new house-building by developers, vying for buyers with hundreds of thousands of unloved Communist flats suddenly on sale.

Secondly, subsidised housing and strict rent controls have made renting much more attractive than buying on the open market. German owner-occupation is only 43 per cent (it is 72 per cent in the UK), while in Berlin it is a mere 12 per cent and in Hamburg 20 per cent.

Thirdly, the cost of buying is high (you pay about 12 per cent of the purchase price in fees) and it's not so easy to get a mortgage in Germany as in most of Europe.

As a result, prices remain low even in cities which have seen modest rises recently. One-bedroom apartments in Berlin, the country's capital and largest urban centre, range from £20,000 to £60,000. Frankfurt, the most commercially successful city in Germany and mainland Europe's finance capital, ranges from £40,000 to £70,000.

High-rolling investors can even buy whole blocks. For £1·2 million, the price of an apartment in prime central London, you can get 28 flats in a 100-year-old block in the Wedding suburb of Berlin, albeit in need of extensive refurbishment.

But there are changes appearing in the market. House-building levels have dropped from western Europe's highest to its lowest in seven years, some rent subsidies are being phased out to encourage more people to buy, and competing mortgage products are trying to woo investment buyers.

"Being at the foot of the table now is exactly why investors should look at Germany," says Knight Frank's head of research, Liam Bailey. "But they must select the right property in the right city. The East is a no-go area because of continuing massive over-supply and poor quality, but some cities in the West are expanding." The most promising investment markets are in Hamburg, Berlin, Dusseldorf, Frankfurt, Stuttgart and Munich.

A few pioneering British investors have already taken the plunge. London civil servant Simon Luker has bought a small Berlin studio apartment in a modernised period block in the suburb of Neukollen for only £21,000.

"I've been looking to invest overseas for some time," he says, "and was surprised to learn German property was considerably lower than even Riga or Prague." Ray Chapman, a business manager from Hastings, and Sue Hart, head of a health treatment centre in Hertfordshire, looked at Eastern Europe but decided against investing because the infrastructure was relatively undeveloped. Instead they bought a £35,000 one-bedroom apartment 15 minutes from Berlin city centre.

"Berlin has a superb infrastructure and is almost tailor-made for buy-to-let," Ray explains. "Our investment is long-term, as German law dictates that any property sold within 10 years attracts 25 per cent capital gains tax. Berlin is an attractive rental market that isn't based on seasons or low-cost airlines getting routed."

Estate agents are now beginning to sell properties to foreigners. "New builds have been decreasing at a record level," says Gregory Lu of Imoinvest, an agency selling property in Berlin and Leipzig. "This means those new schemes that have been available achieve high sales with little or no discount. This has knock-on effects with the refurbishment of old blocks and larger buildings spilt into condos."

But there are still some sceptics. "The idea that the German market is a sleeping giant which will roar into action with a burst of high price inflation remains an elusive dream," writes Professor Michael Ball in his annual European housing survey for the Royal Institution of Chartered Surveyors. He repeats the warning that East Germany has "substantial oversupply contributing to weak prices and rents" but says the West is picking up.

Knight Frank's Liam Bailey maintains that this is exactly the point, however. "Investors should go behind the headline figure and look more closely at the German sub-markets," he says.

"That's where the hot spots are."

source: http://www.telegraph.co.uk/property/main.jhtml?xml=/property/2007/03/20/pgermany120.xml

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