Freitag, 12. Januar 2007

Lured by Property Bargains, Foreign Investors Flock to Berlin.

Drawn by some of the lowest property prices in Europe and signs of an economic revival in Germany, foreign investors are rushing to Berlin to get a piece of the hot real estate market.

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."

by Sonia Phalnikar

Mittwoch, 3. Januar 2007

Letter from Berlin: Boom Time for Revamped Economy

The German economy, written off in the last five years as fat, lazy and condemned to long-term decline, is bouncing back thanks to corporate cost-cutting, surging demand for its cars and machinery and the reforms of former Chancellor Gerhard Schröder.

By David Crossland in Berlin

DPA

Shoppers crowded into the new Karstadt department store in Leipzig ahead of Christmas. Chancellor Angela Merkel, who declared in June that Germany was a "basket case" in need of a radical restructuring, must be eating her words. Seven months on, the world's third-largest economy behind the United States and Japan is powering ahead as fast-growing economies in eastern Europe and Asia clamour for just the kind of goods Germany specializes in -- autos, industrial equipment and chemicals.

The "sick man of Europe" tag that stuck to Germany for half a decade after 2000 has disappeared. Germany is now regarded as the most competitive economy in the 13-nation euro single currency area, according to a survey of 1,175 European top executives published by business daily Handelsblatt this week.

Its perceived competitiveness even matches that of the United Kingdom, long cited as a model for Europe after the radical privatization and welfare cutbacks imposed by Margaret Thatcher in the 1980s.

The speed of the recovery has surprised the government which in the spring was predicting growth of 1.6 percent this year -- it has since revised that up to 2.5 percent. Until a few months ago, some economists were warning that the €25 billion in tax hikes coming into force in 2007 could choke off the upturn.

They too have changed their minds. After an expected dip to below 2 percent in 2007, growth is widely expected to pick up again in 2008.

The upturn was evident during the buoyant Christmas shopping season which delighted retailers, even though part of their higher sales was attributed to advance purchases to avoid the three-point hike in the VAT (sales tax) to 19 percent at the start of 2007.

A stream of good news has washed away the gloom and self-doubt which prompted former German President Johannes Rau to declare in 2004 that the country was in a state of "collective depression."

Southern German toy manufacturer Playmobil ran extra shifts but still couldn't keep up with Christmas demand for its biggest seller, a €120 hospital. December saw MTU Aero Engines win a €110 million contract to supply engines to China. And Siemens together with IBM clinched a €7.1 billion deal to modernize the entire IT network of the German army.

Figures out on Wednesday showed that unemployment, Germany's biggest headache for over a decade, fell by a seasonally adjusted 108,000 in December, the ninth consecutive monthly decline, to 4.115 million or 9.8 percent of the workforce.

"This appears to be a sustained upturn," Gernot Nerb, chief economist at the Munich-based Ifo economic research institute, told SPIEGEL ONLINE. "Germany has become more competitive in recent years, unit labor costs have fallen here while they've increased in rival economies such as Italy."

"It's primarily been due to painful restructuring by companies, but the government has done things too," said Nerb. Top companies such as industrial group Siemens or Volkswagen have been outsourcing production to lower-cost countries in eastern Europe and have pushed through cost-cutting deals with their employees in Germany. In many cases workers have been agreeing to work longer hours for lower pay to avoid threatened plant closures.

Ifo expects GDP growth to slow to 1.9 percent in 2007 from a projected 2.5 percent in 2006, and sees it accelerating back to 2.3 percent in 2008. The DIW economic institute projects 1.7 percent growth in 2007.


Jobless benefit cuts and tougher rules for the long-term unemployed implemented in 2003 and 2004 proved so unpopular that they effectively brought down former Chancellor Gerhard Schröder, defeated in a 2005 general election he called early after a string of regional election routs.

But to Merkel's delight, they now seem to be having an effect. "People are under much more pressure to find work now," said Lothar Hessler, an economist at HSBC Trinkaus. "Germany makes just the kind of investment goods that are in strong demand in growth markets like Asia," said Hessler, who said he saw no major risks to the economy in 2007.

Even the slowdown in the US economy, which sucks in 20 percent of German auto exports, is expected to be so soft and temporary that it won't do huge harm, say economists.

With everything looking hunky dory, powerful voices in the government seem tempted to spare the country further reforms. Kurt Beck, the leader of the center-left Social Democrat party which shares power with Merkel's conservatives, said the government's current program of measures had taken Germans to "the limit of what they can take."

While Merkel responded by stressing that her government would push forward with further reforms, Beck's comments were widely interpreted as a signal that the grand coalition isn't going to venture far beyond the health service cutbacks, tax and labor market reforms it has decided over the last year.


The problem is that there's so much still to do. Germany's rate of long-term unemployed people at 5 percent in 2005 was among the highest in the European Union. Few of them are qualified for the thousands of vacancies for skilled jobs in top industries. Industrial firms reported in December that they had vacancies for more than 20,000 engineers.

Meanwhile, eastern Germany continues to fall further behind the far more prosperous west. And red tape still represents a major obstacle to business start-ups. Examples of bureaucratic folly abound, such as the building firm that was almost shut down because its ceiling was two centimeters too low, or the photographer who was told to install a window in his darkroom so that his staff had access to natural light.

And despite the recovery, Germany can't yet be described as an engine of growth for the continent, said Ifo's Nerb. "Germany remains very strongly reliant on its exports. It won't be a real engine of growth until its domestic demand really takes off, which would suck in imports from elsewhere in Europe."

Dienstag, 2. Januar 2007

Investors Bet on German Property Boom

Investment in German commercial property is at a record high, boosted by the flood of foreign investors who are betting that the recovery in Europe's largest economy will at last trigger rising demand for offices and shops.

The volume of German commercial property transactions more than doubled to € 47,45bn ($59.8bn) last year from 2005, according to figures by Jones Lang Lasalle, the property consultant and investor. Activity is at an all-time high and foreign investors account for 79 per cent of the deal volume.

"We have seen extreme inflows of money in the German property market, mostly from the US," said Wolfhard Leichnitz, chief executive of IVG Immobilien.

"The big question now is when we will see fundamentals catching up with expectations," said Christian Ulbrich, managing director at Jones Lang LaSalle in Frankfurt. Mr Ulbrich expects the combination of economic growth and lower supply of offices to drive rents up. JLL forecasts average rent in the big five cities to rise between 1.8 and 4.6 per cent a year until 2009.

The introduction of real estate investment trusts in Germany this year is expected to boost investor interest in property assets further. Mr Leichnitz said IVG was considering whether to turn the company into a Reit.

source: FINANCIAL TIMES