Samstag, 10. Mai 2008

Property in Germany: Time to sit pretty in Berlin

The German capital is courting buy-to-letters, says Emma Hartley

Nearly 18 years after the Berlin Wall came down and 17 since Berlin once again became the capital of Germany, the city's government is making a curious offer. It is inviting British and Irish investors to buy property from its housing associations, which will continue to administer the buy-to-lets for the new owners.

Buy in the heart of Germany, it says, and watch the value of your property rise as the city swells and prospers, while all the time collecting a steady rental income from sitting tenants who have been thoroughly vetted for reliability.

With post-unification subsidies dwindling, the city authorities have embarked on this sell-off in order to fill a hole in its municipal finances - but the Germans aren't buying. In Berlin, even more than elsewhere in Germany, a culture of renting exists: nationally, 80 per cent live in rented accommodation and in Berlin, where the per capita income is lower than average, it is 88 per cent. There is no stigma attached to rental and the tenancy laws weigh firmly in favour of tenants.

Ask yourself: when a three-bedroom apartment 10 minutes from the centre of Berlin costs only €325 a month (£240), where is the incentive to buy? Berlin has no housing shortage, but the population churn is enormous: 1.8million have left since 1990 (more than half the population) but 1.9million have arrived.

"All of these Berlin apartments were offered first for sale to the tenants," says Silke Lorenz, managing director of Das Stadt Konzept, the agency administering the sell-off. "But only around 20 per cent said yes. So at the end of last year we opened up the offer to the British and Irish because of their track record of investing abroad. We are selling those apartments that represent the best value - although this is not always obvious. Foreign investors tend to want somewhere beautiful and old, somewhere they would like to live. But Germans look for a low-maintenance apartment at a reasonable rent and where this is the case you will never have trouble finding tenants."

Being a landlord in Germany can be soul-destroying. I remember listening to a Munich doctor crying into his beer one afternoon, over a tenant who had turned out to be a prostitute, wouldn't pay her rent, but who knew her rights. Every month, she would pay just enough for the law to be on her side. Buying through Das Stadt Konzept comes with the option of a rent guarantee for a one-off payment of about €1,000 (£785).

Studio apartments in Marzahn - an area in the east of the city where Das Stadt Konzept is focusing its efforts - are on sale for about £25,000, and you could expect to receive about £100 a month in rent after management fees have been deducted: that represents a 4.8 per cent annual yield before tax. Similarly, a three-bedroom apartment is going for about £56,000 and will reap you about £250 a month, or a 5.35 per cent yield before tax. These municipal properties are considerably cheaper than their private-sector equivalents, and once the present tenant's contract expires you have the option of keeping it for your own use.

"When you buy, you get a sitting tenant and Germans move very infrequently," says Frau Lorenz. "They have to give three months' notice, which gives you ample time to find a new tenant, the housing association will pursue any legal problems you have with them on your behalf - which is covered by the administration fee - and your running costs will be minimal. There are no boilers to burst in these apartments because hot water is piped from a factory down the road and there are no lifts to break down." Helpfully, there is also a reciprocal tax agreement between the UK and Germany that means any investments there are taxed at the same rate as in the UK.

All too good to be true? Frau Lorenz claims that Berlin property will double in value in 10 years, but this was treated with scepticism by everyone to whom I mentioned it - including the German embassy in London, where the head of press has just invested in a property in Berlin.

"Why am I talking down a market into which I've just bought?" she asked herself out loud.

I was further told that Marzahn was a highly sought-after location with excellent schools, that it was attractive to middle-class Germans, and because everything I was shown had been refurbished and renovated, I had no reason to disbelieve it. But I have subsequently been told that I should have done.

Also, Das Stadt Kozept is only mandated to sell off a small proportion of the city's housing stock - 15 per cent - denying the opportunity to buy to most of its tenants and minimising the impact of privatisation on the market.

Unless you are a fluent German speaker with plenty of time on your hands, you would be reliant, as an investor in these properties, on Das Stadt Konzept as a long-term, one-stop-shop for translation, sales administration, and information about updates to the law and changes to rent caps.

The present wisdom is that property in some parts of Berlin is a solid investment and Berlin estate agents generally anticipate something between 3 and 6 per cent appreciation in value each year. But is a boom imminent? It looks unlikely - if one were on the cards, Berlin's financial difficulties would, in any case, be solved by new arrivals and their taxes. This city has the lowest property prices in western Europe, so buying would be a cheap way to enter the market, and there is always the chance that something unexpected will happen to Germany's new capital. It wouldn't be the first time.

Long-term gain

Gary Phelan, 50, from Ballybofey in Co Donegal, is a former mining engineer who is now a "life coach".

"My wife Kathleen and I bought a one-bedroom apartment from Das Stadt Konzept for €46,000 (£36,100) after looking around, mainly at emerging markets," he says. "I have a fascination with East Berlin and the history of the Cold War, which is what attracted me to the idea of buying there. When we were shown around Marzahn, everything had recently been refurbished, rewired, replumbed and even re-roofed, plus it was already tenanted, which was ideal because I wouldn't have the hassle of trying to sort it out from Ireland.

"It's a very nice price - for what it takes to buy an apartment at home I could have bought half a street in Berlin. I believe it can only increase in value, but these things are a guess at the best of times; we're not in it for the short term or the quick turnaround.

"There was a claim in the literature that our investment would increase in value by 100 per cent in 10 years, but that's not why we bought it. By going there and seeing the public transport, the cleanliness, the shopping malls, the schools, you could tell it was a sound idea."


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