Samstag, 28. Juni 2008

Wall between property values falls in Berlin

Price gap between East and West Berlin finally closing

By Rachel Nolan

The past decade has been a bonanza for many real estate markets in Europe, but Germany hasn't been one of them. Now that's starting to change, particularly in Berlin, where international buyers are heavily represented. As interest in Germany's capital grows, the persistent price gap between real estate in East and West Berlin is finally closing.
In 2007, about $8.9 billion worth of residential property changed hands in Berlin, but since the fall of the Berlin Wall in 1989, prices on the city's east side have been lagging. While the wall, which zig-zagged through the heart of the city, came down quickly, a syndrome — Berliners call it "Wall in the head" — continued to permeate thinking about property values. Houses on the same street, built in the same style, fetched far more if they were on the Western side of the vanished wall.
Indeed, as recently as 2002, prices were on average four times higher in the former West, while, according to municipal statistics, the East accounted for most of the city's 7 percent vacancy rate. In the past year, prices have roughly leveled out, but the old bias is still discernible, especially among West Germans. "I bought my apartment on the advice of a West Berlin friend who made East Berlin sound like it was somewhere in Poland," said Paul Kildea, a London-based classical music conductor.
Kildea bought his 1,250-square-foot apartment in Schöneberg, a neighborhood with elegant 19th century apartments in West Berlin, which is somewhat reminiscent of Park Slope. At $270,000, Kildea said he spent less than a fifth of what he would have paid in London. He also considered buying in Prenzlauer Berg, a greatly hyped and quickly appreciating neighborhood in East Berlin.
Both neighborhoods are lined with four to six floor residential buildings containing interior courtyards, abundant public squares and parks and connected by bike lanes as extensive as they are busy. Prenzlauer Berg, a long-time magnet for global bohemians, is the first neighborhood in East Berlin where average prices have surpassed neighborhoods in West Berlin.
Brokers that focus on Prenzlauer Berg report that their buyers are at least 25 percent international, mostly British, Irish and American investors. Foreign investors come in two types. Many of the buyers, like Kildea, are artists drawn to Berlin by its cosmopolitanism, bohemian chic, and spirited arts scene, as large and diverse as what one would find in New York or Paris. Celebrities are taking notice, too. Last year, the German edition of Vanity Fair reported that Brad Pitt and Angelina Jolie bought a 6,500-square-foot apartment in Marzahn, a borough in East Berlin.
The other foreign buyers are mainly investors — including major American banks — who buy to rent. They do so out of a sense that Berlin remains undervalued compared to other major world capitals and because rents are appreciating quickly.
According to the 2007 Berlin Mietspiegel (rent index), rent increased 5.8 percent over the last two years. "Germany still hasn't had the real estate boom that other countries have had," said Julian Power, director of Berlin Capital, a company that helps foreign investors buy and manage property in Berlin. "Which makes it a no-brainer to buy there." He and other brokers emphasize that profits will be mid- to long-term, so investors must be willing to hold onto properties for upwards of 10 years.
Whereas prices in central London average about $1,800 per square foot, residential properties in desirable neighborhoods like Schöneberg, Charlottenburg and Prenzlauer Berg sell for $320 to $415 per square foot.
In gritty neighborhoods where gentrification hasn't nudged prices, plenty of apartments can be found for around $110 per square foot. Unlike London, Dublin or Madrid, Berlin's property prices have been so low that the market has emerged relatively unscathed by the recent housing market cave-ins triggered by overbuilding and the U.S. subprime mortgage crisis. Still, even though prices are comparatively low, real estate in Berlin isn't the sure thing its boosters might have you believe.
The city, whose mayor describes it as "poor but sexy," is no stranger to real estate slumps. A small boom, supported by the transient hope that Berlin would become the nation's financial center (that remains Frankfurt), followed reunification. But prices dropped again in 1996, and investors were left with partially empty buildings, many renovated at great expense in the city's east. "You can see that someone spent a million euros renovating just a few years ago," said Power. "Now, investors spend 750,000 euros for the whole building and are just delighted."
Berlin's turnaround began in 2004, when Cerberus Capital Management and Goldman Sachs' Whitehall investment fund bought 65,700 units from GSW, the largest residential property developer in Germany, for $3.34 billion.
Smaller investors followed, and the market now shows signs of steadier growth. Despite barriers, internationals still make up a large proportion of buyers in Berlin partly because of the strong tradition of renting.
While 40 percent of the people in Germany own their houses, only 13 percent of those in Berlin do. "Some Americans move here and then adopt the German behavior of renting rather than buying, even when they could buy," said Deike Peters, a German academic married to an American screenwriter.
The couple bought a 1,900-square-foot apartment in Prenzlauer Berg in 2001 and have watched their friends who rent gradually get priced out of the neighborhood. At the same time, Peters realizes if, 10 years ago, they'd bought a home in Los Angeles, where the couple spends part of each year and where prices have appreciated much faster than Berlin, it would have been a more profitable investment. Still, for a large segment of foreigners investing in properties in Berlin, the allure isn't their potential return on investment. "In 2005, it was all buy and rent for profit," said Power. "Now, I have more and more people looking for lifestyle properties."
Rachel Nolan is a freelance reporter based in Berlin.

Keine Kommentare: