High demand and a low supply of property is making real estate markets in German cities more attractive to foreign investors, particularly among buyers from southern Europe, new research suggests.
A new report from Knight Frank points out that in Berlin, for example, the city’s population grew by 40,000 in 2015 and household numbers are forecast to increase by 74,000 between 2015 and 2020 but new home building is not keeping pace.
Indeed, estimates suggest the city needs to build 20,000 new homes each year to satisfy new and pent-up demand and although building rates almost doubled between 2012 and 2015, only 10,722 new homes were brought to the market in 2015.
The report also explains that German cities still have some of the lowest home ownership rates in the world and while numbers are rising, this is in part due to the European Central Bank’s historically low interest rates and with only 15% of homes classified as owner occupied, the market is encouraging to landlords.
Landlords in Berlin rarely struggle with lengthy void periods and the vibrant technology and start-up industries in the city which together are attracting a younger, entrepreneurial generation means demand for rental homes remains high.
The report also points out that numerous safeguards have been put in place, partly to avoid a repetition of the boom and bust scenario seen in the late 1990s and partly to ensure housing remains affordable for local residents.
‘Mortgage lending is now highly regulated. Capital gains tax is charged on all properties sold within two years of purchase, or in the case of buy to let homes, 10 years, to discourage speculation,’ said Kate Everett-Allen, head of international residential research at Knight Frank.
While Berlin has also gone one step further than other German cities by introducing a new rent cap which means that the rent specified in a new tenant contract cannot exceed the local average by more than 10%, this is not being seen as a deterrent by landlords or investors.
‘Landlords and investors instead see the measures as pillars of support which help bolster market confidence and minimise risk,’ Everett-Allen added.
The report also explains that introduction of a permit system for short term rentals via Airbnb and the designation of 33 neighbourhoods as urban conservation areas where owners are prevented from converting their rental properties to luxury condominiums to sell on, reinforces again the council’s commitment to the city’s rental sector but at the same time constrains the supply of homes available to purchase.
Data from Knight Frank partners in Berlin, Ziegert Immobilien, shows that whilst German buyers still account for a large segment of demand within the luxury sector, overseas interest not only increased but became more diverse.
European buyers continue to represent a key component of demand but buyers from China, the US and the Middle East together accounted for more than 42% of sales to overseas buyers in 2016, a trend Knight Frank expects to continue throughout 2017.