German maket continues to grow steadily

German cities are outperforming average national property price growth and becoming increasingly attractive to foreign investors looking for longer term investments, it is claimed.

The last few years have seen a surge in overseas investment which is pushing up prices and the credit crunch is only having a mild correctional effect, according to Denis Madden, managing director of the German Property Centre, which supports UK and Irish investors in Germany.

'Right across the spectrum we've been seeing huge interest in the last two years and now there is a general slowdown in that level of investment, but not the price falls that have been registered in other markets,' he said.

'Whereas there are dramatic fall-offs in other markets, Germany has, relative to other markets, been as safe as houses. Very, very strong fundamentals and the price growth only occurred in the last two years and was very much a correction from historically very low prices and very high yields,' he added.

For those looking to find price growth, it seems the cities are the place to go. Locations such as Hamburg, Nuremburg and Munich have outperformed the national average, says Jurgen Michael Schick, vice-president of Germany's Real Estate Association. Indeed The Royal Institution of Chartered Surveyors' European Housing Review 2008 noted that Munich prices were up six per cent in the first half of 2007 while places such as the former east continue to be in the doldrums.

'We expect price rises of about three to four percent a year,' said Schick. He added that there would be no quick returns from the German property market but as the same time no boom and bust either.

And there is money around. In a European property market marked by a sharp decline in deal activity, there is one group of players taking advantage of falling prices and the squeamishness of many buyers. German open-ended real-estate funds are cash-rich.

These German funds, which target primarily individual investors, have been making purchases in places such as London, Paris and Moscow. German open-ended property funds 'have an extraordinarily large amount of cash at the moment,' according to Michael Haddock, director of Europe, Middle East and Asia research at real-estate-services company CB Richard Ellis. He estimates the funds hold about €22 billion in cash of the more than €86 billion of assets under management, thanks to new equity and portfolio purchases.

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