Four year rent freeze to be introduced in Berlin

The Berlin City Government has approved a five year rent freeze from early next year which has implications for buy to let landlords investing in the lettings market, it is suggested.

The new legislation caps rent at €9.80 per square metre until the end of 2024 and landlords will only be able to increase rents by 1.3% a year to compensate for inflation. Any landlords who fail to meet the requirements could be fined up to €500,000.

Existing rents will only be lowered in rare cases, for example if they exceed the newly established ceiling by over 20%, while if rents exceed the new limit, tenants will be able to force the landlord to lower it.

It’s argued that the new law will limit the number of available apartments for rent, discourage landlords from maintaining them, and steer foreign/overseas investors away from Berlin’s property market.

The new regulation will affect over 1.5 million properties built before 2014, around three quarters of apartments in Berlin, except for some Government owned social housing and property built after 2014.

‘The attempt to artificially regulate Berlin’s rental market won’t be well received by overseas investors, who will surely become more cautious about where they put their money,’ said George Kachmazov, managing partner at international real estate platform Tranio.

‘Freezing the rates won’t make investors sell their apartments, as there’s currently no better alternative for capital placement, especially if they want to buy real estate with euro-denominated yields,’ he pointed out.

‘Despite all the talks about the new law, we’re still witnessing an active demand from investors from all over the world, including Russia, for property in Germany’s capital,’ he added.

According to Sofiya Bulanova, sales manager for Germany at Tranio, the freeze will probably lead to a higher demand for new builds, micro-apartments and for mid-term furnished rental apartments, which are exempt from the regulation.