Skip to content

German residential property tipped as best long term, low risk bet

Analysts are predicting that German real estate is increasingly being seen as a long term, low risk investment for institutions worried that the financial crisis is causing soaring inflation.

'Residential property is regarded as boring. But today, boring is beautiful and capital preservation is more important than high returns,' said Udo Scheffel, Chief Executive of German residential property company GBW.

The German cities of Munich and Hamburg are the top two investment locations in Europe for 2009 in accountancy firm PricewaterhouseCoopers' latest annual survey of real estate executives and fund managers, and four German cities were in Europe's top 10.

Some economists say the huge monetary and fiscal measures deployed by governments and central banks worldwide to boost growth and lending could lead to significant inflation down the road, which would benefit real estate prices.

Inflation could turn into an 'enormous problem leading to massive risks' for investors on a two to five-year horizon, according to Credit Suisse Global Investment Strategist Stefan Keitel.

Such fears have prompted many risk averse investors to bet on gold, the price of which has risen over 25% in the past three months. But with diversification the golden rule of asset allocation, investors are looking elsewhere, too.

One of those drawn to German property is Peter Brock, managing director of Grainger Deutschland GmbH, the German arm of Grainger, Britain's largest residential property landlord.

'German residential is going to become increasingly attractive for institutional investors seeking long-term, low-risk cash flows. We still see a market that is extremely stable and a market that has certainly proved its investment worth, especially when you look at the comparative price falls in the UK,' said Brock.

Adjusted for inflation, German property prices fell less than 1% in the year to end-September, compared with a fall of more than 14% in the UK, according to data compiled by property consultancy BulweinGesa.

Residential real estate proved more stable and less risky during a turbulent 2008 than offices, retail space, hotels or warehouses, measured by property consultants KingSturge's German market sentiment index published in January.

'Residential will become more attractive for investment because low new housing construction volumes mean rents will grow and small valuation fluctuations guarantee stable returns,' said Sascha Hettrich, partner at KingSturge in Germany.