Unprecedented growth makes Berlin hot for property investment

Germany is not known as being a hot property investment but in the current downward spiral Berlin's housing market is doing well, according to the latest reports.

Add to this the fact that the Germany government is reported to be considering new legislation to relax the strict laws on rental rises, then for the first time there is hope of achieving higher rental yields.

But even without this, the growth in Berlin rental rates, the stability of Germany's economy and the high likelihood of it best weathering the global economic storm, is turning Berlin into a popular destination for a property investment, according to Liam Bailey, head of international research for David Stanley Redfern.

The German rules on rents were introduced to avoid people being priced onto the streets because of the large portion (82%) of Berlin's population living in rented accommodation, either because they haven't been able to buy their own home or prefer to rent.

Landlords are only allowed to raise rental rates when the economy and wages are growing, and even then by no more than 20% in three years. These controls mean residential tenancies barely achieve more than a 5 % yield.

'Berlin rental growth is so strong now because the economy is at one of its strongest points,' says Bailey who sites a major study into the Berlin housing market in the first quarter of 2008 which shows rental rates are growing in every district in the city.

In 6 of the 12 districts rental rate growth is accelerating, and in the other 6 it is slowing, but in none are rents bottoming out or falling. In the same report last year, rental rate growth was accelerating in only three districts.

'For long-term investors who want to start making money right away and continue earning a stable rental income, as well as being safe in the knowledge that their property's value will grow sustainably, Berlin is the best place for them to buy in,' predicted Bailey.

Others agree. 'Frankfurt is the financial capital of Germany and will always be a good location for investment but, I believe, the real gains will be made in Berlin. There is a clear disparity between property prices in Berlin and the other major cities both within Germany and the rest of Europe which is extremely attractive for the investor,' said Henry Powell-Jones, associate editor of Jet-to-let magazine.

The recent Emerging Trends in Real Estate Europe 2008 report, jointly published by PricewaterhouseCoopers and the Urban Land Institute, pinpointed Germany as one economy where property values were likely to grow this year, including in Berlin.