Property Investor News, June 2017, an exerpt

Peter Hemple's Berlin Property Market Review cites Louise Reynolds' commentary

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Louise Reynolds, Director at Property Venture® gives us an overview of the Berlin property market, saying: ‘Germany’s population of 83 million, has increased by nearly 3 million since 2009. At the same time high job growth has created housing pressure. In Berlin, the disparity is the greatest. The city’s population has risen by about 150,000 and forecasts of population growth of more than 250,000 by 2030 mean 100,000 houses needed to be built in 2015, but only 15,000 got built.

‘Berlin’s history of being a divided city now make for great investment opportunities. Not only is there a distinct difference between West and East Berlin, but the price of property also lags. This means there are great opportunities for investors to buy into areas in the East, which are becoming gentrified as old buildings are brought back to life and new builds help create new communities. Areas like Friedrichshain or Straulauer Allee a hi tech hub and hive of industry, beside the Spree river.

‘Other German cities are more expensive, like Munich, for property buyers, so Berlin still represents really good value housing.

‘Berlin will also eventually get a boost when its ill-fated new international Brandenburg airport, south of the city, eventually opens in the next year or two after years’ of delays.'

Regarding the high buying fees and strict mortgage market Louise says: 'The buyer gets charged the agent commission not the vendor, so costs are not doubled. The vendor may choose, on a discretionary basis to pay a fee or commission to an agent to offset some of the buyer costs for example, if they want a quick sale and want the deal to be more enticing for the buyer.’

‘Generally-speaking mortgages are difficult to get in Germany for foreign nationals and usually end up being quite low LTVs sometimes only 50-60% of the purchase price. Banks are cautious in their lending criteria and often value properties at less than the going market price. But some developers do work closely with lenders to try to offer slightly higher LTVs as with this offer in Lichtenberg, but it won’t be every buyer who meets the stringent criteria. Some overseas buyers are cash investors and indeed need to be, to get the bargains, given it can take months’ to get a mortgage. Others may opt for an integrated package, buying pre-arranged rental units or investing directly into developers’ activities.’

Property Venture® is selling units at two new developments in Berlin - a luxury riverside development where a 100 sqm 2-bed will set you back 520,000 euros and a more affordable development in the east of the city (Lichtenberg), where a one bed of around 57 sqm is on offer at just under 200,000 euros.

I ask Louise what rental yield is achievable on the lower priced unit. 'The highest yield on those apartments is 4.2% yield, for that one bed it is closer to 4% gross yield, so slightly less than €700 per month rental income. This would be a good yield in Berlin, in the centre it is more likely 2-3%.

‘There are rent caps in Berlin, in certain areas and on certain types of properties. Some investors minimise the impact by buying new build and furnishing before they let out properties, as this can be a way of overcoming any rent cap challenges.

‘Broadly speaking – for properties that fall within rent cap legislation - a landlord can be fined if, in a time of limited housing accommodation, she/he demands rent in excess of 20% above the rent charged for comparable premises. The rent must also remain unchanged for at least a year. And care must be taken with wording in the tenancy contract in terms of price increases or indexation.

‘In spite of rent control regimes, private investors are attracted by the strong economy and stable political system. It represents a safe haven at a time of uncertainty over Brexit.’

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