reberlin

The main fact is there was virtually no output for new residential construction in Germany in the last years.
In combination with the international demand especially in Berlin Mitte, Prenzlauerberg and Pankow there is a market shortage and the result are strong and rising prices.

New buildings sell for EUR 3000/m² and more.
Rent for a new building in these areas start at EUR 10/m²
So do good renovated prewar houses, EUR 8/m² at least.

If you want to keep the property and rent it out
The Yield predictions go down because of rising prices but if you get into the game the yield won’t go down, because once you are invested the rising prices for buildings just help to grow your possibilities for rent adjustment.

If you want to resell:
The demand in Mitte and Prenzlauerberg is high to very high, People can afford to pay EUR 3000 and more per m².
This is not the case in the Rest of Berlin.

Why Mitte and Prenzlauerberg
There is just a small room for a movement into the neighborhood districts, Wedding and Friedrichshain have a social structure problem, that won’t vanish so fast because of the highly protective rental laws in Germany.
It will take ages, if at all to change this structure.

Pankow and Weissensee seem to gain speed as some developers discovered the area, the market is mainly driven by heritage buildings (the renovation of those buildings guaranties one of the rare possibilities to save tax while investing).
But even Pankow and Weissensee have a social structure problem, but its more likely that this will change in the future due to some parameter. For example a lot of commercial contracts in Weissensee, cancellation of rental contracts is much easier here.

A lot of my customers compare the prices with other major cities in the world, but I think this is dangerous because the local people have to pay the rent/or the house with money the ear locally. Nevertheless there is a wide range of people in Mitte and Prenzlauerberg who seem to have very deep pockets.

The City of Berlin has released over 44000 3D models of buildings of the city. Almost 10% of the city so far. This is a fly through demonstration in Google Earth on Youtube. Read more and get a link to try it yourself at Google Earth Blog.

Maybe we have time to moderate the flight with more details in the future.

The real question was:

While we did not see anything we liked, the area we are interested in is the Mitte. Do you have any property in this area?

The Mitte of Berlin seems to be a great location and as we all learned Locations is everything (which by the way is complete nonsense). Another thing we know is that the higher the risk the higher the yield will be. (this time the learning is right)

The bottom line
Mitte is to expensive for investors, and befor you even ask
Prenzlauerberg is to expensive, too.
The yield you get there reflects the fact that it is a very risk free investment.

The most promising Alternative to Mitte and Prenzlauerberg
Why don’t you have a look on Whitelake (Weissensee) its the neighbour area of Prenzlauerberg and to my opinion the only way to go, if you want to invest like you should:

“Buy low, ahead of the market and never behind the market”.

The basic idea
My basic idea for Whitelake is very simple.

high quality of living
Mitte and Prenzlauerberg is expensive because its the city center and all the nice things like galleries, cafes, restaurants and pubs are there.

Inhabitants of Mitte and Prenzlauerberg
But did you notice that most of the inhabitans are (very) young.
A lot of them are in their earliy 30ties and on the way to change hapits radically, because a lot of them have kids, not less do have 3 and more.
The birthrate is 3,0%

I talked to our locale (protestant) pastor Hartmut Scheel and he told me he will have his third funeral next week. He told me this at the end of June 2007! While in some areas of Berlin, like Wilmersdorf and Charlottenburg they have 3 funerals a week!
Average age in Berlin-Mitte and Berlin-Prenzlauerberg
The average member of the protestant church community in Berlin-Mitte is 34 years (2007) and 31 years (2007) in Prenzlauerberg, the average of any other district in Berlin is much higher.

How do they want to live?
They want to live
a) quite & save (as all people do when they have kids)
a) good schools
b) green areas
c) organic shopping possibilities (that’s one reason why Prenzlauerberg has the biggest orgnaic food market troughout Europe!)

but most important to your investment decision they want to life in big flats!
The size of flats increased over the last 10 years and even singles live in 2 room flats.
Married with 2-3 kids those people are looking for 5 rooms and plus.

What they don’t want.
while asking what they want is crutial asking what they don’t want is important too.
They don’t want to loose their old lifestyle(s) and their not-yet-married friends.
The ONLY way to have it a little greener, bigger flat and be close to Prenzlauerberg is Weissensee.

5 Minutes bike ride and you are in your old quarter.
You got the point?
Please ask questions by commenting this articel.

What if you want to push your yield and increase the rent?

Like everything in Germany this is subject to law.

The sale of a property doesn’t change anything in the ability to increase rents at all.
The former as well as the new owner can only increase the rent by a maximum of 20 percent within three years. Other restrictiosn apply in addition. The increasment is due to the maximum rent of a comparable flats. The basic for further discussions should be a look in the annualy published “rentindex” (German Word is ‘Mietspiegel’).

But be carefull, the “rentindex” is a tricky thing. Because its only published for a certain size of flats, small flats and big flats are ‘mostly’ not covered or at least not representative (in a statistical meaning). And sometimes there is just a small number of flats define the price. In this case the landlord (or the renter) can show the judge by own research, were the maximum could be.

Another restriction is that the ‘coldrent’ doesn’t have to be increased within the last 12 month.
Good seller/broker hand you normally a so called renterlist (German Word: ‘Mieterliste’), with the size of the flat and all the sidecosts, etc. If its a good maintained renterlist it tells you about the last date of rentincreasment.

If the rental contract is terminated, by what case ever, the rent for the next rents can be as high as you like (or at least as high as you can find a renter).

Also the rent can be increased if the flat/house is modernized (Renovation is not enough).
This increasement can be 11 percent of the total modernisation costs per year.

Property Question of the Week:

I work as an expat in X, my wife and I would like to buy somewhere in Charlottenburg, first to rent, then to live in when my contract is finished. What do we have to take care about?

With your paticular idea of selfusagge in a couple of month/years? you should be aware of german renter protection laws. Its hard to chancel a contract for the landlord as long as the renter pays the rent.

Selfusage is one reason why you can ask the renter to leave, but even then it can take up to one year till the apartment/house is free.

The best thing would be you buy an empty apartment and then you rent it out with a selfterminating contract or fully/partialy furnished (then you can terminated the contract with in 14 days).

If the apartment is all ready rented you have to take the renter including the contract. And in most cases this type of contract you don’t want as long as you wanna self use on the long run.

Sustainable office buildings will give investors a greater return on their investment than buildings built to standard regulations, according to a new report released by property advisors GVA Grimley. Report released on 27/03/2007.

PWC & Urban Land Institute: Emerging Trends in Real Estate Europe 2007

PARIS, February 7 /PRNewswire/ —

– Survey Respondents See Less Risk, Higher Returns for European Cities inYear Ahead

Paris once again leads this year’s list of top real estate investmentmarkets in Europe, according to the highly regarded real estate investmentreport, Emerging Trends in Real Estate(R) Europe 2007, just published by theUrban Land Institute (ULI) and PricewaterhouseCoopers LLP. Paris rates highlyfor both total return prospects and low risk, and thus its risk-adjustedtotal return prospects are the best in Europe.

Survey respondents point to the city’s economic stability andsustainability — in addition to its status as a global gateway — as majorreasons for its top ranking as an investment market. Ample urban regenerationand redevelopment opportunities also attract investors, notes the report,released today at ULI Europe’s European Property Development and InvestmentConference in Paris. As a top market for the past several years, “Paris stillhas good prospects for the next two years,” the report says.

Paris is a favorite among those looking to buy property as well; about 54percent of the respondents recommend buying office space in Paris, 57 percentrecommend buying retail, and 41 percent recommend buyingindustrial/distribution properties.

ULI, based in Washington, D.C., is a global education and researchinstitute dedicated to responsible land use. Its Europe headquarters, ULIEurope, serves the Institute’s 2,100 European members. PricewaterhouseCoopersLLP is the world’s largest professional services organisation. EmergingTrends, which covers 27 markets in countries throughout Europe, is based onsurveys and interviews with more than 390 of the industry’s leadingauthorities.

As was the case last year, London is rated a close second to Paris as aninvestment market. Survey respondents named London as the European cityoffering the least investment risk and the best prospects for rental growth,”reflecting optimism for property value trends supported by income growth,”the report says. A strong “hold” market, 44 percent of the participantsrecommended holding office space in London; nearly 41 percent advised holdingretail; and nearly 59 percent advised holding industrial/distribution space.

Stockholm, in third place, continues to move up the list for overallinvestment ratings, as its redevelopment prospects continue to strengthen. Itis considered a “balanced” market, in terms of an even distribution of buyand holdsell ratings: 50 percent advising holding office space, 49 percent,retail; and 44 percent, industrial/distribution. Munich is ranked as thefourth best investment market, moving up from 17th place last year. “Risingoffice demand, a vibrant city centre, and an educated workforce createsynergy for this city,” says the report. It is a strong “buy” market, withnearly 65 percent of the survey participants advising buying office pace inMunich; nearly 55 percent, retail space; and nearly 48 percent,industrial/distribution space. Lyon rounds out the top five investmentmarkets, with many respondents viewing that city as an attractive lower-costalternative to Paris. More than 56 percent of the respondents recommendbuying office space in Lyon; more than 62 percent, retail; and more than 47percent, industrial/distribution properties.

Other cities listed as strong “buy” markets: Madrid, Barcelona, Hamburg,Istanbul and Moscow. Other cities with strong “hold” ratings: Copenhagen,Edinburgh, Vienna, Brussels, Dublin and Amsterdam. In addition to Stockholm,other cities with relatively balanced buy-sell-hold ratings: Helsinki,Zurich, Milan, Prague, Rome, Lisbon, Warsaw, Athens, Budapest, Berlin andFrankfurt.

In terms of city development prospects, the report ranks Istanbulhighest, pointing to its movement as a emerging global market. “The marketstill needs many developers rather than pure investors … real estatesectors are now in a learning curve,” notes one respondent. Says another:”Istanbul will be the star of the next decade.”

Emerging Trends notes that prospects for profitability are consideredfavourable for real estate firms of all types, and the report shows thatbuyers outweigh sellers by two to one. Despite some concerns about globalinvestors bidding up prices, few respondents indicated that European realestate is “in the grip of completely irrational exuberance,” the report says.”The assumptions people are making may be optimistic, but not fundamentallyridiculous or irrational.”

In terms of investment worldwide, European private real estate vehiclesranked highest among survey participants, above international equities,European equities, U.S. properties and bonds. Still, despite the optimisticoutlook for European real estate, the report cautions that the double-digitreturns of previous years are not likely to continue. Most respondentsindicated that yield/cap rate compression is largely over and that yieldswill remain stable in 2007. “If you want to make returns, you’d better focuson markets that have good prospects for rental growth,” one participant says.

The report notes that the “chase for higher yields” is causing investorsto look at alternative investment properties as varied as petrol stations,student housing, marinas, motorway services, prisons, car parks and windmills- “anything producing income.” Income-producing infrastructure — such astoll roads, airports, and port and rail facilities — is singled out as aparticularly promising investment type. Sustainability is gaining importanceamong investors and developers. While tenants have yet to demand “green”buildings, a major issue is “when the occupiers are going to take it(sustainable development) seriously,” the report says.

In terms of property types, shopping centres are again expected toproduce the highest total returns in 2007, followed by hotels, mixed-use,city centre offices and retail parks. Mixed-use properties are listed as topchoice for development and market balance prospects, followed by residential,hotels, warehousing/distribution space and shopping centres.

Some Emerging Trends highlights for property sectors: – Office — Outlook: City offices are considered a modestly good investment; prospects for office rent increases have improved, and are now better than for all other property types. City centre office development prospects are seen as modestly good. The best locations for development are generally in all central business districts in continental Europe; the worst are business parks built on greenfield sites. Best bets: Top office markets in which to buy — Hamburg, Munich, Istanbul, Lyon and Paris. Avoid: Dublin, Amsterdam, Edinburgh. – Retail — Outlook: While shopping centres held the top spot as the most- favoured product type, retail parks and street retail have lost ground. Sluggish economic prospects in many western European countries could have a negative impact on consumer spending. Still, potential for total returns and rent increases is viewed as promising. Best bets: Strong buy markets – Moscow, Istanbul, Lyon, Barcelona, and Paris. Avoid: Edinburgh, Amsterdam, and Dublin. – Industrial — Outlook: The rating for warehouse/distribution/logistics facilities continues to feature strongly on institutional investment agendas. However, manufacturing does not fare as well; it is ranked at the bottom for prospects for total returns, rent increases, development and property supply/demand balance. Occupier demand is centred on the main transportation hubs, although some companies have moved to less well-established locations with good access to transportation links, to take advantage of lower labor and property costs. Best bets: Istanbul, Moscow, Barcelona, Hamburg and Budapest are listed as the top “buy” markets. Proceed with caution in Munich, Frankfurt, Berlin. Some Scandinavian markets gain interest among investors. – Hotels — Outlook: The European hospitality sector will remain strong in 2007. Given the strong trading fundamentals, there are no signs of waning investor interest; more than half of the respondents view hotels as a “buy.” The hotel investment market has a growing number of participants, with private equity investors showing strong appetite for the product. Best bets: Resorts in the Mediterranean, two-star properties along the Paris-Rhone axis and budget hotels in Belgium, Germany and the Netherlands. Proceed with caution in Rotterdam and Amsterdam. In eastern Europe, the Russian hotel market is the favourite, including Moscow, St. Petersburg and the regional hubs. – Mixed-Use — Outlook: A major advantage of this sector is that it provides opportunities for investing on a larger scale. At the same time, mixed use is by definition unsuitable for focused funds, and this sector is seen by some as attracting less competition. In the long run, the returns may be higher than the sum of those on the individual components. Offices and retail are considered to make a good match, particularly for occupiers with larger space requirements. Investment opportunities will come from urban regeneration efforts that are emerging in different parts of Europe. Best bets: Large-scale projects in the U.K., France and Germany all offer opportunities. Avoid: Some projects planned in Portugal and Switzerland are viewed as two small- scale to be successful. – Residential — Outlook: The residential sector continues to provide attractive opportunities for investment and development, due to its steady cash flows. This sector is likely to provide modestly good total returns and rent increases for the coming year. Best bets: France remains a favourite among residential property investors. Central and eastern European markets are also seen as offering value, primarily due to the potential of redeveloping housing, much of which is now viewed as poor quality. Larger cities in Poland and the Czech Republic are among those offering substantial opportunities. High housing demand in Turkey also keeps it ripe for investment. Among the places in which caution is advised: Germany. Avoid: By some account, Spain, where the residential prices are largely viewed as “absurd.” Still, other respondents believe demographics in that country will continue to support the high residential prices.

In general, real estate is becoming a global asset class, Emerging Trendsnotes. “Not only are investors worldwide pouring capital into property — anestimated US $600 billion (according to Jones Lang LaSalle) was purchaseddirectly in 2006 — but they are also crossing frontiers to do so … Fiveyears ago, hardly anyone was ‘Pan-European’; now it is the only way tooperate,” the report says.

The report released today is the fourth annual European edition ofEmerging Trends in Real Estate(R). Full copies of the European report areavailable at http://www.uli.org.

The Urban Land Institute (http://www.uli.org) is a global nonprofiteducation and research institute supported by its members. Its mission is toprovide leadership in the responsible use of land and in creating andsustaining thriving communities worldwide. Established in 1936, the Institutehas more than 34,000 members representing all aspects of land use anddevelopment disciplines.

PricewaterhouseCoopers LLP (http://www.pwc.com) is the world’s largestprofessional services organization. Drawing on the knowledge and skills ofmore than 125,000 people in 142 countries, PricewaterhouseCoopers LLP helpsclients solve complex business problems and measurably enhance their abilityto build value, manage risk and improve performance in an Internet-enabledworld.

Web site: http://www.uli.org http://www.pwc.com

Urban Land Institute

Trisha Riggs of the Urban Land Institute, +1-202-624-7086, priggs@uli.org

ING Real Estate Global Vision for 2007 (pdf)
Good analysis of the major countries and cities. Does not include Berlin, but Germany

European Housing Review 2007 – Executive Summary (pdf)
Summary of trends in the major European countries. Worth reading.

Here is what they say about Germany:

The housing market was broadly flat in 2006, although the
long slow decline of recent years seems to be over. It has been
helped by the fact that the economy is finally beginning to pick
up after several years in the doldrums and consumer
confidence is rising with it. Most mortgage borrowing is based
on fixed-interest rates, so that interest rates are less affected by
what the ECB does but rather influenced by changes in capital
market rates. Mortgage interest rates rose throughout 2006 but
only moderately and were still below their mid-2005 levels,
so unlike many European countries the housing market was
not particularly adversely affected by interest rate movements
during 2006.
In 2005, house prices had been falling, especially in real terms,
continuing a three year long process of moderate decline.
So, a price turnaround might finally be about to occur.
However, the prospect is for only limited change over the next
few years. The idea suggested by some commentators that the
German housing market is a sleeping giant which, when woken,
will roar in action with a burst of high price inflation remains an
elusive dream.
Housebuilding rates have been subject to some marked swings
in recent years induced by subsidy and taxation changes but are
not expected to grow much over the next few years because of
the relatively quiescent state of the housing market.
In general, German regional housing markets have had mixed
fortunes over the past few years. Prices and rents in several
major cities in the West have increased moderately in response
to rising demand. In other places, however, previous excess
supply has left the market depressed in the face of poor general
local economic conditions. In particular, the East is still suffering
from substantial oversupply, which is contributing to weak prices
and rents.