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Buy to let in Berlin

Renting accommodation is commonplace in Germany, it’s a country where few people own their own homes. Property prices here have stagnated for many years and it’s only recently that there has been interest in the German property market.

Berlin is at the centre of this market. After reunification in 1990, property investors were offered tax advantages as a way of encouraging the reconstruction process. But falling property prices due to a struggling economy meant that the market remained sluggish.

A growing number of canny investors have been quick to recognise this as an opportunity, however, and by 2007 Berlin was named a top destination for property investment. Buy to let in Berlin suddenly became popular.

By early 2009 there was an increase of 6% in rents across the city while at the same time purchase prices of property dropped.

Like many other investment destinations, buy to let in Berlin has been affected by the global recession and while investment returns are becoming more attractive, it is increasingly difficult to attract investors.

Investors everywhere are exercising caution before committing, everyone it seems is holding their collective breath while financial markets undulate in the current financial storm.

But while some hesitate, buy to let Berlin presents an interesting opportunity. In evaluating the future rental yields in Berlin property, let’s consider the simple but vital principle of supply and demand.

The supply of Berlin property available for rent is decreasing.
  • Property development in the city has seen low levels of activity. Less than 3,800 new homes were built in 2007 and in 2008 there was a drop in the issuing of building permits compared to 2007.
  • The decline in building is expected to continue as the economic climate continues to worsen. Builders are finding it increasingly difficult to access funding.
  • A number of properties were withdrawn from the market as they were deemed unsuitable for habitation or restoration. The rule of thumb is that 1% of housing stock should be replaced each year, which translates to 6000 housing units in Berlin.
  • A number of properties have been bought and taken off the rental market by foreign buyers in need of a holiday or business home.

And while supply drops, demand rises.
  • Unemployment has dropped from a high of nearly 20% in the 1990s to around 8.5% in early 2009. Although unemployment levels may rise in the short term, it’s unlikely to return to past high levels.
  • The population of Berlin is growing faster than the supply of housing. Whilst not attracting manufacturing jobs, the ICT sector is booming. Around 40 companies have located their headquarters in Berlin and it is estimated that there has been a recent influx of 155,000 foreigners.

To meet the increasing demand it’s estimated that 14,500 houses will need to be built each year. Developers in Berlin are no where near meeting this target.

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To assist our clients in their purchase of Berlin property, Danziger & Weibezahl continuously researches the Berlin property market and identifies 5 of Berlins property hot spots.
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Top 10 reasons for buying property in Berlin

1. Good Yields
2. The low investment entry price
3. No capital gains after 10 years for privately owned properties
4. A safe haven for investors
5. Slowing supply increasing demand
6. Employment levels
7. Reinstatement as the Capital of Germany
8. Geographical positioning
9. Historical and political issues
10. Good governance
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