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Berlin property yields

Property owners in the buy-to-let market in Berlin are enjoying a healthy rise in rental prices.

Rents have reportedly risen by an average of 6% in early 2009, despite a drop in the purchase price of property.

Property specialists expect this trend to continue for a variety of reasons. In contrast to other European centres, the property market in Berlin stagnated during the 1990s and the first years of this decade. With prices falling in real terms, there was no incentive to purchase property in this city, and the majority of people living in the city chose to rent.

It is estimated that some 85% of the Berlin population rent their accommodation, although ownership levels has begun to climb in recent years.

Berlin property yields look set to climb over the next few years for a simple reason: supply versus demand.

Supply versus demand

Based on figures from 2007, there is a growing demand for Berlin property and accommodation. It is estimated that an additional 14,500 new homes need to be supplied each year, whilst in reality, only 3,718 new homes were constructed in 2007.

There are various reasons why demand is beginning to outstrip supply.

Demand for good accommodation rising

  • An increase in the number of people moving into the city. Records show that in the first 6 months of 2008, around 8,500 people moved to Berlin. Multinationals such as Sony have chosen to locate their European headquarters in Berlin.
  • A decrease in unemployment rates means that there is an increase in people willing to spend money on space. In the 1990s, the unemployment rate was nearly 20%. By 2008, this rate had decreased to 12.4%. Despite a spike in unemployment during 2009 due to the economic downturn, unemployment figures are not expected to return to previous highs.

Decline in rental stock

  • As in any city, it is expected that a certain number of properties will fall into such serious disrepair that they will be deemed uninhabitable by authorities. The general rule of thumb is 1% of the housing stock. Berlin will lose around 6,000 homes a year.
  • However, property development in Berlin has been slow. In 2007 only 3,718 new homes were built. By September 2008, the number of housing permits issued to builders was lower than the 2007 total.
  • A number of properties have been bought by foreign buyers for business or holiday homes, thus taking them out of the rental pool.
  • With a tougher economic climate, it has become more difficult for builders to access funds that would sustain a large development project.

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1. Good Yields
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8. Geographical positioning
9. Historical and political issues
10. Good governance
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