Berlin is slowly becoming a viable alternative to increasingly difficult-to-access prime central markets in other cities such as London.
By Romesh Navaratnarajah
Property in safe haven markets such as Germany remains attractive as one of the most stable asset classes, especially compared to bond and equities markets, which have seen significant volatility in the run-up to the December 2015 rise in US interest rates, said Alex Bellingham, Director at property investment firm IP Global.
He believes that Singaporeans are still on the lookout for low-risk capital investment opportunities in major cities with a value story and strong currency play.
“In that sense, Berlin fits the bill,” said Bellingham. “When you look at pricing versus other capital cities, it is very attractive, and this is essentially what makes it so compelling.”
Costs less
According to Berlin-based real estate agency ADEN Immo, property prices in Europe’s second-largest city are three to six times lower than those in London or Paris.
At the same time, Berlin is undergoing a major transformation, with a growing population supported by one of the world’s strongest and most secure economies, noted IP Global.
Investitionsbank Berlin (IBB) estimates economic growth of 2.2 percent for Berlin in 2016. This is higher than the national average of 1.6 percent growth forecast for Germany as the whole.
Meanwhile, IP Global expects a population boom of about 340,000 new residents in the city by 2030 to fuel a strong demand for housing. In addition, over a quarter of a million jobs have been created in the last decade, generating demand for some 55,600 apartments.
The surge in population means that 19,655 new units will need to be completed every year to 2020. However, less than 9,000 were completed in 2014, revealed the consultancy.
“This imbalance is driving prices higher, with the average apartment price gaining 11.7 percent in 2014,” said Bellingham, adding that rents rose by six percent over the same period to keep typical gross yields at around five percent.
“The value in Berlin is hard to beat, mostly because of its unique history. Vacancy rates are also low at only 1.8 percent, which is attractive for investors looking for rental yields.”
The shift to smaller households
So what properties are available for sale and what should investors be targeting?
“Due to planning laws and an abundance of high-quality historic buildings, the majority of residential units coming online in Berlin tend to be refurbishments of older residential or converted stock,” said Bellingham.
“Another development has been the trend for smaller households. The average number of persons per household fell from around 1.84 to 1.17 over the past 15 years, a factor that further compounds the rising demand for housing driven by population growth.
“Berlin is the biggest city for singles in Germany and is likely to remain so, hence the great need for additional one- to two-bedroom apartments,” he added.
For non-EU residents keen on purchasing a property in Berlin, Bellingham explained that the process is straightforward. In terms of management costs, it is generally similar to the UK, ranging from five percent to 15 percent, depending on the level of service, the property type, and whether it is furnished or unfurnished. “A key distinction is that if the property is held for over 10 years, then there is no capital gains tax to be paid,” he said. Five to 10 years is IP Global’s recommended holding period for stable growth and returns.
As for financing, the consultancy advises would-be-investors to obtain financing through German banks. “The process is similar to Singapore, in that it is a staged payment system. As soon as documents are notarised, the process begins and it is then similar to any other mortgage process,” shared Bellingham.
Key locations
There are several areas that IP Global is currently exploring, mixing traditional prime neighbourhoods with up and coming hotspots on the city’s fringe. These include:
Mitte
The historic heart of Berlin, Mitte is a political centre that is home to numerous museums, high-end shops and restaurants. It borders Tiergarten, the biggest park in Berlin. In 2014, apartment prices in Mitte rose 24.2 percent, while rents were up 10 percent.
Charlottenburg
Located in West Berlin, this is a traditional neighbourhood full of parks and green spaces. Home to the famous Kurfürstendamm (Berlin’s Bond Street), Charlottenburg is among the city’s wealthiest neighbourhoods. Price performance reflects this, with average apartment prices across the district having risen 20.5 percent over the course of 2014.
Friedrichshain-Kreuzberg
Further out in former East Berlin, this is very much the ‘de rigueur’ location for young professionals as well as artists, and there are many bars, restaurants and art galleries. It is also undergoing major regeneration, especially along the river.
Neukölln
Set to undergo major transformation, this gentrifying suburb in Southeast Berlin is fast becoming very desirable among young professionals, students and creatives seeking affordability, vibrant nightlife and a cosmopolitan lifestyle. The recent closure of Tempelhof Airport has added to this desirability, with the airfield converted into a huge park attracting international acts.
CITY FAST FACTS
(BERLIN)
Population: 3.52 million
Total area: 891.8 sq km
Currency: Euro
GDP per capita: €31,476
GDP growth: 2.2 percent (2016)
Future transport: Extension of the Berlin U-Bahn
Apartment prices: Up 11.7 percent on average
Distance from Singapore: 9,910 km
Summary of major property related issues and taxes associated with real estate investment in Berlin: http://bit.ly/1Zm3icO
INTERNATIONAL HIGHLIGHTS
Berlin’s most chic neighbourhoods are home to some striking new apartment buildings. Here are some of our picks.
NEW PROJECTS – BERLIN
The Wilhelm
Wilhelmstrasse 56-59, 10117, Berlin Mitte
Type: Apartment
Developer: Mundial Ag
Tenure: Freehold
Facilities: Concierge and valet services, 24-hour security
Nearby Key Amenities: Brandenburg Gate, Reichstag building, embassies, Mall of Berlin
Nearby Transport: Within walking distance to three underground railway stations (U Bahn Mohrenstrasse, U Bahn Franzözische Strasse, S+U Bahn Brandenburger Tor)
Price Range: €421,000 to €884,000
This luxury new-build development in Berlin’s main business and cultural district consists of 165 units, namely studios and one-bedroom apartments.
Expected to be completed in Q2 2018, the project is close to major tourist attractions such as the Brandenburg Gate. Several embassies, including the UK and US embassies, are also located nearby.
The building forms part of a larger regeneration project in Mitte to revitalise Wilhelmstrasse all the way down to the Mall of Berlin.
Residents of The Wilhelm can enjoy both concierge and valet services, as well as 24-hour security.
Facilities also include a meeting room, wine cellar and a humidor.
Stralauer Allee
Markgrafendamm 36, Berlin
Type: Apartment
Developer: LRC UK
Tenure: Freehold
Facilities: Landscaped central courtyard, children’s playground
Nearby Key Amenities: Treptower Park, Kreutziger Strasse, Badeschiff public swimming pool
Nearby Transport: Berlin Ostkreuz and Berlin Ostbahnhof railway stations
Starting Price: €135,000
Part new-build and part rejuvenation of an old East Berlin block, Stralauer Allee by LRC UK combines old-world charm with modern touches.
Located close to the River Spree, it features 24 high-standard apartments and two sixth-floor penthouses with stunning terraces.
To be ready by Q4 2016, the freehold project lies within one of Berlin’s largest regeneration schemes, making it an ideal location for property investment.
The surrounding area is home to a thriving outdoor café and bar culture, while employment hubs in the centre of the city are just a short distance away.
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