Why Berlin’s city of renters are climbing the property ladder

If there has ever been a commonly accepted truth about the Berlin property market, it has been this: Berlin is a city of renters.

Only 15% of the German capital’s population are homeowners, compared to 58% in London. It’s a nationwide preference.  Within Europe, Germans are second only to the Swiss when it comes to choosing to rent rather than buy.  The trend is believed to have emerged after World War Two, when the government embarked on massive building projects in response to the post-war housing crisis. The British government did similarly, but, the theory goes, the state-built German accommodation was nicer.

Whatever the reason, it’s a trend that’s coming to an abrupt halt. Last year Deutsche Welle reported a 53 per cent swell in rental apartments becoming privately owned, with a “soaring increase” of these conversions in the more fashionable districts of Kreuzberg, Charlottenburg and Schöneberg.

It’s an observation that’s backed by research from property listings company Immobilienscout24, which noted a 24 per cent increase in asking prices for Berlin apartments in 2015-16, along with a corresponding 10 per cent rise in rental prices. While many note that, having not appreciated much in the last 40 years, a hike in property prices was long overdue.  German house prices are now growing faster than in the UK.

berlin propertyDeutsche Welle uncovered another trend too, in what it termed “portfolio or package purchases,” where multiple properties are bought in a block. Sales of this kind rose 12 per cent in 2015 compared to the previous year. Even more tellingly, the total sum spent rose by 51 per cent. This, Deutsche Welle notes, is a relatively new development for the Berlin property market.

But why Berlin, and why now?

This has happened before, of course.  When the Berlin Wall came down a rush of optimism led to a small property bubble – which burst when it became clear the big companies weren’t moving from Frankfurt and Munich. Many of those traditional companies have continued to stay away, but the new titans – Google, Twitter et al – have come in their place, wooed by the city’s increasingly plausible bid for the mantel of the European capital of tech. Today, Berlin is a boom town.

The big names have brought an influx of new jobs and new workers to the capital, boosting the population significantly. A figure swelled even higher by refugees, so that now Berlin is the second most populous city in the EU. Combined with a generally low level of housing stock, this inevitably leads to demand outstripping supply. Bloomberg News reports plans to increase government spending on public housing in 2017, but even with bigger budgets there is only so fast they can build.

There are personal financial factors, too. Continuing low interest rates have rendered traditional saving unappealing while also leading to lower mortgage rates. Germans currently enjoy a healthy purchasing power – GfK forecast a purchasing power of €21,879 per person in 2016, up two per cent, or €430 per person on the previous year –boosting customer confidence. Combine these with the desire to secure what is, post financial crisis, deemed a relatively risk-free investment, and buying becomes an increasingly appealing option for Berliners to secure their financial futures, both as individuals and investors.

berlin property

Of course locals aren’t the only ones looking for sensible investments.

Foreign investors are also attracted by Germany’s stable economy. Berlin’s relative affordability (prices may have gone up, but still compare favourably with European capitals such as Paris or London) and the strong likelihood that rental income on Berlin property is only likely to continue to grow.

But while comparisons are perhaps inevitable, Berlin is not London. The number of mortgages being taken up may be on the rise, but getting a loan in Germany remains an exacting process without expert help. Similarly, capital gains tax penalties on owners trying to sell within a ten-year period are designed to encourage investors to think longer term.

Local government has also taken steps to try and keep the capital’s rents accessible.  Laws have been introduced designed to cap rent increases and limit people renting out apartments on Airbnb. Despite this, rents continue to rise.

Compared to some of Germany’s more affluent cities – Munich, Hamburg, Frankfurt – Berlin property is still cheap. But if things continue as they are, with low interest rates, high employment and an ever burgeoning population, that may not be the case for much longer.

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