Three years ago, we’d never heard of Erfurt, but a lot of our professional advisors told us they themselves were investing in several properties in the area. After some extensive research, we have purchased several buildings on behalf of clients in the city.
Erfurt, the capital of the free state of Thuringia, is fast becoming increasingly popular among investors. It has retained its beautiful original features as it was never bombed during the war, and its university is one of the oldest in Germany. It is home to Europe’s oldest intact synagogue built in the 1000s, and the Gothic cathedral is steeped in history, dating back to the 1300s. You’ll also find Gothic half-timbered houses along Krämerbrücke (Merchant’s Bridge) which are now cafes, galleries and shops.
It was in Erfurt that Martin Luther, one of the university’s most revered students, became a monk at the Augustinian Monastery. The father of the Protestant Reformation was well known for challenging the Pope by posting The Ninety-Five Theses to the door of St Mary’s Church in Wittenburg, which culminated in his excommunication. It was also where Johann Schiller an 18thcentury German writer, playwright and philosopher, found his inspiration.
New technology businesses and increased rental stock stimulates investment
Erfurt has a population of 250,000 and attracts businesses old and new, including the new technology sector. When the People’s Republic collapsed in 1991, young professionals and new businesses gravitated towards West Germany, with East Germany beginning to become denuded of young people. In a bid to renew and retain industries, old and new, Erfurt was chosen to be one of the Oberzentrum, and is now an established local hub for technology businesses, whilst retaining a robust farming and heavy industry. The Bundeswehr also have military barracks here.It has an extensive public transport network, and it’s where The Deutsche Bahn’s Intercity Express (ICE), Intercity (IC), and Eurocity (EC) trains connect cities throughout Germany via Erfurt.
Due to the expansion of Erfurt, the city was beginning to see a shortage in rental properties. As a result, the city council have now made it more accessible to investors by relaxing some of the stringent planning regulations, to increase rental stock. A move which will stimulate investment and increase rentals, and eventually capital values.
We bought a property in a sought after residential area just outside the old city. The building which contained 9 flats was bought for the sum of €775,000 with a rental income of €32,000 per annum. This shows a yield of 4%, or as the Germans would say, a ‘factor’ of 25.
Rentals that are averaging €7 per metre per month will rise considerably in the next three years and the ‘factor’ will increase accordingly. The principal reason we bought this building was the attractive yield. There is a development of new townhouses and flats in the street which will eventually be rented and will upgrade the tone of the area leading to higher rentals and higher factors.
Finance is readily available from reputable banks. A typical loan would be for 60 per cent of the capital value. Currently interest rates are 2 to 2/5 per cent per annum for a term to be agreed up to 30 years with amortisation of the capital at 2 per cent per annum. The loans are usually non-recourse.
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