While residential property values have slumped in many countries across the world over the past twelve months they have hardly budged for brand new homes in Germany. What's more, some analysts say prices for these and second-hand German homes will rise soon.
According to the most recent Hedonic House Price Index published by financial services group, Hypoport, prices for brand new homes fell fractionally, by 0.17 per cent, over the twelve months to May 2009, to an average price of euro225,396.
Prices for second-hand apartments slipped back 1.88 per cent to an average of euro130,441 over the same period. As for second-hand houses, prices for these were hardest hit, dipping 5.54 per cent, to an average of euro167,678 each.
According to Hypoport, prices for brand new homes have stayed steady, because construction costs are growing. With wages and commodities prices expected to rise further, prices for these types of property will increase the company forecasts.
“Prices for new homes will most probably rise because they are highly driven by the costs of construction,” said Professor Thomas Kretschmar, co-chief executive officer of Hypoport.
He said prices for second-hand housing would rise too, because of the growing demand for all property from Germany's aging population. Germans usually buy homes later in life, preferring to rent in their younger years, so with the population growing older, the number of buyers would increase, he forecast
Although unwilling to give exact timings, he expected the value of second-hand homes to stabilise in the short term and rise “smoothly” in the medium term especially in sought after locations.
According to Barbara Walter, proprietor of London-based buying agency, German Property Finder, Germany's residential market was relatively strong.
“I consider buying in Germany a safe long term investment,” she said.
The fortunes of Germany's housing market was influenced by its changing demographics she added. Germany has a population of 82 million people, the European Union's largest, but it has been declining since 2003. In 2007, Germany's population was estimated to have contracted by 0.12 per cent.
This depopulation has undermined Germany's housing market. Figures from consultancy, BulweinGesa, show German residential property prices fell marginally in all but one of the 15 years to the end of 2008 in real terms (after inflation is factored in).
Demographic decline started in eastern Germany during the 1990s and is spreading to western districts Deutsche Bank research shows. Most German regions will have fewer people living in them by 2020 compared to today the bank forecasts.
There will be some pockets of population growth however. The number of people living in Berlin and south-west Germany will continue to increase over the next decade the bank projects.
A trend towards an ageing population living in larger towns rather than the countryside, and an increase in single person households, would provide opportunities for investors, Ms Walter said.
“Demographics is the weak point,” she said, “but right now there is hardly enough new build to meet the demand, so prices have hardly budged in the good areas or are even rising in places like central Munich.
“Buy where demographics are good, such as south west Germany and around Berlin, although this one (Berlin) has been hyped up in the last year, so buyers can afford to be patient.”
After 15 years of falling prices, the longest sales slump in Europe, German homes have become less expensive to buy compared to many other places in the world.
According to the Global Property Guide, Berlin is 62nd on its list of Most Expensive Property Markets. The average price of a 120 square meter apartment in the city is $3,030 per square meter which is marginally more expensive than for the same sized property on the Greek island of Crete.
Munich, in south west Germany, has the country's priciest property market and is 25th on the Global Property Guide's list of 112 Most Expensive Property Markets in the world to buy a home. A 120 square meter abode in the city costs $5,255 per square meter to purchase on average.
In the posh west Berlin district of Schoeneberg, a refurbished, two bedroom apartment is on the market for £187,000 through property portal property-abroad.com. The 74 square meter abode has a balcony.
In the less salubrious central Berlin district of Kreuzberg a one bedroom studio flat with balcony can be purchased for £31,424 through property–abroad.com. The property portal's sales blurb says the rental income from the 38 square meter property is euro1560 per year, equivalent to a 4.2 per cent gross return.
In central Munich, a second floor, 130 square meter apartment with three rooms and modernised bathroom, in a high-rise block, is on offer for euro130,000 through estate agency Blue Homes.
Entire blocks of flats are sometimes traded between investors in Germany. A six storey, 100-year old block of 33 apartments in salubrious Charlottenburg, central Berlin, is on the market through estate agency, FrontlineBerlin, for euro4,150,000. Renting out all the apartments produces a gross return of 5.4 per cent the Berlin-based company says.
GERMANY HOME BUYER'S GUIDE
There are no restrictions on foreigners buying property in Germany. Following in the footsteps of large foreign reits, which purchased entire housing estates in the 1990s, individual overseas property investors, especially British and Irish, have become big buyers of German property. Berlin attracts most private investors.
Buyers have several taxes and charges to pay, including a share of the estate agent's fee which is spilt equally between seller and buyer. Purchasers must pay a Property Transfer tax at 3.5 per cent, notary fees of 0.5 to 1.5 per cent, registration fees of 0.2 to 0.5 per cent and estate agents fees of up to 3.5 per cent. For properties selling for euro1 million or more estate agents fees are negotiable.
Buying agency fees vary. German Property Finder charges a £500 registration fee and 2.5 per cent of the purchase price.
When an investor comes to sell, they must pay estate agents fees of up to 3.5 per cent. Income tax on rental income is levied at 25 per cent. Expenses like mortgage interest payments, maintenance costs and management fees can be deducted from that. A Solidarity Surcharge increases the overall income tax level to 26.4 per cent.
There is no capital gains tax to pay on sale of a property which is held for more than ten years. Profits on re-sales made within ten years have income tax and the Solidarity Surcharge deducted from them.
According to the Global Property Guide, “Germany is depressingly pro-tenant”, because tenants can get security of tenure which makes them hard to move out. Rents are freely negotiable, but rarely rise by more than 20 per cent over a three year period, because of government restrictions, the website reports.
However, the attractions of renting mean that 60 per cent of Germans are tenants, so the market is large. Nationally, gross yields are 5.12 per cent on average the Global Property Guide reports.
Above average yields are available in cities like Berlin and Nuremberg Barbara Walter, proprietor of buying agency, Germany Property Finder, revealed. Munich attracted investors looking for capital growth she added.
“I would advise to buy centrally located, old, but well maintained residential properties in major cities which are sold at less than the cost of rebuilding – in some cities under euro1000 to 2000 per square meter, and which will also offer a decent rental yield at 6 to 9 per cent gross,” she said.
German banks lend to foreigners but rarely for more than 70 per cent of a property's value she said.
She advised buyers to have a German speaker help them through the sales process.
(All The World's a Home : Global Property News)
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