Investors move in on bargain Berlin homes

PUBLISHED : Wednesday, 26 April, 2006, 12:00am
UPDATED : Wednesday, 26 April, 2006, 12:00am

Berlin, the capital of the world's third-largest economy, has caught the eye of investors looking for the next big thing. Its smart residential districts are comparable to locations elsewhere in Europe and property experts believe the housing there is undervalued.

The level of homeownership in Germany is low, at 43 per cent. In Berlin, it is negligible, at 13 per cent. And so are the prices: a three-bedroom flat in Charlottenburg, one of the city's smartest districts, is on sale for GBP147,000 ($2.03 million).

According to property investment company Assetz, prices can be Euro2,000 ($19,136) per square metre for upmarket Berlin homes, compared with five times that or more in Paris or London. All this is about to change, the company says. Landlords with large portfolios are selling units to tenants one by one, creating a widening sales market.

More good news, unemployment is falling and the economy is improving after 10 years of stagnation. Interest rates are low at 2.5 per cent.

'With the German economy starting to recover, and the market awakening to the opportunity of property investment with low interest rates, we can expect to see significant price rises over the next five to seven years,' said Stuart Law, managing director of Assetz. 'Areas in Berlin such as Charlottenburg and Mitte, among the most exclusive and expensive in the city, are likely to see the biggest rises over the next five years, of as much as 15 per cent a year for the next five years once the growth starts properly.'

Overseas institutional investors have bought large property portfolios in Berlin in the past couple of years. British private equity company, Terra Firma, bought 150,000 German apartments for Euro7 billion last year.

The Royal Institution of Chartered Surveyors (Rics) considers Berlin ripe for investment.

Sascha Hettrich, chairman of Rics Deutschland, said prices would rise for large homes in the best areas. There was an abundance of average priced, small and medium-sized flats, so these were unlikely to increase in value.

'There is a lack of good-quality property which is 120 square metres or more in size - both houses and large flats. There is also a lack of good condos in good central locations,' he said.

Driving up demand were 30 to 45 year-olds buying their own homes, and parents looking to house their children studying at one of the city's universities, he said. But expansion of the owner-occupied market would be restricted by the popularity of the rental market.

Rents have risen 3 per cent to 7 per cent in Berlin over the past couple of years and would continue to rise slowly over the next 12 months, he said. By law, rents cannot rise more than 20 per cent over a two-year period.

The city's low rents meant many Berliners would continue renting because they felt they would get more for their money that way than through buying a property, he said.

'Berlin is a tenants' city. It is difficult to say by how much this will change. Home ownership is unlikely to rise to 40 per cent in 10 years,' Mr Hettrich said.