German real estate market big opportunity, even with many limits

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The economic crisis provoked by the Covid-19 emergency has overwhelmed even Germany, which to tell the truth was already in a quasi-recession in the second half of last year. ELVinvest, a Swiss real estate company that invests in foreign markets and founded by Gianmaria Panini, reminds us that the fundamentals always prevail in the long run and that for this reason the German real estate market would appear lively, net of the repercussions of the pandemic.

Germany, however, cannot be considered a single great reality, being a federal state made up of 16 Laender and where the municipalities enjoy wide powers, precisely with reference to real estate. In general, we don’t find big cities like London and Paris, even if there are 7 big urban realities: Berlin, Frankfurt, Munich, Hamburg, Cologne, Duesseldorf and Stuttgart. The top 4 are among the top 10 in Europe for real estate investments in 2020, according to the PWC report in collaboration with Urban Land Institute.

And the real estate market returns to being a refuge with the Coronavirus emergency

The situation in Germany

Germans are among the European peoples with the lowest home ownership rate, just 51% against the average of 69%. In Italy, we are 82%. We speak, therefore, of a population of tenants and below we will see that legislation also tends to favor this approach. Between the reunification of 1990 and 2010, property prices remained roughly and sensationally stable, except for a sudden increase in the last decade, when realities such as Berlin began to register their boom and, above all, with capital from Southern Europe to looking for potentially profitable buying opportunities, especially with the crisis in the economies of Greece, Italy, Spain and Portugal.

Foreign real estate market as a response to the structural crisis of the euro

Berlin is still unable to keep up with demand, which in turn is driven by population growth. At least 84,000 homes are estimated to be less than necessary. All of this supports the prices, although this year a measure, known as “Mietendeckel” o “rental coverage, which for the next 5 years blocks rental rates at the levels of June 2019. This, following massive protests by Berliners against the high rent, with a popular petition signed to request the expropriation of the houses in the hands of large agencies, including Deutsche Wohnen, which here owns hundreds of thousands of properties.

In Frankfurt, the climate is much more “business-friendly”, with building permits issued easily and for this reason, however, a sudden drop in demand in times of crisis such as this risks causing the almost immediate drop in prices. Monaco should also be considered as a destination for investments, being a very rich city and in which house prices tend to rise, increasingly lapping the neighboring centers. However, here too there is a ceiling on rents, which is why there is no full freedom to set prices for owners.

Limits on rents

In general, there is a federal law that limits the increase in rents in 3 years to a maximum of 20%, a percentage that drops to 15% in Berlin. In addition, the so-called “Mietenpreisbremse” prevents the owner from fixing a price higher than 10% compared to the official one adopted by the Municipality. This rule applies in 320 German cities. As we can see, there would be all the conditions for investing: mortgage rates at historic lows and here even lower than elsewhere; low property rates, which suggest that there are large margins for growth; widespread well-being; full employment, excluding Covid; high incomes; constant economic growth.

Still, federal and local legislation tend to put a brake on wheels to anyone who owns a property and would like to put it to good use.

The restrictions on the freedom to agree on the rent with the tenant are different and stringent, so much so that in 81 German cities the average yield of properties has fallen by more than half a percentage point in 2019. And being the Germans a population of tenants, the pressure of public opinion on the federal government and local governments is to accentuate these limitations, certainly not to make life easier for the owners. Having said that, Germany is worth a thought.

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https://www.investireoggi.it/economia/mercato-immobiliare-tedesco-grossa-occasione-pur-con-tanti-limiti/

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