The boom on the real estate market has been forecasted since long, it has been envisioned again and again, and now it finally seems to begin. However a grave characteristic differentiates it from all other boom periods of the past decades: it dispenses with any type of euphoria, is not based on new fiscal laws and is exactly traceable in those regions which are also booming economically.
In other words: in those large cities where economy is moving much faster again now, also the boom on the real estate market is notable. In the Rhine Main area alone, especially in Frankfurt, the demand for residential space – both for rent and for purchase – has already increased drastically as compared to the previous year. We can confirm from our own experience that there are about 20 to 50 applicants for every rental apartment in Frankfurt’s good districts (medium-sized apartment, rent between 1.000 and 1.500 DM). Also an upscale living atmosphere is in very high demand, frequently 3- and more bedroom apartments are getting rented out for 28,- up to 35,- DM per m² of living space, mind you – always in good locations.
It’s all very well for those to laugh who are so lucky being the owner of a residential building in districts of Frankfurt like Nordend, Sachsenhausen, Bornheim, Bockenheim or even Westend. At least they don’t have to worry about the ability to rent it out – it used to be more difficult just two years ago. At that time, an apartment was likely to be vacant for two or three months – today this is unthinkable. Apartments advertised in the newspaper at the weekend are often newly leased at the same evening, or latest in the middle of the following week.
The settling in the surroundings of Frankfurt is also becoming more and more dense. It is not just the banks and the bourse that are attracting workforces – also the middle-class economy, the trade and especially the IT branch are the cause of the upsurge. The igniting point of the economical wonder of the 60es, Ludwig Erhard, would take a pleasurable puff at his cigar if he would get to view the happenings in the Rhine-Main area today. The only difference being that today internationalization on the market of specialized personnel can be noted that has never been there before – and as to the renting, the dominating applications are those from foreign specialists.
Munich is hardly behind the boom in the Rhine-Main area, also here the rents are on a high level and the landlords can look into the future quite unconcerned. But in Munich the real estate prices have already been on a high level for many years. Hamburg, Berlin, Duesseldorf and Stuttgart can certainly be listed as the next large cities in the ranking. But also Ruhr cannot be neglected – especially Essen and Duisburg. Also here the region begins to benefit from the long-worked for structural change; even though we don’t have a second Silicone Valley between Recklinghausen and Moenchengladbach yet, the change from the age of heavy industry and surface mining to the age of high-tech with according job perspectives is unmistakable.
Additionally: not just the renting market begins to boom again, but also the investors are going through a change of mind. The shares euphoria of the past year is over; some have even gotten their bruises on the new market, and many are now getting back to the real estate as a long-term capital investment or are adding it to their shares investments.
Another factor is:
The number of apartments newly built has decreased in the past three years, as well as the fiscal advancement of living space. At least in the past two years a lot less has been done based on tax motivations for the property, which has lead to a shortage of existent living space on the market. Also used properties in a good condition (existing properties) cannot be found in abundance on the market. The contrary is the case: if someone already owns properties and has made good experience with it he or she often wants to buy more additional ones and not sell the ones he has.
Though financing the property has not become easier. The requirements that debtors are getting from the credit institutions are higher; to do a financing with no own funds and possibly including the added costs is too risky for almost all banks after there have been several bankruptcies in the past years from earlier times of builder-owner models, special depreciations and tax saving funds.
Another grave difference however can be noted when compared to the last boom on the real estate market (1992-1995): the new federal states are not at all affected by this upsurge. Here now the tax savers need to foot the bill that the state has brought onto them: to build in a blind rage, under the aspect of high tax deductions, into a market whose economy has not gained ground until today. This lead to numerous mis-investments, vacancies, an excessive amount on the market and, at last, also real estate bankruptcies.
Yet those looking for real chances in these markets will find them in larger numbers now. Numerous properties which were traded like goldmines just six or seven years ago can now be purchased for peanuts – and can thus become benefitting investments. Even high quality refurbished properties which are disused as tax saving models can now often be demanded for half of what they cost originally. So the fact that a property sits in one of the new federal states doesn’t mean at all that it would be a bad investment – one simply needs to know that one can go hunt for bargains here, take all the time in the world to choose the suitable properties and has plenty of good chances to find properties that are a runaway success as to yield. For also in the new federal states the economy will start climbing upwards again, and beside this one can already find good yield properties there today.
In regards to the possibility to save taxes with real estates, Germany rather belongs to brings up the rear by now.
Yet in regards to the profitability of a real estate investment in Germany this country is as attractive as hardly ever before.
But with that the real estate property has gained an entirely different emphasis. It has now finally become the third stable pillar of the personal asset formation and the retirement provisions. Nearly spurned by the state, the property has yet prevailed as valuable investment in times of low pension funds. Also here the very big boom is still to come: when the younger generation wakes up and recognizes what good perspectives the property holds for the retirement provisions, whether this is supported by the state or not. Anyhow less and less people are trusting the state at all (for often enough these are then the most deserted ones) and are instead relying on the well tried.
So the real property has definitely become attractive again. If somebody wants to invest, now is the right time to do so.
What one needs to know about this:
- It is very difficult to get bargains in places where the boom is already happening; here one should trust the well tried principle of the good location and be satisfied with a rental yield between four and six per cent; the value appreciation should make up for this, even at an even lower yield;
- In locations where there still is an enormous oversupply on the market (as in a lot of cities in the new federal states) one can get bargains for very low prices with sometimes very high yields (10% and more) but also a notably higher renting risk;
- At locations in the old federal states which are still suffering from a certain structural weakness (as e.g. the ones flourishing cities at the North Sea coast) one can also get properties at low prices, partially with yields of eight per cent and more, calculated on a currently lowest rent!
So the bargain hunter can get one’s money worth in two respects: in the old as well as in the new federal states; while the investor going for the booming large cities needs to be willing to pay the high prices for real estates in such places, with the expectation that the value will keep increasing in the coming years.
What does this mean now in regards to taking an investment decision in the year 2001? Very clear: it is the year of real estate investments. Now the interest rates are still fairly low – even though the absolute bottom line of the year 1999 is not expected to recur. But an interest rate level of 6 and 7 per cent can also still be considered attractive.
Well, if one doesn’t dare taking a decision for a property investment yet, one can still watch the trend for some more months. Perhaps then one finds a good chance here and there.
What does the trend look like for the owner occupant? Well, to this we clearly have to say: the land prices are going up and building isn’t getting cheaper at all. It’s not an easy decision whether one should rather buy one’s own home instead of renting. Even though there are a whole bunch of single- to two-family houses on the market, good properties charge a high price, and no one wants to get an old and run-down property that holds a standard of god-knows-when. So why not buy for a reasonable price and make an “old cottage” look as good as new? This can cost one a lot of money. But allowedly, the loss of 20.000 DM first home owner grant can be too painful to many (compared to a new building) and thus the new building is the choice.
But those who cannot even get the first home owner grant because of their higher income still have the opportunity to get inexpensive used properties on the market –and then modernize them to a high standard. An old building newly refurbished can often be more attractive than a newly built home because it is more individual – and additionally one spares oneself the searching for the property and the whole (often cumbersome) process of the building license. For usually there are no works connected to a modernization that need permission.
Search our websites. Don’t hesitate to write us in case you want assistance or if you think an appointment in regards to financing would be appropriate. Because: the real property remains, after all, an essential pillar of capital formation, also in the future.