The economic difficulties experienced by eurozone nations during 2011 have been well documented, with countries such as Spain, Portugal and Ireland seeing their property markets take a significant hit. Germany is often considered to be one of the most stable nations in Europe, so how has the ongoing debt crisis affected its real estate sector? According to the Knight Frank Global House Price Index for the third quarter of this year, the value of homes in Germany has climbed steadily during 2011. Annually, the cost of purchasing a dwelling increased by 2.8 per cent in this three-month period, with a 2.7 per cent rise recorded between the second and third quarters of the year.
Founder of ProVenture Property Matthew Littlecot explained investors have seen the value of their real estate assets in Germany increase significantly, noting that many are now selling properties to German and international buyers for between 30 and 50 per cent more than they bought them for. "It's not just because the economy's been good for the last five years and is still increasing. It kind of winds back to when the wall came down in 1989-1990 - the property market was reset back then," Mr Littlecot commented.
He suggested one of the main reasons why investors have been attracted to the German property sector is the strength of the rental market. Mr Littlecot revealed the "lively rental market" in the nation was what encouraged him to make a real estate investment in the country. He said: "Depending on where you go - like in the west of Germany - around 50 per cent of people rent property. So, places like Frankfurt, Munich, Hamburg have a very low owner-occupation level, even in those affluent places."
As a result, tenants are often successful professionals who have made the decision to rent, whereas in the UK, renters tend to be those who cannot afford to get on the property ladder. This also means tenancies are often longer, on average five to seven years, in Germany than they are in the UK. "It's nice and stable in terms of rental yield," Mr Littlecot noted, adding: "It's pretty much an arm's-length investment - you don't have to get in and change furnishings and decorate - you do that on the way out, back to a new standard."
Typically, investors can realise a yield of between eight and 12 per cent on their residential real estate assets in Germany, he pointed out, which is better than many other European nations at present. With rental demand holding steady, Mr Littlecot is optimistic about the future of the country's property market for investors. "As rents increase, property prices will increase in line with that - and that's a typical situation for the German market," he stated.
A report published by BNP Paribas Real Estate earlier in the year revealed that Germany has firmly established itself as a target for global investors, with the nation attracting some 17.3 billion euros (GBP 14.5 billion) in total investment in its commercial property market during the first three quarters of 2011. The research highlighted the country's growing share of the investment market in Europe, noting it accounted for 21 per cent of the money flowing into western European property sectors during the three months from July to September in 2011.
The summer 2011 European Investment Bulletin released by Savills noted there was a recovery in prime yields across the continent as a result of interest from investors in prime assets. Eri Mitsostergiou, from the European research department at the firm, commented that, in general, investors "remain wary of secondary markets amid downside risks to the European economic outlook".
- Thursday 05 January 2012