Berlin’s rent freeze: How will it affect property investors?

The five-year rent cap in Berlin is radically changing the capital’s real estate market. 

In 2019, Berlin’s state government introduced a controversial law to freeze rent for five years in a bid to curb the soaring cost of housing in the capital. The move has been slammed as unconstitutional by its opponents, including Angela Merkel’s CDU party, while those backing the new legislation describe it as vital. 

Historically, Berlin’s property prices have been low compared to other European capitals, partly due to the aftermath of the Cold War, when half of the city was rebuilt with Soviet style apartment blocks. However, prices are now starting to catch up with other big cities on the Continent. So what does the rent freeze mean for potential investors?

Individuals and companies who have already bought real estate to generate income in the German capital are probably worried. They’re banned from raising rent for five years, which means that their projected profits have been hit hard. Newcomers to Berlin’s property market, on the other hand, may be able to take advantage of the legislation, as prices may drop due as the measures take effect. 

Another thing that may benefit new investors is the fact that the rent freeze does not apply to buildings opened to tenants after January 1st, 2014 – so buying newer property is a good option. Furthermore, other legal options are available to those looking to provide high end accommodation: living spaces featuring things like high quality flooring, elevators or low energy deperdition can legally be offered for a higher price than what the law usually dictates.

Still, both seasoned and new investors need to be aware of several new rules, such as the obligation to provide all tenants with information about the way their rent is legally calculated and the duty to inform the IBB (Investitionsbank Berlin) of planned modernisation or renovation programmes on their property, another case in which the landlord is allowed to ask for a higher rent.

One thing’s for sure: Berlin is not in short supply of people looking for affordable housing – The Local puts the figure as high as 340,000 – and public subsidised housing programmes are not likely to provide enough options. As a result, this gap could well be plugged by new opportunistic investors, while those looking for high yields can still find open doors in the right places.

Author: Paul Cziganj