How will Berlin’s rent freeze affect foreign investment in the capital?

The Senate of Berlin has approved a controversial law that will prevent landlords from hiking rents in the city. Tranio looks into how the new regulation will affect overseas/foreign investors’ demand for real estate in Berlin.

Berlin's leftist coalition (the Social Democrats, far-left Die Linke, and the Greens) running the city government has approved a five-year rent freeze, which will kick in early next year. The new legislation caps rent at €9.80 ($10.90) per m² and until the end of 2024, landlords will only be able to increase rents by 1.3% a year to compensate for inflation. Existing rents will only be lowered in rare cases, like if they exceed the newly established ceiling by over 20%, while if rents exceed the new limit, tenants will be able to force the landlord to lower it. 

It’s argued that the new law will limit the number of available apartments for rent, discourage landlords from maintaining them, and steer foreign/overseas investors away from Berlin’s property market. 

The new regulation will affect over 1.5 million properties built before 2014 (roughly three-quarters of apartments in Berlin), except for some government-owned social housing and property built after 2014. 

Any landlords who fail to meet the requirements could be fined up to €500,000.

“The attempt to artificially regulate Berlin's rental market won’t be well received by foreign/overseas investors, who will surely become more cautious about where they put their money,” says George Kachmazov, managing partner at Tranio. “Freezing the rates won’t make investors sell their apartments, as there’s currently no better alternative for capital placement, especially if they want to buy real estate with euro-denominated yields. Despite the new law, we’re still witnessing an active demand from investors from all over the world, including Russia, for property in Germany's capital.”

Sofiya Bulanova, sales manager for Germany at Tranio, adds that the freeze will probably lead to a higher demand for new-builds, micro-apartments and for mid-term furnished rental apartments, which are exempt from the regulation.

Author: Daria Rodionova