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Luxury property in Berlin curries favour with foreign buyers

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From Checkpoint Charlie to Brandenburg Gate: Berlin has shed its soviet reputation to become a new destination for prime property. Foreign transactions now make up 30% of sales on the luxury residential market.

Strong presence of foreign buyers

Over the last decade, foreign buyer activity on Berlin’s prime property market has grown 20% to reach 30% of all transactions in this segment according to Engel & Völkers, a real estate agency. The increasing popularity of Germany’s capital can be attributed to its prices, which are approximately 30% lower than other European capitals. At the same time, weakness of the euro against US dollar and pound sterling since 2014 has also curried the favour of foreign investors.

More demand than supply

Demand for premium property in Berlin is a lot higher than the offer and most new buildings are sold off-plan long before the end of construction. The most popular areas of the German capital for luxury homes are Mitte and Charlottenburg, and the Kurfürstendamm, a famous avenue. However, property considered luxury in Berlin, especially in the city’s eastern half, would probably not get the “premium” label in Paris or London.

Eastern investment interest

The crisis had a profound impact on the nationality of foreign buyers. At the turn of the century, most were European, and British in particular. Now investors from China and Russia dominate the market, spending €1 million per property on average, followed by buyers from Saudi Arabia, Kuwait, and Israel. Chinese are investing abroad to protect their capital from currency risks. Russian buyers are diversifying risks from political and financial turmoil at home too, but centuries of shared history and geographical proximity are also investment incentives.

Germans don’t boast

The considerable share of foreign real estate buyers is explained, among other things, by the cultural traits of the German nation. It is not common there to demonstrate material wealth and even the most affluent Germans are practical in their property choices. Foreign buyers, in contrast, choose the most expensive property, most often for investment reasons.

Potential for growth

Demand for premium property in Berlin is not very high yet and the share of this segment is only 5.2% of the total value of the capital’s real estate market. However, prices for premium square metres are growing fast, increasing 33% between 2003 and 2011 according to Sotheby’s Berlin.

Most analysts agree that the city’s real estate market is only at the beginning of rapid development. Sebastian Fischer, managing partner of Engel & Völkers says: “In recent years, Berlin has also emerged as the start-up hub of Europe with more corporations founded here than in London.” New investments will attract more premium demand, which will in turn slowly bridge the price gap between Berlin’s prime real estate and that of other European cities.

Ivan Chepizhko, Tranio

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