With the largest and the most stable economy in Europe, Germany is an attractive destination for investment capital from around the globe. One way to maintain and increase capital is to invest in real estate.
The German property market is heterogeneous: the situation in western Germany is significantly different from that in eastern Germany, while Berlin, the capital of the country, is characterised by its own specific features.
|Population, millions||Unemploymentrate, %||Purchasing powerof the population,EUR, thousands,per annum||Averageproperty prices,EUR/m²|
German property investments are reliable and show promise thanks to the following key factors:
- Stable economy. in 2016,
Germany´sGDP increased by 1.9% and exceeded €3.1 trillion (the fourth largest GDP in the world).
- Low unemployment rate. The unemployment rate has declined by 0.4%
year-on-year,hitting 5.6% by May 2017 - a record low since 1990.
- Population growth. In 2016,
the country´spopulation was around 82 million - 2.4% higher than during the last decline in 2011. The population is constantly growing due to high levels of immigration.
nationals’incomes are rising. In Q4 of 2016, the average German salary reached a record high of €3,745 per month.
Among the main incentives for property demand in Germany are the cheap mortgages. The average interest rate over the last two decades is just 4.7%, whilst in May 2016 it was down to 1.5%. Loan repayments have be-come less burdensome, leading to a considerable increase in property demand and, subsequently, prices.
Berlin: a market with a great potential
— What is facilitating the growth
The Berlin property market is one of the most dynamic in the world. The economic growth and rising population in the city are fuelling demand. As a result, real estate prices are constantly increasing:
- between 2011 and 2016, the average residential property price in Berlin more than doubled to €3,795 per m².
- the average residential property rental rate grew by 70% over the same period to reach €10.99 per m² per month.
Mitte is the most expensive property market in Berlin, with the median price for flats running at €4,570 per m² (for comparison, in
When buying a flat in Berlin, you
shouldn'texpect to obtain a quick profit from rental. The local residential real estate is promising primarily in terms of its future capitalisation. Property in the capital generates a reasonable rental income of 3–4%and gains in value annually.
Western Germany: a liquid property market
Western Germany is a commercial and industrial region with
- high demand for property rental and purchase;
- fewer properties on offer when compared to eastern Germany;
- high rental rates:
€12–15 per m²per month for residential properties and €35 per m² for commercial properties;
- high property prices: starting from €4,000 per m² on average;
- low yields:
Munich, Stuttgart, Frankfurt am Main, Düsseldorf and Hamburg are the largest
Residential property prices in western German cities
|Average price, EUR per m²||Price increasesince 2012, %||Average price,EUR per m²||Price increase since 2012, %|
|Frankfurt am Main||5,047||+66||14.42||+29|
Experienced investors look at not only metropolitan cities whose overheated markets bring about high property prices, but also cities with 50,000 to 300,000 inhabitants,
— Which commercial properties in western Germany are the most reliable?
— Those in the right locations, with
Western Germany, especially the southern parts, also has
Eastern Germany: dynamic market development
Eastern Germany attracts investors with the rapid growth of its economy and its high potential for development. The population is growing, and so is purchasing power in the region. Meanwhile, the unemployment rate is falling: in Dresden and Weimar, for example, it declined by 0.9% between May 2016 and May 2017.
In general, the real estate market of Eastern Germany is characterised by:
- properties being
25–30%cheaper than in western Germany;
- relatively high yields:
- a larger number of properties on offer when compared to the western regions;
- property price and rental rate growth: between 2012 and 2017, in large cities, prices grew by 38% on average, and rental rates increased by 21%.
The most promising real estate markets in eastern Germany are located in the big cities: Leipzig, Dresden, and Potsdam whose
Residential property prices in the cities of eastern Germany
|Average price,EUR per m²||Price increasesince 2012, %||Average price,EUR per m²||Price increasesince 2012, %|
Thanks to the relatively low prices, the yields in eastern Germany are still higher than in the west of the country: about
The growth of large and
medium-sizedcities in eastern Germany makes for promising markets for investors. The relatively low prices for local real estate will ensure higher rental yields, whilst the continuing economic growth will allow investors to resell property at a profit in 7-8 years.
Such small university cities as Halle and Chemnitz favour student property investment, with there being many international students wishing to obtain