Since 2006 I have been buying and selling real estate. Some of the biggest deals that I have transacted have been in the Middle East, where my Zibel Real Estate (www.zibel.net) portfolio still retains some holdings at the time of writing. But for me by far the most attractive destination for real estate investment during the last decade has been Berlin.
Real estate prices in Berlin have appreciated dramatically since 2010, but the city still remains cheap by European standards. Average real estate prices in Berlin are €1,800 to €7,000 per square metre compared to €10,000 to €18,000 in Paris and €12,000 to €18,000 in London. Average gross yields in Paris and London and now below 5%. But in Germany it is still possible to take recoup a yield of 6%, and even as high as 8% in Berlin.
According to the PwC real estate investor survey the Berlin real estate market ranks amongst the top three in Europe due to the attractive combination of attractive residential property prices, investment safety, high return on capital and long-term growth prospects. The German capital is also recognised for its lifestyle, business-friendly culture and infrastructure, and is seeing rapid growth in tech and Fintech.
The latter is in part what underpins my interest in Berlin and the investments I have made through Zibel Real Estate, which has a strategy of investing in emerging technology hubs. The numbers in Berlin over the last ten years validate this strategy. In 2010 the median offer price for Berlin real estate was €1,550 per sqm. By December 2020 the median price had consistently risen to a level of €4,950 per sqm – still well below London and Paris.
Even after ten years of high yield and huge growth in the value of properties, for me the story has only just begun, and Berlin remains one of the most attractive cities in the world to invest in real estate. Here are six more reasons that as a real estate investor I continue to believe in Berlin:
1) Investment safety
Germany is the second largest exporting economy in the world and the leading economy in the Eurozone. It is quite possibly the safest country for business and investment in all of Europe. Berlin is also emerging as a leading destination for start-ups, with 70% of Germany start-up investment flowing to ventures that are based in Berlin.
2) Lowest real estate prices in Europe
Berlin real estate prices are by far the lowest amongst all of the major capital cities of Europe. This value for money combined with economic momentum suggest excellent long term price growth prospects, especially since international investors are pouring in.
3) Attractive tax regulation
Germany offers 100% tax relief upon resale of a property after ten years. This tax relief does not just cover capital gains, but also the rental income of buy-to-let investors. Expenses such as interest payments and management costs are also relieved from the annual renal income for tax purposes. So by being smart, real estate investors can attain a tax rate of almost 0% on their rental income.
4) Supply shortage
Berlin has a residential occupancy rate of 98.5%, which means that costly vacant periods for landlords are almost unheard of. Demand from tenants is high in part because Berlin has the lowest home ownership rate in all of German at just 20% compared to a 52% national average. This restricted supply amidst high demand is driving up prices, not least because Berlin is also increasing its population with more than 50,000 newcomers each year.
5) Big upside potential
Real estate prices in Berlin have compounded by 10% year-on-year for the last decade, and the city continues to attraction billions in new investments thanks to its highly skilled and creative population. As international real estate investors enter the Berlin market, the property investment volume has increased three-fold to €10 billion per year.
6) ‘A’ micro location
Berlin itself is an ‘A’ micro location that is ranked as one of the best cities in the world. It is known for its safety, infrastructure, parks (comprising 35% of the city), services and quality of life. Berlin is also unique in Germany as a destination for artists and entrepreneurs.