Berlin sees growth accelerating, hikes 2014 economic outlook

The German government believes the country’s economy is on the threshold of a strong rebound. As it revised its 2014 growth outlook upward, Berlin expects higher private consumption and more capital investment.

The German government was expecting the country’s economy to expand by 1.7 percent next year, 0.1 percent more than it had previously forecast in an estimate in April, Economics Minister Philipp Rösler announced Wednesday.

The growth estimate for this year remained unchanged with a 0.5-percent increase in the gross domestic product, Rösler said.

Rösler also said that the growth dynamic in Europe’s biggest economy was expected to accelerate significantly in 2014.

“Employment and incomes are continuing to rise and will support higher private consumption,” Rösler added.

In its twice-a-year economic report, the government in Berlin predicted private consumption to increase 1.2 percent in 2014, up from estimated growth of 0.8 percent this year. Moreover, spending on capital goods such as machinery is seen rising by 4.3 percent, after slumping 0.3 percent in 2013.

In addition, meager growth of 0.3 percent in German exports is forecast to jump to 3.8 percent on the back of expected higher global demand for German goods.

The stronger economic growth next year should boost German employment, the government said in the report as it expected the number of employed people to increase from 41.8 million to 42 million in 2014.

Economic Minister Philipp Rösler, who will leave the government as his liberal Free Democratic Party (FDP) is no longer represented in parliament following September’s general election, said he would leave a field “well-tilled” and that he hoped for the next German government to continue along this course.

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Merkel urged to ditch plan for German rent controls

A sharp rise in rental prices in German cities poses no risk to the broader economy and introducing rent controls would only exacerbate the problem, economists said on Tuesday ahead of coalition talks between Angela Merkel and the Social Democrats.

Chancellor Merkel’s conservatives and the SPD both pledged during the recent election campaign to impose a cap on rents in order to slow the rapid increases seen in metropolitan areas such as Berlin, Hamburg, Munich and Frankfurt.

Earlier this week the SPD went a step further, listing such price controls as one of its 10 conditions for entering a “grand coalition” government with Merkel.

But a new study on the German property market by the IW Institute in Cologne warned that caps may end up aggravating the supply-and-demand imbalance by curbing investor appetite for real estate, and slowing the construction of new apartment buildings.

“International experience shows that the withdrawal of investors from the market for rental apartments can have negative consequences for renters,” the institute said.

The message echoed that of the German central bank, which in a separate report released on Monday said housing prices in some cities looked overvalued but cautioned against trying to contain this development with rent controls. (Read More)

Bundesbank warns over German house price boom

It still enjoys a reputation as a renter’s paradise, but on Monday the Bundesbank issued a warning about the rise in house prices in Germany. In its monthly report published on Monday, the central bank said that properties in German cities “may currently be overvalued by between 5% and 10%”.

The property boom has mainly affected larger cities such as Berlin, Hamburg and Munich, where apartment prices were up to 20% higher than could be accounted for by economic factors alone, the report says. In Berlin prices per square metre have risen by more than 30% between 2007 and 2012. Houses in rural areas, meanwhile, have been largely untouched by the trend for now.

The report lists several factors behind the rise, including new consumer confidence and low interest rates. “After the real estate bubbles in the US and several European house markets burst, the German property market, which had been quiet for many years, became more attractive to international investors.”

During turbulent times on international markets, property in economically stable Germany has increasingly looked like a safe bet for investors in Germany and from abroad. “Those investing in Germany may be seeing the same opportunities British buyers saw when they got their property-buying boots back on in 2008-2009,” said UK housing expert Henry Pryor. But the Bundesbank report raises doubts whether buyers will be able to recoup their investments, mentioning “considerable asset losses” if market prices were corrected.

Not all German economists are convinced by the Bundesbank’s gloomy analysis. The Institute for the German Economy in Cologne looked into the subject last year and concluded that the rise in property prices was healthy and no bubble was in sight. “In Germany we’ve seen roughly a 10% rise in credit,” said Michael Schier of the institute’s real estate team. “That simply doesn’t compare to the 150% bubbles we saw in some of the countries that were hit by the credit crunch.”

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German city flats are overpriced, says Bundesbank

Flats in Germany’s major cities are overpriced by up to 20 percent, but the overall economy is not yet in danger from a real estate bubble, the Bundesbank said Monday (21 October) in its monthly report.

Prices for flats in Munich, Frankfurt or Berlin are not justified by demographics or economic factors and have grown by over 25 percent over the past three years. Real estate prices in Germany overall have grown by eight percent over the same period of time, the central bank said.

The trend is unlikely to change over the next year as demand for apartments is still higher than the housing on offer.

Even if the overall economy is not at risk from these developments, the Bundesbank warns of “severe wealth losses among households” due to the overpriced flats.

International investors are also playing a role in the German price hike, as this market is becoming attractive to them after the real estate bubbles in the US, Spain and Ireland burst.

With low interest rates set out by the European Central Bank, investors find it easier to buy up property, the bank said.

The Bundesbank – as member of the ECB – has consistently warned against the cheap loans policy helping banks in troubled eurozone countries but driving up the risk of inflation.

Statistics however show that inflation remains low (1.1% in September) in the euro area.

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In Berlin, ghettos are remolded into profitable housing

German housing developer Benjamin Marx was no stranger to sub-standard living conditions. But what he found in the series of apartment buildings he and his company acquired on Harzer Street in Berlin’s Neukölln district startled him.

“Everyone was afraid of this house,” Marx told SmartPlanet. He had previously commented to Germany’s Abendschau TV program:

“The situation was bad. There was trash all over the courtyard when I first arrived, with two little girls playing in the middle of it and rats scrounging for food next to them.”

The house was part of a cluster on Harzer Street filled with Roma families and other immigrants, many of whom had come from the Roma village of Fontanelle near Bucharest, Romania. Economic hardship there had reduced life to a single dysfunctional school and few job opportunities, catalyzing dozens of Roma families to make the dangerous, multi-day journey to Berlin, where life was rumored to be better.

By early 2011 though, the Harzer Street block had come to be known as “Little Romania” with media reports uncovering living conditions worse than in Fontanelle. Local organizations demanded solutions, traditionally viewed as the government’s responsibility, from Berlin’s municipal officials. But it wasn’t until Marx and his employer — the Aachener Development and Real Estate Company, a self-sustaining affiliate of the Catholic church — purchased the infamous eight-building cluster in late 2011 that anything changed.

Marx and Aachener would use their years of development expertise to “flip” the block into livability. But rather than evict its 600-plus residents and renovate the real estate for maximum profit, they would craft a minimum viable renovation plan that would bring the block’s residents together as a community – and see Aachener achieve a return on its investment.

Following the removal of some 750 cubic meters of trash, Marx got started on a plan to systematically renovate all eight buildings — including new windows, heating and paint on the walls — all on a shoestring that allowed rent rates to hover at about the local index. Most important to the success of the project, Marx said, was that they engaged residents in a range of modernization activities — from painting to babysitting and gardening — to form a community that would be proud to care for its buildings long after renovations were complete.

“When you know the person cleaning the stairs, you’re less likely to put out your cigarette on it — and you’re more likely to tend to the garden in the courtyard when a piece of it belongs to you.”

Marx said children, too, were engaged in renewal of the courtyard by taking responsibility for sunflowers or helping with other plots of garden. Today, activities such as sewing and upcycling classes also help young residents engage with their upgraded surroundings, as well as with one another and the rest of the city.

“They have become more flexible and self-confident, as well as gaining the courage to go into the city alone to learn more about Berlin,” psychologist Ana-Maria Munteanu told Abendschau. “They weren’t like this before — they were too preoccupied with immediate problems.”

September saw the Harzer Street project honored with the Julius Berger Architecture Award — whose German-Jewish namesake forged several important bridges and tunnels in Germany before being forced from his company by the Nazis. The award’s jury cited the clever social application of business principles to Marx’s project as the leading reason for their decision.

“We have to make money — this has to be economically feasible,” Marx said of his employer Aachener, which is still in the financial black though rent rates that continue to reflect the local index. ”But that’s not our main focus, which is to provide residential space for those who might not find it otherwise.”

The Aachener Development and Real Estate Company, whose land settlement branch was founded in 1932, owns about 25,000 apartments in total across Germany, all of which it maintains on a social, yet self-sustaining basis.

Marx said he hopes that other businesses will see the viability and payoff of projects like this one and follow suit: “I hope that in ten years, ventures like this are so normal, that no one will be talking about it as something special anymore.”

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Germany: Real Estate Intelligence: Spotlight – Germany

Germany with a population of more than 80 million and a nominal GDP of over 2.7 trillion Euros is Europe’s largest economy. The inbound real estate market is characterized by decentralization around the “Big Six” cities (Berlin, Cologne, Düsseldorf, Frankfurt, Hamburg, and Munich) and had an investment volume of approximately €37 billion Euros in 2012.

As an investment platform, the German open ended funds industry is of particular importance. German open ended funds have presently more than 120 billion Euros of real estate assets under management – in Germany and all around the world. This article briefly outlines the basic legal landscape for real estate investments in Germany from a foreign perspective as well as some information about open ended funds and recent tax developments. Please feel free to contact our German real estate team if you want more information. (more)

Europe’s hottest startup capitals: Berlin

Berlin has been the most talked-about (and talked-up) startup hub in Europe for several years. However, a backlash of sorts has emerged over the past year, with some asking when Berlin will produce an exit of global significance. Of course, there have been successful exits: Jamba in 2004 ($273 million/£180 million), Brands4Friends (€150 million/£129 million) and Citydeal (€130/£109 million) in 2010, and DailyDeal in 2011 (around €130 million/£109 million) are evidence that Berlin can deliver. “People expected it just to happen, but it takes three to five years,” says Sven Schmidt, a venture partner at Accel.

Jörg Rheinboldt, an early-stage investor and long-time observer of Berlin startups (he sold his ecommerce site Alando to eBay in 1999 for £28 million), has been advising the German government on tech. Recently, he’s noticed a growth in accelerators and incubators, such as Axel Springer’s Plug & Play, Berlin Startup Academy, The Factory and initiatives from companies such as Mozilla, Microsoft and Google, as well as an increasing number of events and ­conferences. And there’s easier access to capital — Berlin attracted €173 million (£145 million) in VC funding last year.

But some of the companies that have been seen as exemplars of the city’s standing in the tech scene, such as SoundCloud, have yet to make money. Rheinboldt sees a coming together of maker events and hardware: “It’s super early but I have the impression that there will be more startups that are hardware oriented.”

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