Month: March 2015

Germany to impose tougher rent control as home prices rise

Legislation to toughen rent control passed its final hurdle Friday as German home prices continued to rise.
The centre-left Social Democratic Party (SPD) had insisted on the new restrictions as part of its conditions for joining a coalition in 2013 to back Chancellor Angela Merkel.

The upper chamber of parliament approved the bill, which passed the lower chamber earlier this month with a large majority.

The majority of Germans rent apartments. In Munich, rated the most expensive German city to live, one-bedroom apartments for less than 1,000 euros (1,100 dollars) monthly are almost impossible to find.

The rising value of homes has been pushing rents up.

Late last year, Deutsche Bank estimated that German residential real estate prices had risen 20 per cent in the past five years overall, while prices in big cities, where land availability is limited, had risen by more than 40 per cent.

Germany already has rent control, but the new law will tighten loopholes from June, allowing state governments to declare stress zones where landlords will be forbidden to re-let property at per-square-metre rents exceeding 110 per cent of the rents in nearby streets.

Source – http://en.europeonline-magazine.eu/germany-to-impose-tougher-rent-control-as-home-prices-rise_385101.html

German total returns highest on record

MSCI Inc. has released the latest IPD German Annual Property Index for 2014, which shows the highest total returns since the index began.

The IPD German Annual Property Index returned 6.0% in 2014, up from 5.2% in 2013, delivering the highest recorded return since IPD records began in 1996 with total returns in all market sectors performing above the 5, 10 and 15 year average.

Total returns on Industrial (12.2%), Residential (7.9%) and Retail (7.2%) all outperformed the index with only office properties underperforming at 4.2%.

Justus Vollrath, Executive Director, MSCI commented, „The results of the 2014 IPD Annual German Property Index show that growth was experienced across all sectors, albeit at differing levels. Industrial showed the strongest Capital Value Growth, and entered positive territory for the first time since 2001.“

The IPD Germany Annual Property Index measures ungeared total returns to directly held standing property investments from one open market valuation to the next. The index tracks performance of 2,235 property investments, with a total capital value of €52.1 billion as at December 2014. The market coverage is estimated to be around 20% – 30%, with results dating back to 1995 but with additional data available from 1989.

Source – http://www.property-magazine.eu/german-total-returns-highest-on-record-31763.html

    Bundesbank sees property overvalued in German cities, but no bubble

    Residential property prices in German cities are overvalued by 10-20 percent, and even more in some quarters, but there is no property bubble threatening the entire financial system, Bundesbank chief Jens Weidmann said.

    “For Germany as a whole, there is no discernible substantial over-valuation of residential property,” Weidmann said in the text of a speech for delivery in Munich on Wednesday.

    Germany did not face the risk of a property bubble as credit growth was not particularly dynamic, and most banks remained fairly conservative in their loan issuance.

    But Weidmann said residential property price rises in Germany in recent years had been concentrated in cities, particularly large cities like Munich, and these prices were now significantly over-valued.

    “We estimate that prices are between 10 and 20 percent above the values that would be fundamentally justified,” he said, adding that over-valuations were even greater in popular areas of big cities.

    “In summary, one can say of the German property market: vigilance is absolutely appropriate, but alarmism is unwarranted.”

    Source – http://www.reuters.com/article/2015/03/25/germany-bundesbank-property-idUSL9N0P701R20150325

    How Berliners refused to give Tempelhof airport over to developers

    It’s never easy to ask someone to give back a gift. Last year, politicians asked Berliners to do exactly that with Tempelhof, the former airport turned much loved communal area.

    Famous as the lifeline for West Berlin during the cold war, Tempelhof’s airfield had become the German capital’s biggest park. Since it was turned over to the public in May 2010, the site has been immensely popular with families, joggers, rollerbladers, kite-flyers, wind-karters, urban gardeners, yoga enthusiasts, hipsters and layabouts; smoke rises in summer from the abundance of barbecues. But there was always a niggling suspicion that the fun couldn’t last – that Tempelhof’s unique status as a hugely valuable piece of land essentially given over to the average picnicking Berliner was too good to be true.

    “No other city would treat itself to such a crown jewel [of open space],” said Ingo Gräning of Tempelhof Projekt, the state company running the site, as he surveyed the runways and frostbitten green from the terminal roof. “There’s 300 hectares there. Monaco is 200.”

    Tempelhof park.

    ‘No other city would allow itself such a crown jewel of public space’ … Tempelhof park with the air traffic control tower in the background. Photograph: Ciarán Fahey

    The last three aeroplanes flew out of Tempelhof in November 2008, a month after the airport’s official closure. The buildings, however, have mostly remained in some form of use. The 72m radar tower is still used by the German army to monitor flight traffic. And the remarkable Nazi-era terminal, 300,000 sq m including hangars that curve out 1.23km under a column-free roof – said to be the biggest protected building in the world – is mostly leased out. The biggest tenants? The Berlin police, who occupy some 46,000 sq m, around 15% of the total. (The Polizei have been tenants since 1951, when the US military, which took over the airport after the second world war, began renting out parts of the building.)

    As well as the police, there is Berlin’s traffic control authority, the central lost property office, a kindergarten, a dancing school and one of the city’s oldest revue theatres – just some of more than 100 businesses and institutions that call the former airport home.

    City planners wanted more, however. During local elections in 2011, plans were mooted for new commercial areas and offices, 4,700 homes and a large public library, the latter a pet project of former Berlin mayor Klaus Wowereit.

    Planners promised they’d only build on 25% of the site, leaving 230 free hectares; politicians promised the new apartments would include affordable housing. (Continue reading)

    Germany Agrees New Home Rent Controls as Housing Remains Tight

    Germany’s governing parties agreed to terms for new rent control laws aimed at keeping housing in large cities affordable, addressing a dispute that started after the 2013 national election.

    The proposed law caps rents for existing apartments at 10 percent above the local average in areas where the housing market is deemed to be tight. It doesn’t apply to newly built homes. Angela Merkel’s Christian Democratic Union and its Social Democrats coalition partner will send the measure to parliament next week, Volker Kauder, CDU’s parliamentary chief, told reporters Wednesday.

    “We’re creating a fair balance between the interests of landlords and tenants,” German Justice Minister Heiko Maas said in a statement. “We want to foster and maintain the high appetite for investment on the residential market.”

    Rents in Germany’s largest cities are rising as developers try to reduce a housing shortage caused by migration into cities and a long slump in construction. In Berlin, rents have gained more than 30 percent in the past three years, according to data compiled by Jones Lang LaSalle Inc.

    The proposed law will also make it mandatory for real estate brokers to be paid by the person who hired them. Currently, brokers can decide who to charge, which means that tenants usually foot the bill even when the broker is hired by the landlord.

    Developers and landlords had lobbied to exclude newly built homes from the law, arguing that rent caps would stifle construction.

    Source – http://www.bloomberg.com/news/articles/2015-02-25/germany-agrees-new-home-rent-controls-as-housing-remains-tight

    Low German Inflation Continues to Hide Underlying Economic Strength

    German inflation figures may be low, but stronger than expected growth rates, rising confidence indicators and an ever tighter labor market make the ECB’s monetary policy look too expansionary for the Eurozone’s largest economy. With diverging economies within the Eurozone, German is poised to expand at a rapid rate as the European Central bank waits for Germany’s neighbors to catch up.

    The first wage deal for this year suggests the strongest rise in real income for many years and above average increases in labor costs are set to undermine German competitiveness in the medium term. At the same time the risk of a property bubble is also rising.

    German Q4 GDP growth was confirmed at 0.7% quarter over quarter, confidence indicators are climbing higher, with especially consumer confidence rising sharply. The labor market is already tight and Thursday’s jobless numbers showed another stronger than expected dip in headline rates. Inflation may be low at the moment, but mainly due to the impact of lower oil prices and from a German perspective, monetary policy clearly is already looking too expansionary even before the ECB starts its bond buying program.

    The trend will boost consumption and domestic demand as exceptionally low interest rates are limiting the willingness to save. The German GfK consumer confidence numbers Thursday, showed a sharp rise in income as well as an improvement in the willingness to buy. This ties in with the details of German Q4 GDP numbers, which showed that in this recovery consumption and not exports, is a key driving factor.

    For many Germans, urged to build up private pension portfolios property investment is looking increasingly attractive. Apparently safer than stock markets, but with considerably higher returns than bonds. While the price of the average property transaction is rising, the share of income private homeowner’s use for interest rates and repayments has fallen over the past years.

    The current low interest environment won’t last forever and we have seen in countries such as Spain, Ireland and Portugal what happens when investors are unprepared for a rise in financing costs. The ECB argues that safeguarding against the risks of a property bubble are up to national central banks and governments. Germany has been promising measures to limit the trend and the Bundesbank is keeping a close eye on developments, but with the ECB preparing for even more easing measures, this is an area of risk that should not be overlooked, especially considering the devastating effects of the property crashes elsewhere. IF Germany should face the same problems, who would be there to bail out the largest country in the Eurozone.

    With the ECB poised to begin its bond purchase program on Monday and sovereign bond hard to source, prices will continue to move higher which in turn should weaken the European currency. (Source)