German Property Market Flourishing Not Bubbling

German property sales and prices are soaring and again, as happens so often to outperforming markets in the post-crash era, some supposed experts are voicing their concerns that the German housing market may be bubbling in places.

According to a recent report by research company F+B the average sale price of homes in Berlin has increased by 23% over the last five years. Jones Lang LaSalle, a property consultancy, estimates that median prices in Berlin have risen even more sharply: 20 per cent in the 12 months to June, and 37.5 per cent since 2009.

For the latter, this is incredibly strong growth by anyone or any market’s standard, except Germany and especially Berlin.

Since the crash erupted bubbles have been on everyone’s mind and many markets, most notably China but also Switzerland and others have taken action to cool down price growth so as to avoid the possible formation of a bubble after runaway price growth. But Germany was one of the only property markets where price growth was regulated by the government long before the crash, albeit effectively regulated rather than actually regulated.

Let me explain: Germany has one of the highest proportions of people renting their homes as oppose to owning, and Berlin has one of the highest proportions of renters within Germany. In order to prevent people from being priced out of the rental market, the government regulates rent rises in line with wage growth. Because most buyers in the market are buy to let investors targeting the rental market, this regulation of rental rates effectively regulates sale prices in the market.

This tacit regulation has effectively kept a lid on growth in the German housing markets for going on 2 decades. Rents have been allowed to grow when the economy is growing, and only inline with wage growth, and even when the market has seen popularity with foreign buyers still the long-awaited long-predicted house price boom never came. If we use over-valuation of property as  a measure of a housing market’s health, Germany has long had one of the healthiest property markets in the world. Indeed, by many standards German property has been well undervalued, especially given that construction is and has also been very low in the country.

So, prices may be growing stronger now than they have for years, and faster than economic growth would seem to support. But because of the decades of weak price growth, the market has a lot of room for growth before we need to worry about a bubble.

Indeed most experts disagree that there is any risk of a bubble at present, pointing to several factors that sustain higher prices, including lower interest rates, a robust jobs market and the catch-up from a long period of stagnant prices. They also point to the fact that while growth is currently strong for Germany, it is still weak by comparison to other markets during the boom.

Union Starts $655 Million Institutional German Property Fund

Union Investment GmbH, Germany’s second-largest property fund manager, started a 500 million-euro ($655 million) fund to buy offices, shops and hotels.

The UniInstitutional German Real Estate, aimed at institutional investors, will acquire properties valued at about 20 million euros to 50 million euros, the company said today in a statement.

German property has been one of the biggest beneficiaries of the European debt crisis as investors seek a safe place to put their money. Investors poured about 2.6 billion euros into open-ended German real-estate funds in the first eight months of this year, more than three times as much as in the same period a year ago, according to data compiled by the German Funds Association BVI.

Hot money heads for German real estate funds despite recent upsets

At first glance, trends in German real estate don’t add up.

As German property funds suffer a series of liquidations, house prices continue to drive relentlessly upwards causing mutterings of a property bubble in Europe’s core economy.

Yet the curse of German real estate funds refers to retrospective challenges, according to Ulrich Steinmetz, managing director at RREEF, Deutsche Bank’s dedicated property group, and manager of its Grundbesitz Europa and Grundbesitz Global funds.

‘Private interest and the question of rising property prices in Germany are things that have started very much in the last 12 to 24 months,’ says Steinmetz.

‘I don’t think there is a disconnect between this and the liquidation of property funds, it is just a question of timing.’

Financial turmoil over the past five years has compelled retail and institutional clients to drop real estate funds and search for higher yielding assets. (READ MORE)

Tour Total – The first completed building at Europacity in Berlin

The future German headquarters of the Total oil company, the Tour Total in Berlin, was officially completed in time and budget by the CA Immo real estate company and handed over to the tenant. The building opposite the main railway station is the first in a series of construction projects by CA Immo and other investors in the new Europacity urban quarter.

Built as a green building, the Tour Total consists of 16 office floors with a gross floor area of approximately 18,000 sq m (193,750 sq ft). The building has more than 90 spaces for bicycles and 240 parking spaces for cars. Thanks to the proximity of the main railway station, it is ideally connected to the public transport. Total Deutschland GmbH will ultimately concentrate the German business of the energy company on 12 floors with 500 employees. Four floors will be leased to other companies. For the construction management CA Immo appointed omniCon, their specialized construction management subsidiary. The Berlin office of Barkow Leibinger was responsible for the architecture.

CA Immo in Berlin
CA Immo has a presence in Berlin with total property assets with a market value of about € 542 m. Just under half of this is accounted for by property assets under development. After the completion of the Tour Total, CA Immo currently has another two development projects under construction in Berlin with a total investment volume of € 125 m: The new headquarter of Mercedes Benz Sales at Berlin-Friedrichshain and the Intercity Hotel at Berlins´ central railway station. Furthermore, CA Immo owns investment properties (212,000 s qm lettable area), among them the Königliche Direktion at the Schöneberger Ufer and the Hamburger Bahnhof. (more)