Uranus Consult Berlin - City Living

From the building of the infamous “Berlin Wall” in 1961, West Berlin was essentially an enclave within East Germany. This was a position it continued to occupy until the decline of the USSR led to the end of the Cold War symbolized by the removal of the wall on November 9, 1989 prompting German re-unification in 1990.

The fall of the wall was followed quickly by a huge rush of investment into the former East Berlin, unfortunately, and unusually for the Germans, it was badly planned and constituted a knee-jerk reaction to the years when development the east languished in the wake of its more affluent western neighbour. The city could not maintain the pace and rate of growth that ensued, particularly as Germany slipped into recession on the back of having to absorb the huge infrastructural development needed in the east, and the property boom quickly turned to a freefall in the late nineties leading to massively debt ridden city which is technically bankrupt to this day.

There have been signs, however, over the last year or so, that the tide may be starting to turn. Germany may well be showing the first signs if shaking off the suffocating shackles of recession and foreigners are again turning to the Berlin property market in significant numbers. The principal reason for Irish investor interest in this market is rental return to pay down mortgages. This has proven to be the single most elusive entity in purchasing property overseas for Irish investors and Berlin has offered an option as it has a strong rental tradition and currently offers prices that look undervalued by international standards.

There is also the fact that the World Cup of 2006 will be held in Germany with the final itself being played in the infamous Olympic Stadium, host to the 1936 Olympics, and the hosting of such an event is normally the precursor to a significant buying splurge in these areas.

Nowadays Berlin is best known for its vibrant nightlife, many cafes, clubs, and bars, and the large selection of museums, palaces, and other historic sites. It is a city to live in with its substantial population extremely efficiently organized into a selection of residential centres which are wonderfully tree lined, generally low rise and offer a surprisingly green urban environment. Those living there say that it is a cultural centre rather than an industrial or financial one which has meant that it is far more endearing to foreigners than say Munich or Frankfurt. As you would expect, public transport is second to none although the airport at Schoenefeld, which is not befitting of a major European capital, is due a massive expansion in the near future.

Although the city was badly damaged in World War II it has, to a large extent, been reconstructed and it is representational of a cross-section of history within a compact city centre. You will find a span of ages from surviving Medieval Buildings near Alexanderplatz, through reconstructed Nazi property to the ultramodern glass and steel structures in Potsdamer Platz which is some of the most expensive in the city.

As Berlin was more or less kept out of the business loop during its days of isolation there is a distinct lack of a true financial or industrial centre here, consequently most external investment is being funneled into residential blocks rather than commercial properties.
The overseas investment community has been a lot faster to spot the potential in the market than local Germans who seem very reticent to venture back into a market that holds such recent bad memories. There is also very high unemployment here, at 14% it is at least 3% above the German average, and the German population in general is quite old, meaning a heavy pension burden.

Esther Lamers of Uranus Consult says that it is very important that potential investors check out the market and the areas within it very closely before deciding to purchase there. As with any other city, certain areas would be considered far better than others and there would appear to be a lot of poor product on offer at inflated prices simply because the market has become very heated over the past six months. Ms. Lamers goes on to state that is can be very misleading to take headline rental rates as the only barometer when comparing properties. She says that while some blocks will offer impressive initial rental returns but may not offer much in terms of capital appreciation or may have high ongoing maintenance and management costs. Remember that the rentals quoted are almost always gross so you will need to calculate your net return after all expenses to get a proper picture of your ability to pay down loans. Maintenance expense may be written off against rental income but not management costs so it will also be important to find out what the charges come to. Typical maintenance fees on a block in reasonable condition come to about € 0.50 per sq.m. with typical management fees of around € 20 per unit per month. These are, however, very general figures and subject to change depending on the state of repair of the property and the area in which it is located.

Dr. Esfandiar Khorrami, a solicitor with local firm Hermann & Knobbe, concurs completely on these issues stating that iti is very important to check out items such as the ground-book (Grundbuch) which will identify ownership of the property and any restrictions which may be placed in the title. He says that as much as 10-15% of the city’s housing stock is still subject to Jewish claims or simply suffers from unclear ownership structures. He also states that a full due-diligence can be carried out in as little as a few days so there is no excuse for buying without the proper information.

Both Ms. Lamers and Dr. Khorrami will attend a seminar on Berlin property investment in Burlington Hotel on November 26th. (Details to book are at the end of the article.)

Mortgaging is not particularly difficult when looking to invest in apartment blocks, but appears to be a different story if you want to invest in a single lower value property.
Banks have not yet come around to providing a flexible customer focused service so you will not find investor based interest-only options nor will you usually be quoted for variable rate loans. The normal financing methods are fixed rate repayment mortgages for up to ten years at rates from 4.1 to 4.4% up to a Loan-to-Value (LTV) of 80%. Extra costs on purchase will normally reach about 12% including a quite steep 6% agent’s fee which is entirely payable by the purchaser.

(According to Derek Boyle of German Property Investments, purchasing in Berlin will involve you in a very tenant focused legal environment because Germans tend to rent, rather than purchase, property. You are more likely to encounter problems removing tenants than finding them here. You will also find that rents are very often regulated and cannot be increased beyond certain limits, normally no more than 20% over three years but this can vary.)

Buyers should also be very aware that Germany is not a speculator’s market. All income and capital gains are taxed at the appropriate rate of income tax, banded from 24% to 56% and up to year ten there is an anti-speculation tax of 25%of the capital gain which means the market should only be considered by those capable of taking a long term view.
There is a double taxation treaty with Ireland so you will be allowed for your payment here.

The most popular investor areas are, at the moment, those of the former East Berlin located closest to the centre, namely Mitte (literally ‘Middle’) and the immensely popular Prenzlauer Berg, particularly around Kollwitzplatz. It is unusual to see gross rents of more than 7% quoted in either of these areas. You can find property from € 800 per sq.m. upwards but would usually need to be paying € 1,200 per sq.m plus for good quality stock.

Areas to the south-west such as Zehlendorf, Dahlem and Grunewald attract investors looking for detached properties in a high quality residential area the equivalent of Dublin’s Foxrock. Some other popular areas include parts of Friedrichshain, Kreuzberg and areas along the Kurfuerstendamm such as Charlottenburg and Wilmersdorf.