Buying in Germany: The German economy might be set to improve - but that doesn't mean the property market there will take off, warns Derek Scally
The easiest way to describe the Berlin property market is to describe what it's not. It's not Budapest or Prague or Warsaw or anywhere else that Irish investors have flashed their cash in recent years. Even so, property agents and investment funds have now "discovered" Berlin and are pushing the German capital as the next big thing.
On paper, Berlin is a property investor's dream. Scanning the newspaper property pages, the prices are so low by Irish standards that they look like printing errors. A 70sq m (753sq ft) two-bedroom apartment from 1900 for €150,000 is not uncommon, nor is an entire 1900 apartment block with 20 apartments for €1 million with a potential rental yield of up to eight per cent.
"Berlin is cheap and that makes it dangerous," says Mr Germano Tullio, head of property analysis at consultants BulwienGesa. "You have to be careful because you can lose a lot, and quickly."
Berlin is Germany's political and tourism capital but a relatively poor city. The federal system and post-war development means that German industrial might - and the associated wealth - is elsewhere, in Düsseldorf, Frankfurt and Munich.
The city-state of Berlin is €59 billion in debt, one in five is unemployed and economic growth is negligible. This, on top of Germany's wider economic difficulties of rising debt, low growth and stagnant consumer demand, has depressed the property market since the post-unification bubble burst here in the 1990s.
Only 13 per cent of Berliners own their apartment, the consequence of low incomes, low rents and tenant-friendly rental legislation. Landlords cannot raise rents more than 20 per cent in three years and even after renovations, rent can only be increased by an additional 11 per cent. Rent increases can be challenged by tenants if their rent already lies above the average rent for their area as listed in local council rental-tables.
A new study out last week shows that Berlin property prices fell an average of 18 per cent from 1999 to 2005. Prices will fluctuate by anything from minus five to plus 1.5 per cent in 2006, the study shows. The only significant growth areas in the last two years have been the historical city centre area of Mitte and the Prenzlauer Berg neighbourhood to the north.
Berlin's unique history cannot be ignored and a visit to the city is essential before buying property. Unexpected disputed ownership issues may arise and what looks like an ideal city centre location on paper may be a dead zone near the former Berlin Wall, surrounded by wasteland, sex shops, or both.
"Just 50 metres can make such a difference. Potsdamer Platz is popular but Potsdamer Straße, down the road is a disaster," says Mr Rackham Schröder of agents Engel & Völkers. "Many Irish don't even want to look, they just glance at a prospectus and say 'I'll buy that.' In some of these cases we've refused to sell to them because you can't buy what you haven't seen. The reputation of the market is at stake and can be destroyed this way."
"Being the gateway to the new Europe is great but a gateway is something you drive through, not somewhere you stop," says Mr Tullio of one of the most-repeated sales lines about Berlin.
"Even assuming that the economic situation improves and that things become more stable, that doesn't mean that prices will explode. There's too little demand. In six, seven or eight years, perhaps then prices will begin to rise," he says.
"Investors arrive here euphoric because property prices are so low in Berlin that things have to rise. Yes, I agree, but when? Berlin has had huge chances in the past and even then things didn't improve. Many foreign investors just don't want to accept that."
