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PROPERTY

Foreign investors ‘snap up prefab German flats’

Old East German prefabricated apartment blocks, with their drab concrete exterior and low ceilings might not seem a classic investment choice, but foreign investors have been clamouring to buy them, new figures show.

Foreign investors 'snap up prefab German flats'
Photo: DPA

“German flats are being snapped up,” said Andre Adami, an analyst for BulwienGesa market research firm. “Any portfolio which comes onto the market meets high demand.”

Around half of prefabricated apartment blocks with more than ten flats sold have been snapped up by foreign buyers who see the market as a lucrative place to invest, spending €3.3 billion in the first half of 2012, said Tuesday’s Handelsblatt business newspaper.

This is the highest level of overseas investment in German property since 2008 and a considerable increase on 2011 when the figure was €2.4 billion for the entire year, figures from real estate company Jones Lang LaSalle showed.

German residential property was one of the best places in Europe to invest, Roger Orf, manager of European property at Apollo Global Management, told the Handelsblatt. The company has a 15 percent share in Germany’s biggest letting company, Deutsche Annington Immobilien AG.

Those looking for large property portfolios have a wide selection to choose from, the paper said, as private equity firms and other investors needing to repay debts they incurred before the market peaked in 2008, are set to put around 100,000 flats onto the market.

Examples include Blackstone private equity firm buying up 8,000 flats from bankrupt investor Level One in March, while in May Cerberus bought 22,000 flats from bankrupt Speymill Deutsche Immobilien Co.

Many of the flats concerned are the prefab buildings which characterised many east German cities, but were also found in the west.

Despite their unappealing appearance, the benefits of the prefabs are clear for a property company, Christian Schulz-Wulkow of Ernst & Young Real Estate told the paper.

“They are very efficient, you can buy a lot of them in the same place and then have a thousand flats that are all very similar and can be handled in same way,” he said.

American investment firm Fortress, is preparing to sell 38,000 Dresden flats – many of which are pre-reunification, Soviet-style, said the Handelsblatt. Such a sale is expected to attract further foreign investors desperate for a safe and even profitable place to put money.

This influx of foreign investment into companies that own property that is causing the German property market to boom.

The market value of the country’s five biggest real estate companies has this year alone gone up by 55 percent, which when compared with the German Dax index, which monitors the top 30 companies, rising by 19 percent, shows how popular property investment is.

Yet some experts remain wary. “Foreign investors are regarding Germany as a safe bet,” said Steffen Sebastian, head of the institute of real estate management at Regensberg University.

“But even the German property market isn’t independent from the rest of Europe,” he told the Handelsblatt, warning of the potential start of a bubble.

“Investments in the German apartment market have a very speculative character, and that makes them very risky,” he said. Cheap financing, fear of inflation and a lack of other investments have pushed prices in comes parts of the country to ridiculous levels, he said.

The Local/jcw

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PROPERTY

Why house prices in Munich are starting to fall

The real estate market in the southern German state of Bavaria is changing due to the precarious economic situation, a new report has found.

Why house prices in Munich are starting to fall

What’s happening?

Germany’s largest state – Bavaria – is known for many positive things, such as stunning nature, culture and festivals. But it also has a reputation for being an expensive place to live. Many cities, especially Munich, are notorious for having some of the highest rental and property costs in the country. 

But it looks like the trend of rising house prices is beginning to dampen. 

According to the latest report by the Real Estate Association Germany South Region (IVD Süd e.V.), inflation and increased mortgage interest rates have put an end to the period of significant hikes in the Bavarian real estate market – at least for the time being. 

“The rapidly growing financing costs and the uncertainties associated with the impending recession in Germany as a result of the Ukraine war are inhibiting the dynamics of market activity and, in particular, the price dynamics in the residential real estate market,” said Professor Stephan Kippes, head of the IVD market research institute.

It reflects a general trend that we’ve been starting to see in Germany as the tough economic situation bites. 

According to a recent study by property search portal ImmoScout24, the number of people buying houses in Germany fell dramatically in the second quarter of 2022. And In many of the major metropoles, property prices also went down as people struggled to find interested buyers.

READ ALSO: How property prices are dropping in major German cities 

Where can we see this trend?

The price changes can be seen clearly in the state capital Munich, reported regional broadcaster BR24.

According to the study, the average property price, which was €9,500 per square metre in spring, has now dropped to €9,450. 

In some Bavarian cities, the trend reversal is not yet as noticeable. In Nuremberg, for example, property prices are still rising but at a slower rate than previously seen. The price of a property in spring was on average €3,630 per square metre, and is now €3,710, according to the study. 

Experts say it shows how the situation is developing. 

“The state capital of Munich, where the first price declines for residential real estate were identified in the fall of 2022 for the first time in a long time, could serve as a seismograph for future developments in Bavaria’s large and medium-sized cities,” said Kippes. 

Homes in Erfurt, Thuringia.

Homes in Erfurt, Thuringia. Photo: picture alliance/dpa | Martin Schutt

Interest increases for buyers

At first glance, this development could seem tempting for those looking to buy property in Germany.

But Kippes points out that buyers are hardly benefitting from the decreasing prices – because interest rates have risen. 

“A few months ago, you could get an interest rate of 0.8 percent,” said Kippes. “If we take a purchase price of €500,000, let’s assume that €150,000 is equity and a €350,000 loan is needed; two percent repayment, 10 years fixed interest rate. Then, you would have paid €817, but today it would cost you €1,473.”

The IVD study said that the historically low-interest rate level of the past years in Germany “made it possible to compensate, at least partially, for the massive increases in purchase prices in many places”.

READ ALSO: The rules foreigners need to know when buying property in Germany 

“Now that the relief provided by low-interest rates has largely disappeared, but at the same time purchase prices have remained at dizzying heights, owner-occupiers in particular, who traditionally often finance with a high proportion of borrowed capital, are increasingly dropping out as buyers,” said the study. 

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