For several years now, Manchester has been our top investment destination, one that ticks all the boxes in our G.O.L.D.M.I.N.E Strategy © & S.A.F.E.T.Y.1ST Criteria ©, and which has proven to be rewarding given the tremendous growth of the market.
But we’ve also been busy looking around and, after 7 years of searching for a robust property market that meets our stringent criteria, we are thrilled to have finally found our next property GOLDMINE. Read on to learn more…
Perhaps the most singularly powerful event in modern history was the collapse of the Berlin Wall in November 1989. Beyond just bringing families back together and marking an end to the Cold War, it propelled Berlin into the global economic sphere. Germany now ranks as Europe’s biggest economic powerhouse and the 4th largest economy in the world.
Berlin is also one of the world’s most culturally vibrant cities with a diverse economy supported by key future-proof industries such as manufacturing, transport, healthcare, technology and finance. Think Tesla, Siemens, Mercedes-Benz, Volkswagen, Bayer, BMW, Merck, Adidas, SAP…
Rated as PWC’s top 3 investment destinations for real estate, Berlin has held a special appeal for international investors. Here are the Top 5 Reasons Why Berlin is the next property goldmine.
#1 High Demand and Massive Undersupply
At less than 2%, the rental vacancy rate in Berlin is one of the tightest in the world because available homes for rent are snapped up quickly. Like the rest of Germany, Berlin is battling a housing undersupply. Historically low construction activity, and recent rising construction costs and bottlenecks in the supply chain among others, has constricted housing availability. According to data released in 2019, Berlin needs at least 194,000 additional apartments by 2030 to keep up with population growth and housing demand. And Berlin’s population is growing so quickly—by the end of 2022, at least 141,000 more people were already living in Berlin compared to 5 years ago. The population, which now stands at approximately 3.8 million is expected to balloon to 4 million by 2040. Hence, the shortfall is expected to persist beyond 2030, even as population numbers snowball.
#2 Super Low Interest Rates & Zero Capital Gains Tax
Compared to many other countries, Berlin enjoys historically low mortgage interest rates even despite the increase in recent times. The German system allows you to have a fixed long-term low mortgage rates. The stability and reliability of German lending practices is also a draw; its stringent criteria for mortgage approvals ensures that borrowers are able to repay their loans, thus maintaining the overall health of the real estate market. Landlords can also deduct costs incurred in generating income from rent (e.g. mortgage interest, repairs and maintenance) from any income received from renting the property, which can reduce the tax burden significant;y. Not only that, investors are also fully exempted from capital gains tax upon resale of their property after 10 years of ownership! The 10 year period gives your property a chance to gain in value so it is a win-win.
#3 Accessible House Prices With Room for Growth
Berlin has not experienced a property price explosion like many other European cities such as London or Paris, where property prices cost about 2 times more. The recent price correction of 10%-15% has increased accessibility for many investors and offers more scope for growth, especially with Berlin being such a young city since the collapse of the wall. There is so much potential here.
#4 City of Renters & Strong Rental Growth
Renting is a part of Berlin’s DNA. Even as far back as 2016, only 15% of dwellings were owner occupied with the rest being rented or cooperatively owned. Vacancy rates then were already so tight at 2%-3%. Fast forward to today, 85% of people still rent in Berlin. The persistent shortage of available rental housing has turned Berlin into a landlord city, with rental rates spiralling up to 36% in the past 5 years.
#5 The Urban Myth of Rent Control
The mietendeckel, which froze rents for 90% of Berlin’s flats at their June 2019 level for 5 years, has been one of the most controversial pieces of legislation in recent years. If you’re panicking about this, you can relax now. Just a year after the 2020 mietendeckel (5-year rent freeze) was enforced, it was declared illegal by Germany’s highest court and a reversal was imposed.
Meanwhile, the 2015 mietpreisbremse (rent cap/ brake), which limits the uncontrolled increase of rents is still in force, but it does not apply to rental premises built or renovated after Oct 2014. Landlords who purchase rental properties built after the threshold date with high ESG standards will be able to command higher rental rates.
Conclusion: The Potential of Berlin
As a young city, Berlin has potential for growth in the long term. It is one of 2023’s Top 5 destinations in the world for cross border investments and also ranked as one of the Top 10 best countries in the world this year!
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By Vivienne Pal