In Berlin, square meter prices and rents have massively risen since 2010.
To anticipate: Our Berlin market report shows that the price increases slowed down in the last quarter of 2013. The double-digit growth rates from 2012 have been realized only partially and only in certain districts in 2013. Moreover, the Berlin Senate has created new regulations and tightened existing laws for the protection of tenants.
Overall, this has led to an increasing gap between rental incomes on the one hand and investment costs on the other hand. And this does not happen by accident: 10 years protection against dismissal for own use, pre-emption rights of tenants in case of partition of buildings and the environment protection (Milieuschutz) are powerful tools in the toolbox of the Berlin Senate. For the real estate market in Berlin that’s good because it shows that the German capital is able to establish its own rules and that the housing market in Berlin does not automatically follow London, Paris or Munich.
But who are the main actors on the housing market in Berlin? In 2013, the real estate market in the German capital showed a differentiated and segmented picture.
Let´s have a look at the foreign buyers first. There are buyers from European countries, from the US, China, Russia and Japan and South Africa, just to mention a few of the nationalities acting on the Berlin real estate market. The Europeans are turning to Berlin for several reasons. Weak economies in their home countries and the resulting pressure to place their money in a safe market, for example. Different to the past, high yields are not a priority for those buyers. But ongoing price increases are expected and, of course, welcome. And even with increasing prices for Berlin properties, Berlin still offers cheap to reasonable prices for them, compared to many other major cities worldwide. And a lower yield in exchange for a sustainable and safe investment is a good deal.
The luxury segment client kept on investing with implicitness in the upper price segment in 2013. The location is her/his first priority and high end quality is a matter of course. Square meter prices up to 10,000 Euro are taken as normal and reasonable. Less afflicted to the traditional Berlin old stucco building, this economically powerful clientele prefers bigger properties and cares much more about private safeness and comfort.
The local market is a surprisingly young market. A few years ago, when square meter prices and rents were low and bank interests high, only a minority thought of buying an apartment. In the last years, the situation has changed. But still local buyers are driven by a different motivation compared with internationals. A local buyer acquires an apartment following a much more traditional background. For these clients the purchase of a property is often a decision for a life time. In 2012 and 2013, our agency accompanied a strongly increasing number of young families buying their own homes. In most cases the purchase price is at least partially financed. In Berlin, the proportion of those buyers financing their own home completely on credit is extremely low. At the same time, the “cheap” money and still very reasonable real estate prices lead to a catch-up movement in the German capital. The share of homeowners, in 1993 at 10 percent, increased to more than 15 percent in 2013.
At the same time, an inversion is going on. A few years ago, families moved into the suburbs. A lot of green, supposedly better schools and a quieter lifestyle seemed to replace urban live. Today, the situation has turned the other way. The whole world seems to be flowing into cities. Families and elderly people move back into the city or stay there, rather than moving to the country side. And they will probably do so in the future. The near theater and cinema, museum and opera, kindergarden, kita and workplace: Urban living quality is highly demanded. And among all cities, Berlin ranks on top. In consequence this influx leads to a high requirement of living room, new developments, projects and structural changes. Decisions are not taken easily and the property is examined with particular intensity by those clients. The expectations of these customers upon developer projects are very demanding. In addition, a high degree of customization options is expected.
In parallel, there appeared a new species of buyers: The local Berlin investor. After decades of waiting, many Berliners are now starting to invest themselves. A gigantic market of rented apartments is in a constant motion, with unlimited opportunities to invest in the domestic housing market. The strategy followed by those buyers is usually long-term. Interests in savings below one percent and yields with an average of three to five percent make investing in Berlin real estate very attractive. Taken into account the annual increase in value, even small and very small investments are a useful adjunct to the pension plan.
We see that there are many stakeholders contributing to the boom on the real estate market in Berlin. Fuelled by the Berlin-hype, rents in Berlin increase and clash against the tenants in the capital. Not to forget that Berlin still remains a city with a relatively low income per capita and household.
Nevertheless, the policy in Berlin has failed for decades to stimulate the housing construction. Instead, subsidies were reduced or discontinued. And despite the clear signs of an incipient, strong national and international influx in the 90s, a general housing policy has been neglected.
Only when the hype was already in full swing, the Berlin Senate began to realize what was going on. In January 2014, the Senate Department for Urban Development and Environment presented at the annual press conference the guidelines "Housing 2025". In seven points, the Senate Resort summarizes the future guidelines together. And for the first time, the Senate states officially that Berlin is suffering a state of emergency.