Residential building in Berlin.
Is the peak on the market for apartment buildings in Berlin approaching?
The market opinion is not clear. On the one hand, purchase prices in the capital continued to rise in 2017 and 2018. Slower, but with about 15 percent more than just marginal. With a cash turnover of almost 10.5 billion euros, the number of transactions continued to decline from 2016 to 2017. The figures can be obtained from the expert committee in Berlin. Only just over 4,230 purchases of developed properties were registered with the GAA (Gutachterausschuss Berlin) for 2017, about 300 transactions less than in 2016, further shrinking the market for rental properties in Berlin. This trend is likely to continue in 2018 (III quarter, August).
The recent price increases should not only give cause for optimism, despite the good mood among owners willing to sell. In fact, there are a number of arguments in favour of not postponing the sale of a rental/interest house in Berlin too far into the future.Some observers expect the peak to be reached. The average purchase price of € 1,860/m² for rented residential properties in Berlin and € 1,925/m² for residential and commercial properties was only around 16% higher than in the previous year. This sounds like a slight drop from 20 (2015) to 19 (2016) and 16 percent (2017) compared to the previous year's increases. No figures for the current 2018 are yet available. Whether and, if so, to what extent the increase will slow down in 2018 is being discussed among market participants.
A new definition of locations.
The ongoing differentiation of purchase prices by location, which we have already observed in the previous years, continues to be valid. Whether a location is good or bad in the broadest sense no longer depends only on the classic location quality, but also on whether a house is in a conservation area according to § 172 BauGB, i.e. in milieu protection, or not. Overall, political pressure continues to increase in the form of conservation statutes and conversion ordinance. Where there is milieu protection, the classic investor models (such as purchase - division - sale) no longer work.
Increasing political pressure
In addition, buyers of apartment buildings in protected milieu areas are confronted with agreements that restrict the decision-making freedom with regard to the development of apartment buildings and also have an impact on pricing.
The political goal of communalising as much housing stock as possible through purchases in the course of the application of pre-emptive rights is also reflected in the sales prices. Home sellers in protected areas should not go on sale without our expert support. (Click here for more information on this topic).
Capital pressure persists.
At the same time, capital pressure from investors remains high with interest rates remaining low. For example, from our sales in 2018, including some transactions in protected areas, we have observed that German and international investors are undergoing a fundamental change of strategy. They adapt to the market situation and political events and switch to medium to long-term strategies of at least 10 years. On the one hand, this leaves more room for negotiation as, in the long term, prices per square metre are expected to rise more sharply in any case. At the same time, a buy-and-hold strategy also entails increased capital requirements.
Sideways perhaps, down No.
In summary, we do not expect the prices per square metre for interest/rental properties in Berlin to fall. Sellers should, however, expect a further slowdown in growth. The fall in returns for investors due to market regulations is being taken into account in the price negotiations. Even if short-term exit strategies are predominantly a thing of the past, there must be an attractive interest rate for investors between purchase and subsequent sale.
Guthmann & Guthmann Immobilien GmbH has been intensively involved in the brokerage of residential and commercial buildings in Berlin since 2006. Our company specialises in the sale of properties in protected areas. We regularly achieve the highest prices. We look forward to your call.