News: Germany: Rising from the doldrums?

Tue, 11 Sep 07

More and more property investors are starting to believe that the German property market is about to wake up due to attractive low prices, an apparently strong rental market and the country’s recent economic growth, but are they right?...

Analysts specialising in the German market at Property Secrets comment on the current market dynamics.

The German residential property market has caused a lot of excitement in the last few months due to an improving economy and low prices compared to other Western European markets.

German GDP grew by 2.7% in 2006, the highest growth since 2000, unemployment is falling and the number of jobs is rising. The government will cut business taxes in 2008 to encourage enterprise and to make the country more attractive for investors.

Economy ‘on the path to recovery’

For many individual investors these are signals to pile into the market. But there are already signs that institutional investors, who have been in the market since the late 1990s, are starting to exit.

The economy still needs serious reforms to affect the property market and this will take time. Due to the character of the market, it will pick up slowly and steadily. It is unlikely that we will see a rapid increase in prices caused by a booming economy, as there have been in the UK and Spain. This is why, investors need to be patient and wait before they invest in Germany.

However, household numbers are expected to increase by 910,000 by 2020, according to The Federal Office for Construction and Regional Development. This is because of the rising number of young people pursuing an independent lifestyle, an increasing divorce rate and a growing number of elderly people living alone.

One thing that does lie in favour of property investment is a very strong rental market; The German market has developed differently to other Western European markets. Its housing policies have favoured rental markets for many years and, as a direct result, the rental market is strong, stable and regulated.

Low ownership rates

This means that most Germans prefer to rent, rather than own a house, and that is why the country has the lowest home ownership rates in Europe, this is positive news for property investors.

We should not be surprised by such a low home ownership figure if we take into account that rents are lower than mortgage repayments and the tenancy laws protect tenants and regulate rents.

However, this is still not a strong enough reason to buy property in Germany right now.

At Property Secrets we classify the German property market as one moving from the short term phase to the value phase.  That means that the market is mature and established with strong rentals, but does not show significant capital growth, hence, not an ideal time to invest.

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