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Germany: What do surging housing costs mean for investors?

4 MIN READFebruary 13, 2020

In Germany, affordable housing continues to be an incredibly important issue for the millions of German tenants being hit with rent hikes year on year. Chancellor Angela Merkel’s government has set out measures to try to speed up the construction of these affordable homes and limit rent rises, but are they only making the situation worse?

For decades, the country enjoyed relatively cheap housing across its regions (compared to the rest of Europe). But inward investments, ultra-low interest rates and a failure by developers to keep up with urbanisation have pushed up house prices and rents in cities to their breaking point. German house prices have risen by 60% on average since 2010 (Fitch Ratings), while in Berlin property has almost doubled in the last 10 years (immowelt). Local comparative rents are expected to increase further in 2020, by around 2.5-3.5% (thelocal). 

This is becoming a significant social and political issue, with reports showing Germans having between 5-10% less take home cash compared to two decades ago due to housing prices. Tens of thousands of people have marched through Berlin’s streets to protest. As tenants struggle to keep up with price increases, Merkel’s left-leaning coalition have vowed to make tackling the shortage of affordable housing a priority. 

The government aims to build 1.5 million new flats by 2021, while a further 1.5 million Berlin BTR apartments will have their rents lowered/ frozen for 5 years. However, Savills reported earlier this month that “there is little to suggest that the measures taken to date are having the required effect. [The government’s policies] are essentially addressing the symptoms of the housing shortage but not its causes...some measures, such as the family housing grant, are even stimulating demand rather than supply and are only increasing housing costs. On the whole, current housing policy is having the effect of prolonging the cycle.”

But what does this mean for investors? Of course, the situation would suggest further investments in the German apartment market are much needed. However the increasing volume of regulatory measures is causing increases in cost and complexity - and at a time when institutional investors around the world are increasing their exposure to BTR markets. According to Savills, many investors active in the German market are likely to adjust to the regulatory conditions and expand their holdings to attain the clear and stable income achievable, despite or even because of the growing intensity of regulation. 22% of respondents in the GRI Chairmen’s Predictions described Germany and the surrounding areas as their predicted top investment region for the next 12 months.

Having said that, the situation in Berlin looks rather different. Some have suggested that the long-term investment capital will buckle under the introduction of a city-wide rent cap. The supply shortage in the city will only intensify further as investors may favour other German cities, which may lead investment companies to act as homebuilders themselves. This of course is only a realistic consideration for very large companies, and even then would take several years to implement. 

 

Join other investors, developers and operators active in German real estate at Deutsche GRI, taking place on 12-13 May in Frankfurt.

Article by Matt Harris
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