The Housing Market in Berlin - Recent developments, legal framework and investment opportunities
By Tilo Drebes, AIOS GmbH
Since the Fall of the Berlin Wall in 1989, the city of Berlin and its housing market have seen quite a volatile development. With a population of around 3.4 million that year, expectations were that this would increase to more than 4 million as a result of the German reunification and the respective economic impetus. Consequently, real estate prices between 1989 and ca. 1995 soared.
However, as it became clear that the effects of the reunification would need some time to be digested and that the Berlin labour market would not catch up with Western Germany in a short period of time, real estate prices went down and almost stagnated between the middle of the 1990s and 2010.
Since then, prices have risen again. The main reasons for this are cheap money as a result of the ECB’s monetary policy, inflow of money from countries from southern Europe or Russia, the general recovery of the German economy and the increased attractiveness of Berlin in general.
Projections of the city’s population in the year 2030 vary – according to an estimate by the Senate of Berlin dating from 2011, the number of inhabitants will increase by 7.2% or 250,000 (or 13,000 per year) to 3.8 million. A more recent study from 2015 assesses the increase to be 340,000 (or 22,667 per year) additional inhabitants. However, it should be noted that as recently as 2012 and 2013 around 90,000 additional people moved to Berlin.
Consequently, demand has been much higher than in recent years, driving real estate prices up. Prices for new apartments in the city vary between EUR 3,600-5,700 per square metre, an increase of 57.8% compared to 2007 while even prices of used apartments increased by 79.0% in the same period. Additional purchase costs can add up to 15% including real estate transfer tax (6.0%), the broker’s commission (7.14% gross) as well as the costs of the land registry and the notary (1.5%-2.0%).
Rents for used apartments have increased by 46.6% since 2007. According to the last rent survey (Mietspiegel) for Berlin from September 2014, they lie between EUR 4.54 and 10.88 per square metre, depending on the location and the equipment.
The housing legislation in Berlin is rather tenant-friendly. As a landlord, you are not allowed to increase the rent by more than 15% in three years (Kappungsgrenze). Moreover, rental agreements concluded after 31 May 2015 may only contain a rent increase of not more than 10% compared to the rent according to the survey (Mietpreisbremse). For example, if the comparable rent according to the survey is EUR 6.00 per square metre, the maximum rent may not exceed EUR 6.60 per square metre. This rule does not apply to new apartments.
In particular, the ‘Mietpreisbremse’ seems to be successful – according to an analysis, from May to June 2015 rents in Berlin went down by 3.1%, while in other German cities without this rule they remained stable.
Therefore, investors are facing high prices with limitations on potential rent increases. However, it should be noted that there still seems to be potential for both prices and rents in the future – prices in other German cities like Hamburg, Frankfurt or Munich are much higher, let alone the prices and rents in metropolises such as London or Paris.
Tilo DrebesAIOS GmbH, Berlin, Hamburg, Munich, Germany
T: +49 30 28498-214
AIOS provides Audit and Audit-related services as well as Tax, IT and Real Estate consultancy services. It has around 40 employees.
Tilo Drebes works as a Partner in the Berlin Office. His focus is on Audit as well as Technical and Financial Due Diligence Services for Real Estate investors.
Published: Winter 2017 l Photo: spuno - Fotolia.com