Germany is a beautiful country in Western Europe. It is a place which practices one of the most democratic government models in the world. Unlike other European countries such as England, France or Sweden that have only a single main city, Germany has a handful of medium-sized cities that make cities such as London or Paris run for their money.
One of the hottest markets in Germany is the real estate market. From Frankfurt to Leipzig, real estate means business in the country. There have been many development projects throughout Germany due to increase in migration to the European country.
The thing about the German real estate market is that there just aren’t enough projects that meet the investment demand and many of the local professional developers are quite picky when it comes to choosing who to work with. It is due to this reason that the real estate market hasn’t achieved its full capacity.
Apartment Constructions are Common
Most of the projects in the country are actually apartment constructions which require from anywhere between €3M to €50M to be completed and last a good 18 to 36 months. Germans prefer to live in apartments, especially in big cities such as Berlin, Frankfurt or Hamburg. It is due to this reason that apartments have become a commonplace in the country.
Developers Do Not Invest Their Own Funds
Now, the developers prefer not to invest their own funds in the projects but rather consider financing the projects from two sources. These sources include bank loans and investor capital. This has also slowed down the construction boom in Germany.
Investments Are Secure
Germany is a country where it makes sense to invest in as it is most protected from unfavorable market conditions. There are three advantages of investing in the German market.
- Smooth administrative procedures
- Abundance of professionals that are well-educated
- One of the most hard-working workforce
These factors help ensure that even if the prices fall and there are any other misfortunes, the country would still be one of the least affected by any events and would be able to recover easily.
Development Projects Provide Higher Yields
Investing in development projects normally provides investors with a yield rate of 10 to 15 percent per annum unlike, the rental business which only offers a yield rate that doesn’t even exceed 5 percent per annum. However, it is important to keep in mind that greater yields bring higher risks with them. This is why these risks need to be minimized. It is unlikely for the prices to fall as the market in Germany has to plummet 20 percent in order for the scenario to be a reality.
The major disadvantage of real estate as compared to other investment options such as securities is that it offers lower liquidity. However, the disadvantage has been partly offset due to the ongoing developmental projects. It is beneficial to invest in the German market if you have the spare capital to invest for such a term and believe that the German market would remain stable on the given horizon.
Construction or Renovation
There are different types of developments in the country and one of the safest options is the renovation of an existing property. Vacant properties unencumbered by any long-term rental agreements are found by the developer and renovated while also being divided into individual apartments if needed. Then, the building would be sold as a whole or either in packages depending on the situation.
New Development
Another option which investors could consider is a new development which offers two scenarios, there would be land plots that have and do not have construction permits. For the first scenario, which includes the construction permit, it would be much simpler as compared to the second scenario. However, land plots for this type of development tend to be more expensive and lower project yields would be expected.
For the second scenario in which there wouldn’t be a construction permit, there would be a higher risk but it would also be more profitable.
Loan Interest Rates to Increase
One of the situations due to which the property market is in a favorable situation is due to the low borrowing costs. The average mortgage rate is low and the deposit interest rates show signs of remaining low. This is why banks are eager to finance property purchase and construction.
The fact is that the low rates are attributed to the European Central Bank’s easing program. Under the program, the Bank has been buying public bonds from different European banks and injecting the money into different countries.
B-Locations and Metropolitan Suburbs are Most Promising
When it comes to investing in the German real estate market, low-risk projects in locations which have a growing population, high buying capacity and strong economy tend to be the best. The Big Seven cities have traditionally been the most promising which include Stuttgart, Munich, Hamburg, Frankfurt, Dusseldorf, Cologne and Berlin. However, it seems that these markets have become overheated and the prices are just too high.
For example, in Munich, the cost of good building land tends to be from €3,000 per square meter while other Bavarian cities only have land costs of €1,000. It is due to this reason that investing in developments of the suburbs of large cities seem to be more profitable. The economy in the East is weak as compared to the richer West.
Scarce and Overprices Real Estate
Germany’s largest cities have scarce and overpriced real estate options which deter investors and they turn towards Lisbon and even London, despite Brexit. However, the main attraction is the stable German market. Investors in search for property prospects have started to look elsewhere such as Lisbon, Portugal which has also been ranked in the Emerging Trends in Real Estate Europe 2019. Despite the rising prices, Berlin still came in second, along with Hamburg, Frankfurt and Munich in the top ten. If you are interested in investing in a secure and stable real estate market like Germany then you need to get in touch with on immobilienpassion.de as they will help you find the best property investment options.