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Why Berlin?
Value for money.
Current market prices for property in Berlin are the lowest of any major city in Europe. Property prices typically ranges from 1000 to 2500 Euro/M2 with a median price of approximately 1400 Euro/M2. Compare this with most typical European cites where prices range from 3000 to 5000 Euro/M2.
Established wide range of investment property.
There is a long term history of renting in Germany and in Berlin this is even more noticeable. Typical figures quoted for owner occupiers in Berlin range from 10% to 15% (compare this with approx 45% overall in Germany and over 70% in the UK and Ireland).
In other wards 85% to 90% of residents of Berlin rent their homes. With a property stock of between 1.8 and 2.0 million units the rental market in Berlin is approximately 1.6million units.
Providing tenants with good security of tenure and protection against rogue landlords has helped maintain this position. It is this very established security of tenure that has been the bedrock of a successful and mature private rental market and which investors can be equally thankful for.
Potential (The Rush for Yield).
The flow of money into the German market in recent years meant portfolio prices rose a little and yields fell, enabling many early entrants to exit at a profit. Pundits speculate that "Those days might have come to an end," and "now it's back to the fundamentals of asset portfolio management". This may be the position for large (20 MEuro) investors who trade in a narrow range of property stocks it is still possible to secure properties with net (cold) rents between 7 and 9% with still further "Yield compression". However "caveat empor" the real yield here may be dramatically effected by the "Black Hole" of refurbishment that higher yielding older properties suffer from. Buyers need to be aware of the high variation in costs on a building by building basis. Identifying the best potential requires a good local knowledge and direct access to the best properties and effective management of all costs. Agents tend to gloss over refurbishment costs by implying that almost "all costs" of running a property are carried by the tenant while in reality any major costs are carried by the owner.
Transaction costs in Germany, and in Berlin in particular, are very high. These can be of an order of 14%, half of which can be attributed to agents, who to be honest do minimal work in relation to their fees. With such a high transactional cost investment for quick gains is not really appropriate for the Berlin market.
A medium to long term (typically 10 years) strategy is more appropriate where good consistent rental yields, efficient management of repair/refurbishment costs and a slow but steady uplift in property values should provide a better overall return than any major property market.
Overall Berlin offers a reliable property investment in comparison to anywhere else in Europe at the moment.