Property Investment in Berlin
by Uwe Falkenberg
Economic developments
A strong development in the global economy and a robust growth in the EU are indicative of the current macro environment and are the driving forces behind a boom situation that after years of downturn finally has reached Germany's economy. For the third quarter of 2007 the German economy experienced its strongest upturn since the re-unification boom in the early 90's and for the first time in years the growth was led by consumer spending. Despite the "sub prime" irritations in the US financial markets the OECD Outlook for economic growth in Germany for 2007 is 2.6% and for 2008 2.0%.
German Property Market
The German Property Market is Europe's biggest with record transactions in 2006. Figures for the first half of 2007 show no decrease in volume. Except for the mega portfolio deals the German market has seen in that period the focus points were Berlin followed by Dresden and Leipzig.
Germany is still currently one of the few major economies where an investor can expect a positive cash flow from property investments. Despite the high demand prices are still low in comparison to international markets, even the Eastern European ones. The potential for property appreciation is strong.
The rent level is still low and trailing behind the economic development. So buying now offers an upside on the cash flow as a good management can capitalise on the catch-up to follow.
Why now?
Global property players have been in the market for over two years now and have tied a great deal of their equity. This is where the chance lies for new arrivals in the market. They are not absorbing new opportunities coming to the market. Good investment opportunities require speedy decisions and ready available equity. These factors create a competitive advantage in the market. Equity is the easy part for a new arrival in the market but speedy decisions require market information and knowledge if they are not to turn out as risky or maybe totally wrong.
There is only one solution to this situation - local partners, already present in the market with access to off market properties and know-how in the execution of their purchase, development and operation.
The best strategy
The right strategy for the way in and the way out again is vital to any successful investment.
Properties need to be selected to match the investment period planned. If upgrading is planned it will take longer to get the full benefit of increased rents with increased property value than just adjusting the rent on a previously poorly managed property.
The exit strategy has to be clear and the business plan developed accordingly. Whether the sale as condominiums or as a block of rented apartments, market knowledge of the respective markets is vital for the right purchase decision and the business plan. With the right partners at the starting point a successful and profitable exit after 3 to 7 years, depending on the strategy, is easily achievable.
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