It’s not a secret anymore – the housing market is booming like never before. Housing, especially in bigger cities and metropolises, has become rare. The willingness towards mobility, to move in another city for a better-paid job, is only one reason for this development. A steady growing shortage of skilled workers is another. The trend for an urban lifestyle in cities with flair and multicultural offers might be a third reason. And not at least are interest rates, that have reached their lowest level, one of the essential reasons.
Real estate investment – more than ever a question of location
The question that many investors are asked at the moment is that of the financing, respectively if a rental property can be self-financed (almost) on its own. For rental properties, an “old principle” still applies: location! Only then follows the condition, equipment and rentability. These are the criteria that can lead to a good and steady income return. When real estate basically pays off even without a tax saving, then this is a positive side-effect, but not necessarily a requirement.
Advisable are economically strong cities, metropolitan regions as well as university cities, in which the housing shortage leads to rising prices e.g. Berlin, Hamburg or Munich. Whereas economically underdeveloped areas are not advisable as an investment. Even though purchase prices appear to be reasonable, the risk of an empty flat is extremely high. Already one or two missing monthly rents could prove to be an income return killer.
Are we dealing with an investment bubble?
The fact that apartments and houses as rental properties are in demand more than ever, could lead to the assumption of a real estate bubble. Judging by the study of the Cologne Institute for Economic Research, despite the low-interest rates, neither expansive bank lending nor high movement of the market regarding sales or resale rate is observable. This has also been confirmed by Professor Jens-Ulrich Kießling, President of the Real Estate Association Germany – IVD. “The price increases are a component of a long overdue catching-up process of the German housing markets”, says Professor Kießling. An interesting article at the website of the IVD from February 2015 also indicates that low-interest rates and increasing incomes compensate rising prices. Likewise, real estate in East Berlin is currently most affordable.
Is German residential real estate eligible as capital investment?
In unison with both above-mentioned institutes adds also the survey “German residential real estate as capital investment” from the International Real Estate Business School, University Regensburg (IREBS) that has been compiled by Professor Dr. Tobias Just on behalf of the Deutsche Bank. Therefore the prices for investors and real estate buyers should remain affordable, even if increasing prices are furthermore expected. According to Professor Just demographic, macroeconomic as well as financial reasons led the housing and apartment prices to increase annually by about three percent in real terms, already at the beginning of 2008. Reasons for that are a significantly increased employment rate, low-interest rates on credit and also the categorical trend for urbanisation and strong immigration into Germany. The study concludes that, despite the high price level, the German residential real estate remains affordable since the increasing real estate prices are supported by higher incomes and low-interest rates.
