2022-07-07 | Q & A with Andreas Müller about the German Property Market
Q & A with real estate expert Andreas Müller
MD of Black Label Properties.
Has the end of the price spiral been reached in Berlin?
The prices of real estate are rising and rising but Deutsche Bank’s Germany Monitor has now predicted an end to the spiral for this decade, perhaps even as early as 2024.
The economy, and thus also the real estate industry, is in turbulent times. Have you experienced anything comparable in your career?
Fortunately, not a war. But who would have thought that we would experience such a situation in Europe again? On the other hand, I have already experienced fluctuations in the real estate market a few times, they are part of the normal cycle. Experience shows that a cycle in this industry always takes around ten years. If this is the case now, we are at the end of a decade of rising prices.
So the end of the price spiral is reached in the foreseeable future?
Well, at least the property prices for homes and apartments in Germany have risen almost constantly for a good ten years. I doubt it will go up so rapidly in the future. However, this does not mean an end to the real estate boom. There will always be fluctuations in the market. This also means that there will be a plus at the end of each cycle.
In Berlin, prices for residential real estate have not risen quite as much as before in the past year. In 2020 it was still ten percent, in 2021 we were at 6.7 percent.
Berlin is on its way to becoming a world metropolis, and probably more than four million people will soon live here. This means that economic power and housing demand will also continue to rise. I don’t see an end to growth here until the end of the decade at the earliest.
What influence does the rent brake or considerations for a new rent cap have?
Government regulation of rent has a significant impact on the homeownership rate. Various factors contribute to this: Owners often sell their apartment because renting is simply no longer worthwhile. On the other hand, people with a low rent illegally sublet their apartments, creating a so-called grey market. However, we were also able to observe that rents, for example for new apartments that are not subject to legal regulations, have nevertheless risen sharply. Seen in the masses, however, rents have not risen for a long time, rent brake or not.
What role does interest rate development play?
Oh yes, interest rate development plays a very central role. This is no secret, but it cannot be emphasized often enough. The lower the interest rates, the higher loans I can take out and vice versa. When interest rates rise, as they do now, it is therefore all the more important to conclude long-term contracts. Interest rates have a considerable influence on the purchase prices. If interest rates continue to rise so quickly from 0.9 percent in December 2021 to 2.2 percent in April 2022, many buyers will say goodbye to the market. That’s why we advise customers not to wait any longer, but to invest or finance right now.
I inherited 200,000 euros – what to do? Wait or invest?
Invest right away. We have +7% inflation at about 2% interest. This means that everyone who borrows money “earns” 5% per year for nothing. Of course, this is very exaggerated, but it should make it clear that many people who can invest but do not do so make a wrong decision. Because the money in the bank loses purchasing power, the longer you wait, the less value there is for it. And especially in combination with the still relatively low interest rates, this is a very good opportunity to invest in property.
Is there a perfect time to buy or sell?
It never exists, and I would advise everyone to be guided by their own life situation. Buyers who do not want to use an object themselves should always keep an eye on the relationship between the purchase price and the achievable annual rent. For many investors, it is simply not worthwhile if the purchase price exceeds thirty times the annual rent. But those who are well advised are definitely at an advantage. A sale also needs to be well considered: If you do not want to or do not have to sell for personal reasons, you should first think carefully about how to protect the proceeds from inflation. It is just unfavourable to sell your investment before the end of ten years, or if the fixed interest rate runs for a long time. This is where taxes or compensation to the bank are due.
Apart from Berlin, which city can you recommend for investment?
I can especially recommend Leipzig. This is a young, growing city with a lot of potential, which is why we have now opened another location there. Leipzig has a fantastic infrastructure, uncomplicated construction projects and even more potential than in the old West. This also benefits the surrounding villages such as Weißenfeld or Merseburg. I don’t know of any other city in Germany with such positive prospects.