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Berlin: a sanctuary for property investors spooked by Brexit

February 27th 2019

By City Wire

The state of a country’s property market is a bellwether of its economic health and political stability. Unsurprising, then, that Brexit uncertainty has ground London’s market to a halt.

As a real estate investor with a portfolio stretching across Europe and Asia, I am often asked where London’s erstwhile investors should place their bets. My money is on Berlin. Since I first invested there, its real estate has grown from strength to strength. Current fears of a property bubble about to burst remain unfounded.

Real estate magnates are renowned for treading with care: the property market is an unpredictable and volatile place. Sadly though, we have come to rely on poor British property prospects. The market has reached a trough. Rising inflation, interest rates and lack of confidence in the market have driven UK value into the ground.

The situation has been aided and abetted by indecision at Westminster and, down the road from the Commons, central London prices have dropped by 19.4% from their 2014 peak. As value plummets, investors have been unwilling to take risks, and almost half of 68,000 partly-built homes have yet to find a buyer. A market that was far from rosy before Brexit now looks hostile to investment.

Berlin’s prospects, on the other hand, stand in stark contrast to London’s. Real estate is booming in the German capital and has been for some time. In the first half of 2018, residential property transaction volumes surged by 19% to €8.8 billion (US$10 billion or £7.6 billion), in comparison with the same period in 2017.

Encouraged by rising prices, real estate buyers like myself have followed artists, tech start-ups and young bohemians to the German capital, charmed by the prospect of strong and stable property investments. Asian, American and Middle Eastern buyers looking for European opportunities have begun to eschew London and Paris’ luxury property for the growing German market

Amid all the popularity however, trepidation has begun to creep in. When Warren Buffett joined Berlin’s market a year ago, many fear-mongers claimed that he had arrived too late: the bubble was about to burst. They cited an over-saturated market and the fact that Berlin avoided a 2008 slump as signs of caution.

Almost a year later, there is no bust in sight. Yes, prices climbed by a dramatic 20.5% in 2017, but they have done so since 2004. Meanwhile, these rises have not been accompanied by instability, mortgage interest rates remain well below 2% and, crucially, there has been no spike in lending to correspond with the spending boom.

As a result, many consider price rises not as spikes, but corrections. That is the opinion of Rubina Real Estate, a luxury property agent based in Berlin. They claim that ‘compared to other cities like London or Paris, real estate remains an attractive investment’.

Rubina is not alone. The backing of London-listed property investment companies is further proof that confidence in Berlin real estate remains high. Big names like Sirius Real Estate (SRE) and Summit Germany (SMTG), which has renamed itself Summit Properties as it diversifies its business, are continuing to buy.

Phoenix Spree (PSDL), meanwhile, recently announced portfolio value growth of 6% over 2018, driven by Berlin’s strong rental market. I am sure that their annual results – set to be published at the end of April – will offer welcome reassurance to funds and private investors alike.

Beyond attractive prices, the capital’s cultural and economic health offer other reasons to be cheerful. Berlin is a haven for tech entrepreneurs like me. In 2017, more money was pushed into start-ups in Berlin than anywhere else in Europe, and Google, Deutsche Bank and countless others have established substantial bases there.

The city’s diversifying population also brings new business and networking opportunities. These factors combine to encourage further growth and investment. Germany and Berlin’s economic growth may have been downgraded recently – along with the rest of the Eurozone’s – but 1.0% is expected for 2019 and figures are set to expand as investors divert from Britain.

I was drawn to Berlin’s forward-looking nature and attractive prices, and now own real estate in Charlottenburg, Steglitz, Prenzlaerberg, Spandau and upmarket Mitte. Even after 10% annualised rises, Berlin’s property strikes me as relatively cheap. The health of its real estate is proof of the benefits of stability, the safety of the eurozone and a housing market growing in line with demand. In a sector so renowned for its volatility, Britain’s real estate investors could do much worse than enter a market that continues to grow. I, for one, have not been scared off.