Assetz® News - Astute investors hit German property market

Astute investors hit German property market

5th June 2006 |

With the German economy showing continued signs of recovery, property investors are reportedly snapping up properties in anticipation of a potential boom in the years to come.

Already, employment levels are showing distinct signs of improvement in Germany.

The Labour Officer revealed last week that the seasonally adjusted jobless rate in the country fell from 11.3 per cent to 11 per cent in April, while most analysts had expected it to remain static.

"The development on the labour market in May was pleasing," Labour Office chief Frank-Juergen Weise said.

"Unemployment declined surprisingly strongly, demand for workers rose once again and job cuts continued to slow," he added.

All of this is of course pleasing for the state of the economy in Germany but it is also likely to impact upon the state of the country's property market. Property investment in Germany has not been particularly rewarding for some time, but a report in the Observer indicates that this is beginning to change.

In comparison to its near neighbours, property prices in Germany were still disappointing last year and the European Housing Review 2006 showed that it was the only country surveyed where house prices actually dropped.

Inevitably, many astute investors have merely used this as an opportunity to begin or expand property portfolios in the country.

"About two-and-a-half years ago really clever people started to buy. I call this the pre-stage, where foreign investors from the UK, Holland and the US sent runners into the German market," said Ilya Spitalnik of German Property Investors.

Mr Spitalnik told the Observer that he can see a parallel between the current German market and the British property market in the early 1990s, with private investors renovating properties and selling them on. The ingenuity of the current investors in Germany, he claims, is that they are buying several apartments before renting them out. By opting for this buy-to-let strategy they are able to bring in a decent income with a view to selling the properties after house prices inevitably rise again in the future.

The report admits that talk of a German property boom is of course premature, but suggests that the advent of real estate investment trusts (REITs) could prove extremely beneficial to the market as a whole.

JPMorgan Asset Management has also been predicting advances in the German economy today, highlighting the huge financial potential that could be realised.

"The average German company now has room to spend. Furthermore, one can imagine the pent-up demand among consumers: with the German household savings ratio standing at 10.7 per cent of disposable income (one of the highest levels globally), and with consumer indebtedness being lower than in many developed economies, domestic spending could accelerate as savings are unlocked," said Ajay Gambhir, manager of the JPMorgan Europe Dynamic fund.

Berlin is likely to be at the epicentre of growth in the German property market and investors are already taking a keen interest in property in the city. While it may be a while before house prices soar, investors are certainly optimistic that this will indeed happen.

And with the World Cup kicking off next week, there is no doubt that the spotlight is going to be on Germany now for some time.