Berlin’s property boom continues

Photo credit: Mika Meskanen

Say the word "eurozone" to someone and they automatically think of empty houses and unemployment. Indeed, even in Germany, unemployment has risen for the sixth month in a row as the single currency crisis starts to impact exports. But for the country's housing market it is another story entirely: Berlin is booming. Demand is up. Prices are up. Even the number of squatters is falling.

The capital city's influx of capital is, of course, the direct result of uncertainty in Europe. Faced with a turbulent financial climate, investors are flocking to Germany's economic safe haven: after all, the number of jobless may be creeping up, but 6.8 per cent unemployment still pales in comparison to Spain's 20+ per cent.

"All in all, the German labour market is clearly losing momentum," an ING economist told Business Week. "There is no need to panic. However, indications are increasing that light-hearted times are coming to an end."

And yet investors still cannot get enough. Spending on German real estate is set to reach 7.5 billion  euros in 2012, according to CBRE, compared to 5.5 billion euros last year. Berlin house prices, reminds the Financial Post, are around one-third less than European capitals such as Paris - and one-quarter of London's soaring values.

As a result, prices have started to jump. Apartment values have increased by 17 per cent in the last year alone, according to ImmobilienScout 24.

Berlin is a very rental-driven city, with most of its residents consisting of tenants. Returns for investors now run at 5 per cent per annum - not as strong as, say, London, but the city's population continues to grow. Indeed, wealthy investors from Spain, Italy and Greece are moving their assets from their own countries to Berlin to protect their savings. New luxury developments are particularly popular.

For some, this is a cause of concern.

"You have a serious danger of a housing bubble developing in Berlin," billionaire George Soros told a panel discussion last month. "It has a lot to do with the flight of capital and negative real interest rates."

Indeed, the surge of international investment even prompted locals to protest earlier this year, chanting "Don't make your percent off our rent."

For others, the boom just keeps going.