Buying Investment Property In Germany

Whilst other European markets have expanded massively over the last decade, and are now stable or declining, much of the German market has been in the doldrums mainly due to the unique effect of re-unification.
According to the OECD, Germany now has the most undervalued property market in the world making it ideal for investors as low owner-occupation rates ensure high rental demand in the right areas.

Additionally, letting agreements average around 7 years and tenants will often install their own kitchens and flooring, and even decorate before they leave. The investor’s primary work therefore is to have effective property management and care for the fabric of the building. But like any market, it is the identification of a property in the right location, in the right condition and at the right price that will ensure the investment is successful.

Stuart and Nikki from London are two investors that made the choice to look at Germany as a place to buy. Seasoned investors in the UK, they were keen to explore new markets now that the outlook in the UK is less favourable.

“We initially looked around Berlin as we had read many reports in the UK press about the opportunities that existed. The prices looked too good to be true for a European capital but research proved that it would be difficult to purchase property with a high enough yield to produce the required cash-flow.” Commented Stuart.

“We started working with ProVenture in the Leipzig area and managed to find a beautiful building, just 400m from the town centre, which we bought for just over 300k Euros. The building has 10 apartments which are now fully let with a net yield of around 12%. We have been so happy with the investment thus far and the process of purchasing was made surprisingly easy by working with ProVenture”.

What makes investing in Germany viable?

The German property market has largely been in the doldrums for the past decade, a period when the rest of the world saw unprecedented growth. The OECD cite Germany as the most undervalued property market in the world.

The German residential sector has a high proportion of tenants (60% in the West to 90% in the East). The rental market is well regulated, transparent in terms of returns and very sophisticated.

The German economy is the biggest in Europe and Germay is still the biggest exporter of products in the world. GDP levels are amongst the highest in the world, whilst property prices are some of the lowest. Finally, the legal system is very robust in Germany, making your investment safe.

Whilst returns can be interesting in many cities across Germany, the cities in the former east with the strongest economies stand out as having the most potential for a range of investors. With finance rates around 2.9-3.5%, net yields of 7% or higher ensure a positive cash flow from day 1. Net yields of above 10% are not uncommon in certain areas, with good tenant demand in place.