Opportunities in global listed property: Berlin residential property

Thirty years on from the fall of the Berlin wall, the city is finally reclaiming its place in the global property market.

Following reunification, the city underwent a frenzied burst of construction through the late nineties, due in no small part to the absurdly generous tax concessions provided for new builds under the Fördergebietsgesetz program, which was designed as a stimulus package for the former East Germany. As these incentives expired in 1998 the city entered a prolonged housing construction slump from which it has taken more than fifteen years to recover.

Berlin’s population, on the other hand, has been booming for the past decade, becoming a magnet, particularly for Europe’s young tech talent. The city is projected to grow by almost 15 per cent by 2035 to reach a population of four million, approaching its pre-World War Two peak¹. The Berlin economy is expanding at a three per cent clip, a remarkable feat in a mature European economy². The city is also attracting high-salaried professionals at a dramatic rate, with the proportion of households earning more than €3,200 per month almost doubling in the decade to 2017³.
 

Despite this growth, apartment space in Berlin’s city centre still sells for less than half the price of apartment space in Munich, and lags Paris and London by an even greater margin⁴.

But even as the city looks to reclaim its place among Europe’s top tier cities, housing construction in the capital has struggled to keep pace. In 2016 only 13,700 units were completed out of the 25,100 building permits that were issued⁵, and it is only in the past five years that completions have returned to 1991 levels. This demand-driven housing boom is in stark contrast to the tax incentive-driven post-reunification bubble and looks set to sustain itself in the short to medium-term. Annually, Berlin will need to construct another 20,000 new apartments per year until at least 2021⁶. This kind of prolonged imbalance between supply and demand is the key to sustainable investment in property.

In addition to the potential for further capital growth, Berlin is set to offer consistent returns on investment in rental property over the coming years. Rents rose sharply in 2016 and 2017⁷, and there’s good potential for rental growth as the market reality of high population growth and constrained supply overcomes the post-socialist expectation of low rents in the city.

Investors can have further confidence in the fact that the average German tenancy lasts for 11 years⁸, giving a stable stream of returns throughout the economic cycle.
Investors can gain access stocks exposed to the Berlin housing market through the AMP Capital Global Property Securities Fund, which is an active ETF trading on the Australian Stock Exchange.

¹ Institut der deutschen Wirtschaft Köln, Regional Population Development in Germany to 2035, September 2017
² Scope, Land of Berlin Rating Report, July 2018
³ Knight Frank, Berlin Insight, 2019.
⁴ Deutsche Bank, The German housing market in 2018, January 2018
⁵ Deutsche Bank, The German housing market in 2018, January 2018
⁶ Knight Frank, Berlin Insight, 2019.
⁷ Knight Frank, Berlin Insight, 2019.
⁸ Institute for Public Policy Research, Lessons from Germany: Tenant power in the rental market, 2017
 

This article has been prepared by AMP Capital Investors Ltd (ABN 59 001 777 591, AFSL 232497) (“AMP Capital”). BetaShares Capital Ltd (ACN 139 566 868, AFSL 341181 ("BetaShares") is the responsible entity and the issuer of units in the AMP CAPITAL GLOBAL PROPERTY SECURITIES FUND (UNHEDGED) (MANAGED FUND), (each a “Fund”). AMP Capital is the investment manager of the Funds and has been appointed by the responsible entity to provide investment management and associated services in respect of the Funds. Investors should consider the Product Disclosure Statement (PDS) for the relevant Fund before making any decision regarding the Fund. The PDS contains important information about investing in each Fund and it is important investors read the PDS before making a decision about whether to acquire, continue to hold or dispose of units in the Funds. Past performance is not a reliable indicator of future performance. Neither BetaShares, AMP Capital, nor any other company in the AMP Group guarantees the repayment of capital or the performance of any product or any particular rate of return referred to in this information. This information has been prepared for the purpose of providing general information, without taking account of any particular investor’s objectives, financial situation or needs. Investors should, before making any investment decisions, consider the appropriateness of this information, and seek professional advice, having regard to their objectives, financial situation and needs.