For investment decisions, the liquidity of a given market is the decisive criterion. Before investing into an asset, you need to clarify whether you will manage to find a sufficient number of leads later on. This does not just go for traders but also for any investor with a long-term horizon. As far as the apartment building segment is concerned, Berlin has by far the most liquid market.
According to a survey by Engel & Völkers, the transaction volume in Berlin's residential and commercial property segment is estimated to come to 2.3 billion in 2009. For the sake of comparison: The estimated transaction volumes in Munich and Hamburg equal 480 million each, and 560 million each in Frankfurt am Main and Düsseldorf. There are various reasons to explain the discrepancy. One of them is that Berlin has the lowest homeownership rate of all major European cities making the rental market much larger than in any other city.
Unlike Hamburg's market for apartment buildings, the Berlin market is open even and especially to nonlocals. While buyers not native to Hamburg have a hard time acquiring attractive real estate in the city because the properties are traded among the locals, the situation in Berlin is quite different. Supply in the capital is substantially larger than the demand generated by local buyers alone. The number of high-net-worth private investors is larger in cities such as Munich, Hamburg and Stuttgart than it is in Berlin. At the same time, the supply in available apartment buildings is much smaller. As a result, sales are largely transacted with resident investors.
In Berlin, by contrast, buyers and sellers are widely dispersed. Aside from local players, there are numerous buyers and sellers from West Germany and even international investors in the market. Many buyers from Southern Germany acquired real estate in Berlin during the 1990s in order to take advantage of the special depreciation allowance granted by the Assisted Area Act. Then there is the large number of investors running in the tens of thousands who committed themselves to subsidised council housing in Berlin.
Many of these investors are looking for an exit today. The ten-year no-trading period has expired, and many of the investments are non-performing due to a lack of follow-up financing. So the seller side is dominated by a host of formerly tax-oriented investors, many of which hail from Southern Germany. Moreover, a number of foreign investors invested in Berlin in recent years, hailing from the United Kingdom, Ireland, Denmark, Sweden, Austria and Israel, among other places. In addition to investors with a long-term orientation, their ranks included many investors with a short- or mediumterm investment horizon, and these are bound to make their way over to the seller side in the coming years.
To be sure, there are attractive investment opportunities in a city like Hanover, too. Yet the investment volume turned over in Hanover's apartment building segment equals less than ten percent of the Berlin market. A foreign investor looking for a property in Germany is more likely to buy in Berlin than in Hanover. After all, Berlin has by far the most liquid residential investment market not just in Germany but perhaps even in Europe.
Source: Berlin Residential Investment Market; Dr. Rainer Zitelmann