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Real Estate Headlines
Real Estate Headlines
REFIRE knows from long experience that newspaper headlines highlighting the latest acquisition by foreign private equity real estate investors in Germany of residential housing invariably elicit a volley of responses from social housing associations, tenant alliances, and assorted left-wing politicians denouncing the commodification of housing and the squeezing of even more rent from hard-pressed, innocent citizens.
It's probably true that the presence of foreign investors in a market like the Berlin residential market cannot be overlooked, given the attractiveness of Germany's capital city for capital from all over. Several estimates suggest that foreigners were responsible for a third of residential purchases in the city last year. Of course, by many other people's standards the price level in Berlin is still relatively modest, despite notable price increases over the past couple of years, and the city has become a magnet for capital for a number of other economic reasons. In the past couple of years it has not been uncommon to hear of Spanish, Italian and Greek investors flooding into the capital with suitcases full of cash to invest in Berlin housing, although anecdotal evidence recently suggests this wave may have receded over the past quarter.
It might come as a surprise therefore to learn how relatively insignificant foreign buyers are on the German residential market. A new study published by the influential Institut der deutschen Wirtschaft (IW) in Cologne demonstrates that in 2011, the share of real estate purchases and sales in Germany by foreigners was less than 1% of all turnover. In that year, foreigners bought German property valued at €685 million, while in the same period selling land and buildings worth €816 million.
This is all a far cry from the boom years of 2005 to 2008 when waves of private equity money flooded into German real estate attracted by low interest rates and the expectation of imminently rising housing prices. The IW researchers estimate that the value of property in Germany owned by foreigners totalled about €24 billion 2011 - still a modest figure compared to the amount of property held abroad by German citizens, which totalled €147 billion at the end of 2011. In that year, the Germans destination of preference was the UK (accounting for €744 million), followed by the Netherlands at €446 million.
According to Professor Michael Voigtlaender of the IW, whose contributions we have featured a number of times in issues of REFIRE in the past, the likelihood that foreigners will invest as much in Germany as Germans do abroad in the foreseeable future is very slight. His study concludes that the high level of ancillary and transaction charges due on German acquisitions, including the new higher level of acquisition tax now applicable in most German Länder, is likely to prevent a repetition of the run on German property by foreigners that was experienced in the last mad rush of 2006-2007, just before the onset of the financial crisis.