Many German B-cities offering high risk-reward returns - Study

Bonn, Wolfsburg and Osnabrück are Germany’s "hidden champions" for investors looking for residential investment that offers the best risk-return ratios on existing assets, according to independent property consultant Dr. Lübke & Kelber.

The Frankfurt-based Dr. Lübke & Kelber has just published its annual Risk-Reward Ranking List 2016, which scrutinises 110 German urban locations, including the Top 7 cities. The ranking uses proprietary analytical tools to rank German cities on their attractiveness for attainable return on equity in the light of an associated locational risk factor. Managing Director Ulrich Jacke says "Right now Bonn is the city offering investors the optimal risk-return ratio for existing properties in Germany.”

In a parallel ranking for new-build residential buildings, the most attractive conditions for investments are to be found in Wolfsburg, Bremen and Mannheim, say the Dr. Lübke & Kelber researchers. The new-build category was added to the study this year for the first time.

Munich and Frankfurt are the cities with the lowest risk premium, based on factors such as demographics, the socio-economic environment, housing including rental and sales prices and inherent demand. Dr. Lübke and Kelber allocate 0.2% to Munich and 0.5% to Frankfurt. In places three and five are Ingolstadt (0.7%) and Regensburg (0.7%), two so-called B-cities while places four and six are the A-cities Stuttgart (0.6%) and Hamburg {0.7%). "It's not surprising that among the top ten least risky cities only four of them are from the Big 7. What this confirms is that there are many locations outside the top cities in Germany where comparable or even better yield potential exists."

This year's study also integrates for the first time the Mietpreisbremse, or rental brake, which will affect future residential rent increases. It is most prevalent in the biggest cities where pressure on housing is at its highest and the regulations have been most quickly implemented.

The study makes the assumption that the investor has 40% equity capital and pays a fixed interest rate of 1.15% on borrowings for ten years. For existing properties a yield of more than 4% should be achievable in nearly all the 110 cities, says Jacke. The figure is closer to 3% for new-build housing.

You can get the full report from www.drluebkekelber.de