Nearly half of German residential investors earn no real return

A recent study produced by the prestigious DIW Deutsche Institut für Wirtschaftsförderung in Berlin received wide coverage in the German media recently when it suggested that about half of all residential landlords in Germany break even at best and frequently make actual losses, when inflation is taken into account, on their residential investments.

The highly insightful DIW study concludes that 25% of residential investments in Germany produce a net yield of 0%. In 8.5% of case the gross yield is actually negative. Put into figures, of the approximately seven million house and apartment owners who have invested for return, nearly three million earn nothing. About 21% earn between zero and 2%, before inflation. Only the 18% or so who earn a yield of 5% and upwards can be said to be making any real return.

Wertgrund Immobilien AG, which commissioned the study from the DIW, says that landlords frequently completely underestimate the ongoing costs associated with maintenance, costs associated with tenant moves, and involuntary vacancy. Wertgrund chairman Thomas Meyer commented, “Assuming an annual inflation rate of 2%, then the actual real yields on more than 50% of residential real estate investments come in below that, with the bulk of those being apartment units bought to let.

Over the last ten years German investors in residential property have seen yields of 2%-3% on average, not high compared to other forms of investment. “Compared to yields which in the past were achievable on fairly safe investment, yields on private residential property have been relatively low, in particular given the risk profile, cluster risk and high maintenance costs of property. The DIW researcher find that factors such as age, education, federal state, sex or type of household have much less to do with rental income and actual returns than the level of one’s personal income and the type of property invested in. Those with higher incomes who invest exclusively in multi-family houses and apartment buildings instead of in single-family homes or individual apartments get much better returns.

The DIW researchers availed for their study of their own proprietary “Socio-economic panels” from the years 2002, 2007 and 2012, which enabled them to assess a total real estate volume of €4.83 trillion for 2012. Of this, €3.75 trillion was owner-occupied, with €1.08bn attributed to buy-to-let and other forms of investment. The average property value assessed was €155,000 while the richest 10% of property owners had properties averagely valued at €264,000.