Upsurge of investment into Germany by Russian investors

A new study we stumbled across recently suggests that increasing number of Russians are now investing in German real estate. This probably comes as no surprise, but inevitably, quantitative figures have always been hard to come by. Any studies are likely to be highly approximate, REFIRE believes.

The Moscow-based international broker Tranio reports that over 1,600 searches for German commercial property valued at more than €1m per asset were registered on its website in 2017. This compares to 1,067 similar searches in 2016 – a rise of 50% - and 696 such searches in 2015 – a rise of 230%, according to Tranio's managing partner, George Kachmazov.

Russian investors as a rule prefer to remain anonymous, preferring to keep a low profile and avoiding publicising becoming the owner of German property. This has partly to do with the four-year ongoing war in the Ukraine, which has aroused the ire of the authorities in Brussels. "Russian investors who own German commercial property are afraid that potential local tenants would be scared off renting space", says the report, suggesting that many buyers keep their national identity hidden. "They install German management companies to represent their interests to users of office and retail space, as well as tenants in multi-family houses."

The reputation of German real estate as a safe haven has risen compared to other countries, particularly since the Brexit vote. Speaking to German newspaper "Die Welt" recently, Frank Korablin, responsible for research at the Berlin office of German broker Tranio, said "German real estate is now considered internationally a particularly safe investment category, thanks to the robust German economy. Russian investors now view German real estate as an ideal vehicle for investing their capital long-term."

An additional factor cited in the study is the changed climate on Cyprus since the banking crisis on the island in 2012-13 which spooked depositors, and has led many to be looking around for valid alternatives since. The fallout from the Cyprus banking shake-up showed that it was not so much oligarchs who were using the island's banking facilities to hide money as middle class and upper middle class depositors.

According to the Tranio report, many of these same wealthy Russians are favouring German commercial and residential investments in the €1m to €7m range. The Moscow business daily Vedomosti recently cited the study by consultants PriceWaterhouseCoopers which placed Berlin, Munich in the top 5 most attractive real estate investment destinations in Europe.

The Tranio report says Russian investors are most active in Berlin, with 63% of the surveyed brokers putting the city top in interest from Russia. Housing in Berlin remains about 20% cheaper than the average of Germany's seven largest cities. Munich follows with 35%, attracting investors by high purchasing power and low unemployment among the population.

An average deal from a Russian client is estimated at €1-3m in the survey. Understandably, however, it might pay to have Russian-speaking staff on the payroll to attract the bigger deals: 45% of Russian-speaking agents in Germany said €3-7m bids were as frequent, versus only 27% by German brokers.

At the top end of the market, though, it's clear that local brokers still control the most lucrative market segments, with 27% of German brokers surveyed believing Russians invest in luxury segments of €7-20m, while only 10% of Russian brokers see deals in this category.

As to where the money is coming from, 70% of the Tranio respondents said Russians transfer funds for deals from Russia, as well as from Switzerland (33%), and UK (27%). Investors that are working in English and work in the more pricey segments are more likely to keep their money in the UK, US, or Dubai.