REFIRE pays attention when Einar Skjerven pronounces on the Berlin residential market. We've known the canny Norwegian investor for many years, and in terms of longevity, both REFIRE and Skjerven started our German operations at more or less the same time, over 16 years ago. He knows the Berlin market like the back of his hand, and has graduated from his early days as a property buyer/trader to being a co-investor and fund manager across a wide spectrum of asset classes, privatisation models and proptechs.
While still bullish on Berlin, Skjerven's views on the market underline the current shift underway among investors. As he sees it, there will be more transactions now expected in Berlin's housing market, as the expiry of loans and the turn in a ten-year cycle bring more deals to the market, while long-term oriented equity-rich investors take advantage of fresh availability, and the low level of new housing supply ensures against any sudden collapse.
According to Skjerven, rising refinancing costs will lead to a growing number of real estate sales, with the terms of many earlier real estate loans coming to an end over the coming months, after ten years in which prices have only moved upwards. "Interest rates, which have risen significantly since March, as well as the fact that many owners do not have to pay tax on sales profits after a holding period of ten years, are currently triggering many sales decisions," says Skjerven.
Figures released by the Berlin Property Valuation Committee show that, in 2013, sales of residential and commercial buildings reached a record high with 948 sales, as did the number of condominiums traded in packages (2,454). In the same year, the second-highest value since 2009 was reached in this property class with 842 apartment buildings traded. Only in the year 2011 were more apartment buildings sold, at 994.
The market is also feeling the side- and after-effects of the rent cap (Mietendeckel), the expropriation/nationalisation threat and referendum, and current plans for a rent moratorium or to cap housing costs based on income, all currently being debated by the Berlin Senate.
This is taking its toll, says Skjerven. "The various political interventions by Berlin's state politicians in the housing market have shaken investor confidence, at least in part," he says. "Some portfolio holders will probably turn their backs on Berlin in the coming months."
Still, given the low number of planning permits issued, along with the low level of new housing construction, the safety factor in holding Berlin residential is still very high. Landlords will still be in a good position to rent our their Berlin apartments on good terms for at least the next ten years, believes Skjerven.
This provides new perspectives for equity-rich long-term investors, and for international firms who kept their powder dry in the corona years of 2020 and 2021. "In the general economic and political environment, prices have come under some pressure and the number of potential buyers has noticeably reduced. This strengthens the purchasing position of pension funds and investment companies that want to secure a positive cash flow and a sustainable return even without low financing costs. At the same time, the dollar, which is currently strong compared to the euro, is increasingly bringing American institutional investors back to Berlin."
Of most attraction to these opportunity-oriented investors, believes Skjerven, will be houses that have already been subdivided or properties with expansion or post-densification potential. "The demand for owner-occupied housing remains high," says Skjerven. "Those who create additional supply here can earn good money even under the current conditions and offer apartment buyers real added value."
