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Investors receive particularly high returns on investment in commercial property and buy-to-let options in key urban locations, while Germany’s social and economic status make it the economic giant it is today. With the reliability of a well established and safe investment climate behind its property industry, investor confidence in Germany is riding high.
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Germany has been playing it safe for decades, who knew that a global financial crisis would make years of boring stability the hottest ticket in town – one of them anyway.
The German economy is the biggest, strongest and most stable economy in Europe, not because the rest of Europe is falling apart, but because of years of low spending and strong exports. In fact, while Germany is the 4th largest economy in the world (by nominal GDP) it is the third largest export nation in the world according to the CIA – arguably the second given that the EU is currently holding that spot and isn't a country, not to mention the fact that without German exports the EU would be nowhere near that high.
Looking at German economic growth recently won't leave you all hot and bothered, although growth has been constant and steady, it has rarely been scintillating in the last few years. What you will notice however is that growth was much stronger in the 2 years following the crash, than it was before the it and you can't say that about many places. Looking at growth between 2000 and 2008 you have 3.1% in 2000, 1.1% in 01, flat in 02, -0.4% in 03, 1.2% in 04, 0.7% in 05, 3.7% and 3.3% in 06 and 07 and 1.1% in 08. In 2009 the financial crisis brought a 5.1% contraction in German GDP, but in 2010 it bounced back with growth of 4.2% far stronger than the years running up to the crash, and this was followed by a 3% growth in 2011. However, growth is thought to have slowed last year to just under 1%, but if one knows Germany this will mark a return to the slow steady, but ever-continuous growth.
It is that reliable if-boring growth record that has seen German property some of the most popular in the world since the financial crisis, along with the strong fundamentals of the property market itself of course.
More people rent their homes in Germany than in most of the developed world. Indeed 60-70 per cent of Berliners rent their homes and other cities are not much better. Because of this the government regulates rent growth in the market, allowing rents to grow only when wages are growing. This indirectly regulates price growth in the market. The rental demand has always made buy to let investment look appealing, but sluggish price and rent growth was a turn-off. No one knew then that by keeping Germany from experiencing the hyper-inflation seen in so many countries in the run up to and which caused the crash, the regulation was actually a good thing. No boom meant no bust and the German property market carried on impervious to the economic shock.
So, when investors began getting back out there they realised that, not only had German prices not fallen but the market had continued the steady if far-from scintillating growth that comes from constant rental demand in a strong and stable economy. As Germany became known as a safe haven for investment and the economy started to grow strongly in 2010, the return of wage growth meant that rents could go up and so too prices began to grow in response to rising rents. This made German buy to let even more appealing, because it offered safety, stability and for the first time real growth opportunities. It is ironic that the boom people had been predicting in the German property market for almost 3 decades should come after the worst global financial crash mankind has ever seen.
Even into last year, despite the economic slowdown, residential property in Germany remained extremely popular with investors, with institutional investors buying not by the building-load, but in packages of entire buildings appetite was so high. Rents have grown faster than prices and this has pushed up buy to let yields, which increase even further at the discounted rates of such bulk purchases.