Locations that outperform

Areas which going through urbanisation and/or development

Properties with stronger capital growth are usually situated in districts undergoing change in social and tenancy/ownership trends. Typically, students, artists and young people form a new subculture and change the ‚vibe‘ of a suburb. New tenants and young families then move into the area to enjoy its benefits, so average incomes rise. The demand for rental and purchase properties increases and the resultant shortage drives prices up.

Rises in value can also be triggered by project developments, infrastructure improvements such as public transport or the relocation of blue-chip companies.

Over recent years these phenomena have been realised in several Berlin districts, as well as in areas of Hamburg, Cologne, Leipzig, Dresden and other German cities.

Where are the best areas to invest?

Areas having already undergone this cycle of urbanisation, such as some parts of Kreuzberg and Prenzlauer Berg, are less attractive in terms of price, even accounting for continued increases in coming years. A peripheral location or a property needing renovation in a more affluent district and good location is often preferable, as well as those in districts currently undergoing urbanisation.

Investing in low-priced property in Berlin’s wider surrounds should generally be avoided, as many of these areas are structurally weak. Population decline due to demographic factors must be taken into consideration in any property investment – however attractive it may seem.

Better purchases are to be made in mid-sized towns with large universities such as Leipzig, those which profit from the location of vehicle manufacturing or cities with high demand for rental space.

The incidental expenses of buying property vary by state and city, sometimes halving additional expenses in comparison against Berlin. This can result in 1-2% per annum additional return on equity, depending on the loan-to-value ratio.

Of course, Berlin provides its bonus as the capital of Germany, and higher long-term appreciation is anticipated. In the current market, we believe it is preferable to deploy a buy and- hold strategy over buy-and-sell.