News pdate on Berlin’s Rental ousing Market · You need to be very careful with such a...

„Berlin-News“

August 2016

1Berlin Residential Investment Market – Issue 4 / August 2016

Berlin Residential Investment MarketNews Update on Berlin’s Rental Housing Market

Proposals to tighten Germany’s rent control laws

In mid-June, Berlin launched an initiative to tighten Germa-

ny’s rent control legislation, the so-called Mietpreisbremse,

and submitted its proposals to Germany’s Federal Council,

the Bundesrat. Berlin’s claim: According to the city state’s

mayor, Michael Muller (SPD), rent control in its current form

isn’t working as planned and therefore needs to be reformed.

Although tenants already have the right to take legal acti-

on against landlords who breach rent control limits, very few

have so far actually exercised this right. Germany’s Tenants’

Union has also complained that the Mietpreisbremse has not

fulfilled its intended purpose, pointing to the fact that actual

rental prices in many localities are well above legally permit-

ted levels, as specified by regional rent indexes and local

comparative rents. When re-letting apartments, very few

landlords seem to be abiding by the “local comparable rent

plus 10%” formula permitted under rent control regulations.

The Tenants’ Union has called for stricter sanctions against

landlords who ignore the rules. As a result, those who sup-

port the reform efforts are also calling for amendments to

Germany’s commercial (“white collar”) criminal law.

More information for tenants on previous rental prices

If Berlin’s proposals are approved, landlords will have to

explain to tenants, at the beginning of a new tenancy, exactly

how their rent has been determined. These disclosures will

include details of the previous tenant’s rent, which should

allow the new tenant to quickly determine whether any

rent increase is within the 10% limit allowed by rent control

legislation. In order to increase the accuracy of regional rent

indexes, Berlin has also suggested that rental price data

from the last six years be included in indexes, rather than

just the last four years, as is currently the case. In addition,

reformers want landlords to be restricted to upping rents by a

maximum of 20% in any four-year period. Current legislation

allows rents to be increased by 20% over a three-year period.

The Federal Ministry of Justice has welcomed the proposals,

viewing them as a good starting point for further discussions.

The draft second amendment to Germany’s tenancy law has

been submitted to the Federal Council, but no vote has yet

been held.

Foto: Shutterstock.com

Photo: fotolia

Read the accompanying commentary on page 5.


with Thomas Zabel, CEO of Zabel Property AG

Interview

“Berlin will become a real alternative to London”

Mr Zabel, lots of people were surprised by the British

electorate’s decision to leave the European Union in

their June “Brexit” referendum. Now we are all asking

ourselves, “What’s next?” – and what impact Brexit will

have on Germany’s real estate markets.

The Brexit decision is unfortunate, but, as an optimist,

I mostly see opportunities for Germany’s real estate mar-

kets. Overall, I anticipate that demand from international

investors for property in Germany will increase. After all,

following the UK’s Brexit decision, Germany’s reputation as

a “safe haven” can only become stronger. This applies to

real estate in our major metropolitan centres above all.

How will the international middle-class react to Brexit?

Investors from the USA, Asia and the Middle East were

deeply shaken by the referendum’s result. Within just a few

days the rating agencies, including Standard & Poor’s, had

downgraded their economic forecasts for Great Britain,

adding to the general air of uncertainty and negativity. As

a result, I expect that international investors – especially

those belonging to the middle-class – will step up their in-

vestments in Germany.

Sterling has fallen dramatically in the wake of the Brexit

vote, which means that, for international investors, pro-

perty in Britain has become more affordable. Shouldn’t

the trend run in the opposite direction?

You need to be very careful with such a hypothesis: Overall

economic forecasts for Great Britain are negative. In par-

ticular, Great Britain’s property markets slowed to a crawl

in the run up to the referendum. New mortgage approvals

were lower in April 2016 than at any point during the pre-

vious eleven months. A host of major investors, including

M&G, Standard Life and Aviva, have announced that they

will no longer be investing in British real estate. This just

goes to show that the long-term risks outweigh any short-

term opportunities – irrespective of price drops.

How many jobs do you think will move from London to

continental Europe, and what effect will this have on de-

mand for real estate?

It is highly likely that we will see more than 10,000 jobs

move from London to the European mainland. London is

one of the world’s most important banking centres, so this

brain drain is probably going to have the biggest impact

on investment bankers, lawyers and business consultants.

Berlin is well-placed to be among the European cities to

profit from any job movement. The relocation of so many

jobs will, of course, affect the office market, but it is also

going to lead to a surge in demand for residential property.

Will the premium segment be affected?

The premium segment has so far represented about one

percent of the entire German residential market, although

growth has been dynamic. Berlin will become a real al-

ternative to London – partly because the city’s residential

property is relatively affordable in international compari-

son. We have had first-hand experience of the international

middle-classes’ surging interest in condominium’s in the

€500,000 to €700,000 price bracket in Berlin over the last

18 months. It is certainly no coincidence that demand pi-

cked up so close to the British vote. We are close to all of

our clients and, in the weeks since the referendum, we’ve

heard from quite a few of them that their decisions to invest

in Germany are directly linked to the Brexit decision.

3

by Dr. Rainer Zitelmann

Column

Berlin Residential Investment Market – Issue 4 / August 2016

In recent newsletters I have

explained just how I became

a seller, rather than a buyer,

in today’s real estate market.

Prices for residential real estate

in Berlin keep on rising. There is

an ongoing shortage of housing

in the city, and demand is

surging. Even apartment buil-

dings with maintenance back-

logs are changing hands for

irrationally excessive prices.

Buyers are banking on rental increases in order to justify

the high price-to-rent ratios they are paying. And rents are

actually increasing, despite rent control legislation. Nevert-

heless, I advise caution. It is naive to believe that politicians

will stand by en masse and watch as rents climb and climb.

The Mietpreisbremse will be tightened and tightened until

it works. Any serious forecast for the future rental income

from an existing residential property simply has to reflect the

impact of rent control. Anything else is pie-in-the-sky and

self-deception.

Investors are increasingly interested in new-build apart-

ments. Over the last few years, price-to-rent ratios have risen

in this sector, too – but with nowhere near the same momen-

tum as in the existing housing segment. Not only have prices

for new-builds and existing apartments converged, in many

cases the price-to-rent-ratios being paid for existing apart-

ments are now actually higher. An investor recently asked

me, “Why should I pay 30-times the annual rental income for

an existing apartment building when I can buy a new-build at

a price-to-rent ratio of 25?” Of course, it’s often impossible

to make a direct comparison. Existing apartment buildings

tend to be in central districts, where it is exceedingly difficult

to buy anything new, whereas new-builds tend to be located

in more peripheral areas.

New-builds, however, have a number of significant advan-

tages. One such advantage is that they are excluded from

current rent control legislation. Then there are the modern

construction and energy-efficiency standards, both of which

speak in favour of new-builds. An investor who used to

invest solely in existing properties recently told me: “We have

increased our investment in new residential developments in

Berlin. We weighed the maintenance and rent control risks

we have with our existing properties against the risks and

costs of finding the first tenants for our new-builds.” And of

course, he added, you need to be sure that your initial rental

prices are sustainable when it’s time to re-let.

There is an added advantage for institutional investors. They

can buy more new-build apartments in a single transaction

than they can when buying existing buildings. But the supply

of new-build rental units is limited, as most developers

prefer to focus on the condominium market, which offers

them higher profit margins. At the same time, the market

for all of these expensive condominiums is finite. The fact

that premium condominiums are increasingly being sold to

international investors is a clear indication that the market

is approaching saturation point. Project developers would

be well advised to employ a dual-track approach in order

to minimise their risks, developing both condominiums and

rental units, which they can sell to investors in forward deals.

Are new-builds more attractive than existing properties?

We weighed the maintenance and

rent control risks with our existing

properties against the risks and

costs of finding the first tenants

for our new-builds.


Berlin Real Estate Roundtable

Berlin’s residential market – opportunities and risks for

portfolio investors and project developers

Be among the audience in Berlin as leading researchers

from bulwiengesa and empirica present their latest residen-

tial real estate market data and forecasts. Jurgen Michael

Schick will explore what this means for investors, where to

sell, and where it is still possible to buy. The impressive ros-

ter of speakers also includes key representatives from one

of Berlin’s biggest housing associations, one of the city’s

leading property developers and one of the most success-

ful condominium sales companies in Germany’s capital. The

event’s final speaker is Hans-Joachim Beck, the pre-eminent

Mietpreisbremse rent control legislation expert, who will exp-

lain the latest case law and developments in rent control and

rent index legislation. He will also provide practical advice

and tips for portfolio owners and property developers.

Request your detailed programme and additional information from:

[email protected]

The speakers:

November 17, 2016 in Berlin

Andreas Schulten

bulwiengesa AG

Strategic investment and development analysis for

Berlin: Rents and prices, opportunities and risks

Jürgen Michael Schick

MRICS, President Immobilienverband IVD / owner

MICHAEL SCHICK IMMOBILIEN GmbH & Co. KG

Which real estate should investors sell in Berlin,

where are there still opportunities to buy?

Jörg Franzen

GESOBAU AG

What are the best approaches to developing housing

for broader sections of the Berlin population?

Prof. Dr. Harald Simons

empirica ag

Is Berlin’s residential investment market over-heated?

Helmut Kunze

Bonava Deutschland GmbH

Current challenges for developers in Berlin:

Acquiring land, dealing with officials, expected

market trends

Jacopo Mingazzini

Accentro Real Estate AG

Privatising existing apartments in Berlin: The

current challenges

Hans-Joachim Beck

Immobilienverband Deutschland IVD

Rent control and rent indexes: The latest egislative

and case law developments


Every day the Mietpreisbremse

Germany’s Mietpreis-

bremse rent control legis-

lation isn’t working and

needs to be reformed as

soon as possible – we

read and hear the same

thing so often that it has

become like a stuck re-

cord. But where do these

claims come from? Why

are people saying that the

amended Tenancy Act, introduced just over a year ago, is

completely ineffective? On what does Justice Minister Hei-

ko Maas base his arguments for yet another tightening of

rent control laws, proposals for which have been submit-

ted to Germany’s Federal Council, the Bundesrat?

Now, there are two studies, the first from IFSS – The Ins-

titute for Social Urban Development in Potsdam – the se-

cond from Regio-Kontext in Berlin, both commissioned by

Berlin’s Tenants’ Association, that purportedly show how

little success the Mietpreisbremse has had in the battle

against spiralling rental prices. These two studies are the

foundation upon which proponents of further tenancy law

reform have based their central arguments. Federal Justice

Minister Heiko Maas refers to them regularly in repeating

his demands for amendments to Germany’s rent controls.

So, it is clearly worth looking at these two studies in more

detail. Unfortunately, this is a rather sobering experience.

The dataset used by these two studies means that any con-

clusions they draw from their analysis are not meaningful.

Firstly, the studies focus exclusively on the housing market

in Berlin. This rightly begs the question, how can the situa-

tion in Berlin, a city that understandably plays a unique role

in Germany’s real estate markets, be used to draw con-

clusions for other parts of Germany, let alone the whole of

the country? Secondly – and this is even more significant

– both studies ignore one of the Mietpreisbremse’s major

exemptions. Although the rent control legislation explicitly

allows landlords to charge a new tenant the same rent that

had been paid by the previous tenant, neither IFSS or Re-

gio-Kontext have any data related to this.

The most alarming, if not most depressing fact is: The in-

stitutions themselves admit that there are shortcomings

with the data they have used for their analyses. Therefore,

it would only have been correct for politicians to treat these

studies as unrepresentative and meaningless – and it is a

sad reflection on today’s politicians that, despite numerous

warnings, they chose not to do so.

But let’s stop with the hand-wringing: The real problem is

that an utterly false approach has been adopted, and it is

this that needs to be overcome. It is clear that the Miet-

preisbremse is no long-term solution to higher rents. It

is entirely the wrong instrument to satisfy high levels of

housing demand. More than anything, we need a construc-

tive housing development policy if we really want to provi-

de sustained relief to our over-stretched housing markets.

We are condemned to going round and round in circles

until politicians finally look beyond short-term headlines

and election gains. I promise you this: If the screw of the

Mietpreisbremse is tightened again, it won’t be too long

before new studies appear to claim that Mietpreisbremse

2.0 isn’t working either and is in desperate need of reform.

by Jürgen Michael Schick, MRICS

Market trends


Opera stars, writers, historians, actors, composers or politici-

ans: Frohnau has always been a popular place to live among

intellectuals and artists. Frohnau’s rather hidden location –

where the north of Berlin shares a border with Brandenburg

– is a bit out of the way, but not completely off the beaten

path. The district’s regal villas and country homes possess

their own unique charm and almost make you forget you are

in a city of millions. Frohnau was first established in the early

twentieth century and therefore does not have a historical

village centre, which means there has been no compromise

with local architecture.

Garden city Frohnau

Originally planned as a garden city, Frohnau was gradually ex-

panded between 1908 and 1910. Located next to Frohnau’s

train station, which has long served as part of the northern

rail route, both Zeltinger Platz and Ludolfinger Platz were laid

out to serve as a starting point for streets and boulevards.

Numerous ponds and existing pools were used to collect rain

water. The 18 verdant ponds lend the locality a very natural

feeling, as do the gardens and parks of the villas and de-

tached homes along Frohnau’s landscaped streets. As the

entire locality is surrounded by forests and the northeastern

part of the settlement has not been developed as originally

planned, you can wander along the cobbled streets and pa-

ths, which were laid but not further developed.

At the very northern edge of Frohnau you can find the Inva-

lidensiedlung. The Invalidenhaus Berlin is one of the oldest

institution of its kind in the world, providing health and social

care for war veterans for more than 250 years. Founded by

Frederick the Great in 1748, it has been used, more-or-less

consistently, for military purposes. The three-winged Baro-

que building was later replaced by a more relaxed develop-

ment in the 1930s style. Due to its location on the border

of Berlin, the settlement was surrounded on three sides by

barbed wire after the Second World War and was only acces-

sible from the south. Today the way is clear and the veterans’

settlement charitable foundation provides affordable living

space for people with disabilities.

Johanneskirche and Casinoturm

With the addition of the Johanneskirche on Zeltinger Platz in

1936, Frohnau was given its own clinker brick church. The

Portrait of a district

Frohnau

Frohnau – famous district on the edge of Berlin

Photo: fotolia


church has a rectangular bell tower, reminiscent of a medie-

val fortified tower. The church hall is reached by climbing a

few steps at the rear of the tower, whereas descending a

few steps takes you to the community hall. Rooms for the

community hall and the rectory were built to the left and right

of the main building. Every year, during the Advent season,

the church hosts a Christmas market, which draws the local

community and many visitors from other parts of the city.

The Casinoturm, close to Frohnau’s train station, was erec-

ted as a landmark for the newly developed garden city from

1909-1910. Its 30-metre tower initially served as a water to-

wer for neighbouring office buildings and the railroad stati-

on grounds. The adjacent buildings used to house several

businesses and a restaurant, however construction defects

halted their operation. At the end of 2015, there were plans

for an investor to revitalise the site by building a chemist’s

shop and other properties.

Accessibility and cultural life

From its beginning, the green and water-rich area has always

been one of the preferred districts for the comfortably off. Ho-

wever, the area’s poor accessibility and its distance from cen-

tral Berlin were traditionally decisive disadvantages. You can

do your daily shopping either in Frohnau itself, or take a trip

to Hohen Neuendorf, Frohnau’s direct neighbour in Branden-

burg. If you’re looking for something special, you can make

your way into downtown Berlin. Besides reaching the city

via the B96 highway, public transportation and especially the

commuter train are essential. The S1 commuter line runs th-

rough Frohnau from north to south. To the north, the line ends

in Oranienburg. As you travel to the south, you can reach all

of the most important train stations in central Berlin, including

Gesundbrunnen, Friedrichstraße, Potsdamer Platz, Rathaus

Steglitz and finally Wannsee, at Berlin’s southwestern corner.

It takes about a half an hour by commuter train to reach the

city centre.

Source: Berlin Housing Market Report 2016 / Berlin Hyp

Housing market data for Frohnau and neighbouring locations

Housing costs, incl. Heating, in € per month

Household purchasing power in € per month

Housing cost ratio in percent

Fro

hnau

Her

msd

orf

Hei

ligen

see

Rei

nick

end

orf

Ber

lin

0

1000

2000

3000

4000

5000

0

5

10

15

20

25

30



There are several cultural sites worth visiting in the district its-

elf. A cultural mainstay, Centre Bagatelle has long had its roots

in Frohnau. This country house was commissioned by Herbert

Worch in 1925. It was damaged in the Second World War, be-

fore the district of Reinickendorf (including Frohnau) was first

given to its Soviet occupiers, then to the British, who finally

handed it over to the French. From 1946 “Villa Worch” was

an officers’ house for the Allied Forces. After German visitors

were allowed to visit after 1950, the house was reopened as a

cultural centre in 1956 and the Centre Bagatelle got its present

name. After the French left in 1993, the house’s future was

inititially uncertain, until a newly founded association raised

the money to purchase the building. In addition to operating

a French library, the centre also offers language courses, rea-

dings, film and lecture evenings and musical events.

Many private homes, moderate rents

Because of its history, Frohnau is an upscale residential area.

Frohnau and its many villas and country houses, built during

the garden city times, has become an expensive place to

live. Rental apartments are either housed in remodelled villas

or as units in scattered apartment buildings. Generally, the

rental market is small and limited, however the prices, as

demonstrated by the CBRE and Berlin Hyp Housing Market

Report 2016, are moderate. This is primarily a result of Froh-

nau’s secluded location in the very north of Berlin. The aver-

age rent of €8.50 per square metre is not much more than

other nearby localities, such as Hermsdorf and Heiligensee

(both also priced at € 8.50 per square metre), nor in com-

parison to the rest of the district or Berlin as a whole (€7.50

and €8.99 per square metre, respectively). The upper market

segment, at €12 per square metre, is also in line with the

district and Berlin averages (€11.67 and €15.91 per sqm). A

glance at the figures for the lower market segment makes

it clear that the quality of life in Frohnau is higher than else-

where. At €6.25 per square metre, this is above the average

for both Reinickendorf and Berlin (€5.51 and €5.61 per sqm).

Thanks to the area’s grandiose building style, apartments

average an impressive 84 square metres – 14 square me-

tres more than in other parts of the district or central Ber-

lin. Housing costs are correspondingly higher, averaging

€954 per month. Frohnau’s households have the third-

highest purchasing power in all of Berlin, averaging €4,420

per month, and are about €1,300 above the district avera-

ge (€3,112 per month). This makes the housing cost ratio of

21.6 percent comparatively low.

Berlin Berlin-Reinickendorf Frohnau

Rental prices in €/sqm/month

Jun

13

Ap

r 14

Aug

13

Feb

14

Oct

13

Oct

14

Dec

14

Feb

15

Dec

13

Aug

15

Jun

15

Oct

15

Dec

15

Feb

16

Ap

r 1

5

Aug

14

Ap

r 16

Jun

16

0

3

6

9

12

15

Source: www.immowelt.de



Apartment buildings of the month

Classic apartment building in Berlin-Spandau near the Havel River

Built around 1900, this mixed-use residential and commercial apartment

building comprises the main front building and a left wing. The object cont-

ains 12 residential units and two commercial units, accessible via two stair-

wells. The residential units are between 53 sqm and 124 sqm. The attic

was converted into two residential units in the 1980s. One of these units is

currently vacant. All of the residential units are equipped with balconies. The

property has been regularly maintained, in particular at the time of tenant

changeovers. Heating is provided via gas heating systems. Spandau’s his-

toric centre is roughly ten minutes away on foot. Access to the city’s exten-

sive public transportation network is good and there is a bus stop in front

of the building. Information acc. to energy performance certificate; year

built: 1900; final energy consumption: 156 kWh; Heating type: individual

floor heating; energy source: gas; energy performance certificate dated:

14.05.2013, expires 14.05.2023.

Price: EUR 1,950,000.00

plus 7.14 % sales commission (incl. VAT)

Yield: 4.43%

Price-to-rent ratio: 22.59

Price per sqm: approx. EUR 1,648

(Please quote property reference no. 16020 when

placing your enquiry)

Well-maintained multi-family house in Berlin-Grunau

Price: EUR 785,000.00


Yield: 5.45 %





This solidly constructed multi-family house was built around 1934. There is

a single residential unit on each floor of the building. Extensive modernisa-

tion measures were undertaken in the early 1990s and again in 2010. The

basement has been almost completely developed. Heating is provided by

gas central heating. Since the end of the 1990s, the entire object has been

commercially let as a residential project to an independent organisation.

The tenant has expressed interest in extending its lease. Access to Berlin’s

public transportation system is good. The nearest commuter rail station is

just a five-minute walk from the property. Information acc. to energy per-

formance certificate; year built: 1934; final energy consumption: 201 kWh;

heating type: central heating; energy source: gas; energy performance cer-

tificate issued 04.03.2009, expires 04.03.2019.


Credits

Dr. ZitelmannPB. GmbH, Rankestraße 17, 10789 Berlin

Authorised representative: Holger Friedrichs / HRB 130452 B

MICHAEL SCHICK IMMOBILIEN GmbH & Co. KG – Investment broker,

Rheinbabenallee 40, 14199 Berlin

Authorised representative: Jurgen Michael Schick

Telephone: 030 / 254 93 167, Email: [email protected]

Photos: Dr. ZitelmannPB. GmbH, MICHAEL SCHICK IMMOBILIEN GmbH & Co. KG,

fotolia

Safe and well-kept investment property in charming Reinickendorf

This truly well-maintained apartment building, built in 1974, is situated in

the Berlin district of Reinickendorf. Maintenance has regularly and thoroug-

hly been overseen by the object’s owner. During the last few years, these

measures have included the modernisation of the balconies, and thermal

insulation of the facade and roof. The nine residential units are each around

75 sqm and all are equipped with balconies and bathrooms with windows.

One of the apartments is currently vacant. The property’s grounds include

garage and outdoor parking spaces. The building has a modern oil cen-

tral heating system. There are a range of shops in the immediate vicinity

and convenient access to Berlin’s extensive public transportation network.

Information acc. to energy performance certificate; year built: 1974; final

energy consumption: 85 kWh; heating type: central heating; energy source:

Oil; energy performance certificate issued 02.10.2014, expires 02.10.2024.

Price: EUR 1,175,000.00


Yield: 3.91%





Apartment buildings of the month

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