How will berlin's rent cap affect the property market?

Photo: Der Robert

This month, Berlin became the first city in Germany to introduce a cap on rents. The limit, which was approved in March, is designed to halt some of Europe's fastest-rising rents.

In Germany, only about a third of the cities and regions are affected by strongly rising rents. Rents on new lettings of apartments in Berlin have increased significantly since 2009 in around 80 per cent of all residential areas. 

Indeed, a recent report from Jones Lang Lasalle found that rents in the German capital have risen from approximately €5.50 per square metre in 2005 to almost €9 in 2014.

As of Monday 1st June, landlords in Berlin are now limited to raise rents by no more than 10 per cent above the local market average; a cap that was already in place for existing tenants but, under the new rules, has been extended to new tenants too.

According to a report from Berlin Hyp and CBRE, asking rents in Berlin are still rising, although in 2014, the rate slowed from 6.9 per cent in 2013 to 6.6 per cent year-on-year.

Despite that slowdown, Reiner Wild, managing director of the Berlin Tenants’ Association, told the Guardian that the cap was important to keep the city affordable for lower-income residents.

"We don’t want a situation like in London or Paris. The reality in Paris or London is that people with low income have to live in the further-out districts of the city."

Indeed, according to Berlin Hyp and CBRE, in previous years, growth in rents has been primarily concentrated in particularly sought-after city-Centre districts. Now, though, growth is shifting from the core outward.

With high demand continuing for rental accommodation, thanks to a growing population, Berlin's housing market continues to thrive, noted PwC at the start of 2015. The report saw Berlin knock Munich off the top spot of international hotspots, as investors pour capital into what has traditionally been a domestic market. Over 200,000 more young professionals are also expected to join the city's populace between 2014 and 2030.

What will the new cap mean for the Berlin property market?

Jason Thackray, an independent native English-speaking broker who runs Your Place Berlin, is confident that investors will still continue to invest in the city.

"My expectation is that some buyers will focus on purchasing new builds or newly renovated apartments, as both of these categories are excluded from the rent cap," he tells TheMoveChannel.com.

"I also expect that many people with existing properties will use different types of rental contracts, such as short-term all-in rental contracts or contracts that charge for additional items on top of the capped rent, such as use of fitted kitchen equipment."

He adds that he thinks there will be some resistance to the law.

"As things play out, there could well be some revision of it before too long."