Germany: a ‘prime target’ for investors?

The German property market could soar in the second half of 2008, claims one company…

According to David Stanley Redfern Ltd, expectations of an interest rate rise by the European Central Bank (ECB) will encourage property investment in Germany over the next six months. The prospect of a rate rise within the next 12 months is likely to motivate investors to engage early in the real estate market before financing costs rise.

Liam Bailey, Head of International Research at David Stanley Redfern, explained: “Germany is a prime target for investors thanks to robust economic growth and stable property prices. And according to Commerzbank, Germany’s second-largest bank, investors are likely to shift assets from countries more advanced in the cycle, such as Spain and the UK.

”Sovereign wealth funds and other state-owned investment vehicles, many awash in cash from the surge in oil prices, are now believed to be looking to invest in Germany. The same goes for insurance companies and pension funds keen to increase their portfolio allocation in stable assets such as real estate. Demand has also been boosted by the return of many German property investment funds to their home market.

”There is also widespread perception that the peak of banks’ asset writedowns – a result of the credit crisis – has been left behind, forecasting a distinct pick-up in property deal-making in Germany in the second half of 2008”.

‘Big players’ entering the market?

Mr Bailey continued: “We have long been talking about the major players in the financial sectors entering or reentering the German property market and buying apartments in bulk. It stands to reason that some equally big players outside the financial sectors would follow them in anticipating the likely effect the former’s clout would have on the market.

”In fact, the effects have and are already beginning to be seen, with rental rates rising across the board, and the mood, even in Berlin – where less than 20% of the population own their own homes – changing from renting to buying as the latter becomes more economically sensible giving the rising prices of the former.

“Any of these big players will likely be spurred to buy now; taking out fixed rate finance at the current rate, in advance of the likely rate rise in the next twelve months. This increased activity in the market can only be a good thing for those who have bought to hold, and a nudge for those considering a purchase, given that all the signs are pointing to property prices in Germany finally seeing some real growth.”