Real estate industry is a stabilising factor
A new report on the economic significance of the real estate industry has been published by Michael Voigtländer from the IW Real Estate Competence Centre and Tobias Just, Professor at the University of Regensburg. The report finds that the German real estate industry is not only a stabilising factor for the German economy, but also functions as an economic anchor for the whole of Europe, and can be held up as a role model for the possible future economic development of Europe as a whole. The HANDELSBLATT online reported on the ‘Real Estate as an Economic Factor 2017’ report on 14.06.2017. The report’s authors identified a range of positive factors, including the multi-layered ownership structure of Germany’s housing market, the presence of several strong cities with attractive commercial real estate markets, and the security-oriented approach taken to financing real estate acquisitions. They also concluded that a property price bubble is extremely unlikely, pointing out that current price increases are entirely justifiable and that there has been little change in financing behaviour. The real estate economy, including the construction industry and mortgage banks, contributes 18 percent of Germany’s economic output (EUR 500 billion), a greater share than either the automotive or retail industries. The study, which was presented in Berlin, was commissioned by the Gesellschaft für Immobilienwirtschaftliche Forschung (gif), BID, Haus & Grund, and the German Association for Housing, Urban and Spatial Development (DV).
The asset management sector is becoming more specialised
On 15.06.2017, the IMMOBILIEN ZEITUNG devoted coverage to this year’s Bell Consultants Asset Management Report (AMR). The 2017 findings are not entirely comparable with earlier rankings as a number of asset managers appear in the new report for the very first time, while some larger and smaller names from previous years had decided not to participate this year. The new AMR is based on a survey of 48 German asset management companies. The report found that asset managers are becoming increasingly specialised – 17 of the surveyed companies are active in up to three fewer asset classes than just one year earlier. The average asset management company now manages assets in three asset classes (down from last year’s average of four). Retail dominated the latest report, with assets under management of EUR 55.8 billion, more than half of which is managed under non-captive mandates. Office real estate totalled EUR 45.3 billion. This year, asset managers are primarily focused on targeting their services at German institutional investors, who have just about overtaken foreign investors as the industry’s major target clients.
Revised guidelines for calculating rental space
The Gesellschaft für Immobilienwirtschaftliche Forschung (gif) has published new guidelines for calculating commercial rental space in compliance with recent amendments to DIN 277-1 regulations. The changes were outlined by the IMMOBILIEN ZEITUNG on 15.06.2017. The amended guidelines will apply to all rental space calculations carried out in accordance with the new DIN-277-1 standard, while any calculations made under previous guidelines retain their validity.
Limitation of property transfer tax on construction costs
As the IMMOBILIEN ZEITUNG reported on 16.06.2017, Germany’s Federal Financial Court has clarified under which circumstances the purchase of a plot of land and its subsequent development constitute a substantial modification of the construction contract, thereby specifying when no uniform contract exists, and thus no property transfer tax is due on the value of construction work carried out. As examples of such cases, the judges mentioned a deviation in floor-space or construction costs of more than 10 percent, or the construction of an additional major building as part of the development project.
North-Rhine Westphalia calls for personal property tax allowance
According to the HANDELSBLATT and SÜDDEUTSCHE ZEITUNG on 16.06.2017, the CDU and FDP coalition in North-Rhein Westphalia is launching a political initiative to amend Germany’s property tax laws. The state’s new government is calling for a personal property tax allowance of EUR 250,000 for every private citizen, in order to make it easier for people to buy property. To finance the change, the parties have proposed the elimination of share deals.
The benefits of land value tax
On 12.06.2017, the HANDELSBLATT reported that the idea of taxing property on the basis of a land value tax, rather than a property value tax is attracting support from a diverse range of sources. The employer-financed Institute of Economic Research (IW) has joined forces with tenant associations and nature conservation associations to promote the introduction of a land value tax with the initiative “Grundsteuer: Zeitgemaß!” (roughly, “We want a modern property tax!”). A majority of economists have also lent their support to the initiative. Unlike current property tax, a land value tax would be based solely on an assessment of the value of land, not on the value of buildings on a plot. As this would be a tax on unproductive income, it should not have a negative impact on the property owner’s willingness to invest. A land value tax could create positive incentives for municipalities to develop and increase the value of plots of land they own. It would allow them to recoup some of the costs of their investment in the quality of land, returns that would be in direct proportion to the value they have added.
Student apartments offer solid yields
The student population might not be growing as fast as in previous years, but it is still possible to generate yields of up to 4 percent from student housing in Germany’s Top 7 cities. This was reported by the IMMOBILIEN ZEITUNG on 15.06.2017. Despite the best efforts of highly active private investors, demand in the sector is still outstripping supply. According to the latest data from Savills, 1.5 million students competed for 1.1 million affordable apartments last year. Between winter semester 2015/2016 and winter semester 2016/2017, the student population grew by 1.8 percent, which is the lowest rate of growth in a decade. Investors are mainly focussed on the premium price segment, i.e. those apartments with all-inclusive rents of at least EUR 450 per month. The highest all-inclusive rents are currently achievable in Freiburg (EUR 670), Frankfurt (EUR 632), Munich (EUR 569) and Berlin (EUR 552).
Facility management sector growing at fastest pace in years
On 16.06.2017, the IMMOBILIEN ZEITUNG devoted extensive coverage to developments in the facility management industry. According to a new report published by the market research company Lünendonk, revenues generated by external facility management companies during the last financial year grew at the fastest pace since 2008. The sector generated EUR 52.6 billion in Germany, a year-on-year increase of 4.1 percent. Just ten facility managers generated 16.5 percent of the total, increasing their revenues by EUR 1.3 billion to EUR 8.6 billion. The 25 largest companies had a market share of 23 percent and increased their revenues by EUR 2 billion to EUR 12.1 billion. For the very first time, three separate companies reported revenues of more than EUR 1 billion: Apleona HSG, formerly Bilfinger, which retained its position at the top of the ranking, was followed by SPIE and WISAG. Revenue growth has been driven by a combination of organic growth and acquisitions. The report’s authors fully expect the facility management industry’s wave of consolidations to continue over the next few years.
New building contract law gives owner-developers more security
On 16.06.2017, the SÜDDEUTSCHE ZEITUNG provided an overview of Germany’s new building contract law, which has been approved by parliament and is due to come into force next year. Private buyers of turnkey houses will be among the major beneficiaries of the new legislation. In future, they will have a right to detailed building specifications, in which the main features of their house will have to be set out clearly. These specifications should make it relatively easy to determine exactly what quality standards building contractors are working to, and identify any gaps in the scope of services they are providing. The new law also specifies that owner-developers should have access to planning documents before construction begins, and that a definite completion date will need to be specified. In addition, the new building contract law will contain revised provisions on contract cancellation and rescission rights.
The market is finding a new equilibrium
According to Scope, the current boom on Germany’s residential real estate market is expected to lose momentum over the next five years. This was reported by the IMMOBILIEN ZEITUNG on 08.06.2017. As construction activity picks up, the market will rebalance, and rents and property prices will realign more closely with long-term trends. Given robust fundamentals, including parameters such as population, labour market and real wage growth, Scope rules out any likelihood of the market crashing.
Record number of visitors at the IVD
The IVD’s annual Immobilientag event was covered extensively by the IMMOBILIEN ZEITUNG on 08.06.2017 and the SÜDDEUTSCHE ZEITUNG on 09.06.2017. Roughly 1,680 visitors attended the programme of speeches, presentations and workshops on the topic of digitalisation. Most strikingly, the Immobilientag functioned as a forum for targeting criticism at the country’s politicians, who were represented by Secretary of State Gunther Adler who attended on behalf of Barbara Hendricks. The IVD’s president, Jürgen Michael Schick, issued a strong warning against any further tightening of the Mietpreisbremse rent controls, in particular he highlighted the dangers associated with the proposed extension of the reference period used to calculate rental increases from four years to eight: “If these plans are implemented, rents in Germany will effectively be frozen. This would be nothing short of an act of rental manipulation,” said Schick. He warned that over-regulation of this scale would utterly choke off the much needed investment in Germany’s new and existing rental housing stock. An investment embargo would have drastic consequences for tenants across the entire rental market. Plans to reduce the proportion of modernisation costs that can be passed on to tenants from 11 to 8 percent would also do nothing to achieve housing market policy targets: “Such a retrograde step would make it almost impossible to renovate residential buildings to create energy-efficient apartments and senior housing,” cautioned the IVD’s president. He also called for a paradigm shift in political approaches to promoting homeownership. Given the looming pension deficit, he called on politicians to finally grasp that the promotion of affordable housing is a socio-political imperative.
Politicians hinder potential developer-investors
Developers and investors have become increasingly frustrated with political decision-making, reported the IMMOBILIEN ZEITUNG on 08.06.2017. For example, planning authorities are failing to zone sufficient development land while, at the same time, politicians complain about a housing shortage. A lack of creativity from politicians has done little to ease tense housing markets. In Berlin, Christoph Gröner from the CG-Gruppe, has spent the last five years trying to build 133 apartments on wasteland in Berlin-Friedrichshain (for which he already has a building permit). He wrote the following to Berlin’s Senate: “Administrative workers and politicians publicly position themselves against applicable laws and regulations; building code regulations have been branded as ‘undemocratic’; there have been attempts to exercise compulsory purchase orders, and, even once we had obtained our building permit, the authorities attempted to develop a school on the site. Five years ago, not a single politician or municipal employee was proposing a school. Administrative decisions and political action are determined by the short-term moods and emotions of individuals.”
Plans to promote decentralised electricity generation come under fire
As reported by the IMMOBILIEN ZEITUNG on 08.06.2017, the IVD and ZIA have both criticised draft legislation announced by the federal cabinet to promote the decentralised generation of electricity known colloquially as ‘tenant electricity.’ “In its current form, this is just another obscure point in the support and subsidies ‘jungle,'” said Markus Jugan from the IVD. In his opinion, it is crucial that no commercial tax liability is levied on rental income in housing where photovoltaic plants are installed. Secondly, subsidies should not solely be limited to models in which electricity is exclusively consumed in the same building as it is produced, but should also include solutions for entire neighbourhoods. Finally, subsidies should also be extended to commercial real estate, especially as the potential for using renewable energies in the sector is equally high.
Rising prices for previously owned condominiums in Berlin
As reported by the IMMOBILIEN ZEITUNG on 08.06.2017, the latest LBS and empirica Purchase Price Index reveals that asking prices for previously owned condominiums in Berlin rose dramatically in Q1 2017 (+12.1 percent in comparison with Q1 2016). The analysis of condominium listings in Berlin’s major daily newspapers and online portals found that the average standard price had climbed to EUR 3,375/sqm. The highest average price for previously owned condominiums was in Friedrichshain-Kreuzberg, where half of all previously owned condominiums are listed at prices above EUR 3.938/sqm, followed by Charlottenburg-Wilmersdorf and Berlin-Mitte. The largest jump in average asking prices was reported in Tempelhof-Schöneberg, where prices have surged by 16.3 percent in a single year. The index’s authors conclude that it is npw only really worthwhile buying in Charlottenburg-Wilmersdorf, Spandau, Steglitz-Zehlendorf, Reinickendorf, Treptow-Köpenick, Marzahn-Hellersdorf and Pankow.
Prices in Cologne keep on rising
On 08.06.2017, the IMMOBILIEN ZEITUNG reported on a recent study of the real estate market in and around Cologne. According to the KSK-Immobilien analysis, previously owned condominiums experienced the strongest average annual price growth, rising by 9.4 percent. A five-year old apartment in Cologne now costs an average of EUR 2,914/sqm. Rental prices grew at a slightly slower pace in the markets analysed for the study. In Cologne, rents increased by an average of around 3.9 percent. In downtown Cologne, rents have now risen to an average EUR 12.69/sqm. Across the city as a whole, rents now average EUR 10.50/sqm, EUR 0.50/sqm higher than one year earlier. Positive population growth, increasing purchasing power and subdued construction activity all point to a continuation of current trends, conclude the study’s authors.
Profitable real estate outside Germany's major cities
Real estate with solid value appreciation potential is still to be found in 45 of Germany’s 402 municipalities and independent cities, reported the FAZ on 08.06.2017. This was the key finding of a new Postbank study, conducted in collaboration with the Hamburg World Economic Institute. In municipalities and cities with price increases of 0.5 percent until 2030, and price-to-rent ratios below 22.5 net annual cold rents, investment opportunities are classed as ‘good’. In Munich, Hamburg and Berlin, prices are running at around 30 net annual cold rents. According to the study’s authors, would-be buyers should therefore consider markets outside Germany’s major cities, along with the regions surrounding metropolitan centres, such as the Main-Taunus district outside Frankfurt.
Demand for hotels is higher than ever
CBRE registered hotel market investment of EUR 1.15 billion in Q1 2017, trumping the same prior year period by a massive 55 percent, reported DIE WELT on 07.06.2017. A new Catella study reports investment of EUR 41.5 billion in hotel real estate across Europe in each of the previous two years, making hotel real estate a more popular investment than ever before. Demand is primarily being driven by higher prices for classic commercial real estate assets, which has pushed yields ever lower. In contrast, yields for prime hotel real estate are holding steady at “4.5 percent in first-class locations,” said CBRE’s Olivia Kaussen. In fair and good locations, yields of 5.5 percent and above are achievable.