Germany’s in the doldrums - so buy now

there have been several stories about how Germany is in the property ‘doldrums’. But that may be the best reason to buy now…

Location, location, location. They're the three golden rules of property. Yet they seem to have been forgotten in recent years as people rush to snap up bargains' across the globe, no matter how far from home or desolate the surroundings. But for property investors who'd rather not have to take a long-haul flight any time they want to inspect their purchases, there is still one location in Europe that offers value and a potentially excellent return on your investment: Germany.

Following the release of Knight Frank's Global House Price Index a few weeks ago there have been several stories about how Germany which came in at the bottom of the index, with prices dropping 6.9% last year is in the property doldrums'. However, that may be the best reason to buy now. "Investors should look at Germany exactly because it is at the bottom of the league table," says Knight Frank's head of research, Liam Bailey. There are a number of reasons why the German property market has not participated in Europe's property bubble, and these can work to an investor's advantage.

One of the reasons why German property prices are so low is that, ever since the fall of the Berlin Wall, supply has exceeded demand. In the early 1990s, following reunification, "there was a rampant house-building programme", says Graham Norwood in the Daily Mail. At the same time a swathe of Communist bloc flats hit the market as their occupants moved on, determined to put the grim days of grey concrete behind them. This "glut of property for sale in former East Germany dragged down price inflation countrywide", explains James Rossiter in The Times. It has taken almost two decades for the market to work through that excess, but now demand at least in some areas is starting to catch up with supply.

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The other main reason behind Germany's comparatively weak property market is that Germany is still a nation of renters. "Subsidised housing, rent controls, and the absence of a right-to-buy programme to privatise council homes have combined to make renting more attractive than owning," says Norwood. Roughly 60% of Germans rent rather than own their own homes. But as a result, a buyer who is careful to avoid rent-controlled buildings will find a nation of willing, reliable long-term tenants. "Tenants stay for years, make the place their home and really look after it," says Peter Fox of

So what do you have to consider once you've decided to buy in Germany? The first problem is unavoidable and should be factored into your budget before you start looking. While property itself might be cheap, buying it isn't. The buyer must pay 3.5% of the sale price as a purchase tax, 1.5% in legal fees, 1.2% in land registry fees and up to 6% to the estate agent, compared to around 1.5% in the UK. So when looking at financing your German purchase, it's important to add at least 10% to the asking price to cover purchasing costs. But with one-bedroom flats in Berlin going for as little as £15,000, the extra costs are hardly a massive burden.

Also, you should be prepared to travel to Germany to investigate any potential purchase properly. Don't be "tempted to buy blind at auction", says Ross Clark in The Times unless you're "prepared for nasty surprises". There are a lot of badly-built communist buildings in Germany and even more quickly thrown together new builds. Not only can they suffer structural problems, but investors also have to be on the lookout for protected tenancies and rent controls this is a country that has long-favoured the tenant, after all.

Most importantly, don't think that just anywhere will do. "While selecting the right property in the right location is the mantra of any successful investor, it has rarely been as important as it is in Germany," says Norwood. Promising locations include major cities such as Berlin (see below), Dusseldorf, Frankfurt, Hamburg, Stuttgart and Munich, with the Dresden and Cologne markets likely to pick up in the longer term. Munich in particular is becoming popular with foreign buyers. "Due to very low construction activity in the past ten years, there's now a shortage of property to rent," says Barbara Walter of German Property Finder. The city also has Germany's lowest unemployment rate, at 6.4%, says The Mail on Sunday, which adds that older apartments in the city offer yields of between 5% and 6.5%. For a list of German estate agents (in German), see

Berlin draws the in-crowd

It's not just property investors who are turning their attentions to Germany. Berlin is fast becoming a Hollywood hot spot too. Government subsidies and Germany's reputation for efficiency are drawing Hollywood producers back to the German film studios and they are bringing the stars with them. In recent months, Clint Eastwood, Matt Damon and Tom Cruise have been filming in Berlin. Brad Pitt is so enamoured with the city that he has reportedly bought a flat in the former East Berlin. One-bedroom flats in the city range from £25,000 to £75,000, says Graham Norwood in the Daily Mail, with rental yields of about 10% in the city's Uthmannstrasse suburb.