Germans turn their backs on renting with new property boom

Is German property set to soar? On 13 June, Phoenix Spree Deutschland floats in the UK, giving armchair investors instant exposure to German real estate especially in Berlin.

German real estate has a slightly flat investment reputation. When the Wall fell, general optimism spilled over into property. A mini bubble grew, then got stuck. It was thought that corporations would move to Berlin. They didn't. Decline set in.

Phoenix took flight when a group from UBS began investing in Berlin. Soon, others wanted to chip in. "We left UBS in 2006 and raised about €90m from high-net worth investors," says Mike Hilton, fund manager at Phoenix.

At the time, yields were 8 or 9% and the cost of money was 3 to 4%. "Prices had fallen so far you could buy for half the cost of construction," says Hilton. "There was no new supply. At some point things had to improve."

They plunged €150m into Berlin bricks and mortar in 2006 and 2007. "Others thought we were mad," says Hilton. "It was not on their investment radar. Berlin was shabby and non-industrial. But that has changed. The skyline is studded with cranes. It has won over technology and media companies – Sony, Google, Universal – not the industrial behemoths of the old Fatherland. Nothing gets made in Berlin except intellectual property. Berlin has seen the biggest change in terms of demographics and economy. You can feel change in the air." Prices rose by 50% in German cities between 2009 and 2014 – more than any other European country.

"Now is the time to look for extra liquidity for investors," says Hilton – City-speak for selling out, hence the float.

Are we calling peak German property? Or are we witnessing a new German housing market in gestation, driven by imbalances between supply and demand, fired by an urge to buy not rent?

Germany has one of the lowest rates of home ownership in Europe. Just 15% of Berliners own property. That figure is rising. "Germany is counter-cyclical to Britain," says Hilton. "In Britain, property ownership is in decline. In Germany it is the other way round."

Meanwhile, supply is constrained and will remain so. "Although new-build property is coming on, there isn't anything like enough of it. Last year, 4,000 properties were built in Berlin. The demand is for 20,000."

"I can look at the buildings that the fund owns and can say they cost less than the bricks and mortar," says Hilton. "That is key. London is about momentum; it's touch and feel. Berlin is value. Of how many other cities can you say that?"

Germans turn their backs on renting with new property boom | Business