It is not so much an issue of credit or debt. Banks own Germany anyway: http://www.youtube.com/watch?v=_4FzvwtHKLs&feature=channel_page The main problem is that home-ownership does not carry the allure that it does in Anglo-American societies. People are just fine renting (especially since this rent is at times heavily subsidised... so why buy!) Also, Germany has the second fastest aging population (after Japan)! Without insider info, realestate investing is a crap-shoot. btw, I lived in W. Berlin for 10 years.
An ignert question, if I may... Could the property situation, at least in part, be a result of some long-term effect of the integration? Some supply overhang or general economic malaise in certain regions or something of the sort? Just curious...
Sachsen seems to have some good value too: Large villa near Dresden 299,000 EUR: http://www.immobilienscout24.de/492...og=t&style=is24&is24EC=IS24&navigationbarurl= Office villa in Leipzig, near Hauptbahnhoff 345.000,00 EUR: http://www.immobilienscout24.de/473...og=t&style=is24&is24EC=IS24&navigationbarurl= Jugendstill castle in Erzgebirge 209.000,00 EUR: http://www.immobilienscout24.de/45054343
Yes I'm pretty sure that is the reason. There was a huge speculative building boom in the 1990s on the expectation of a major boom in activity after reunification. Reality proved disappointing and prices fell significantly in the last decade or so. Whenever you have a long bear market in some asset class, there are always good reasons for it - otherwise prices would not have got so cheap and gone down so far. A necessary skill in deep value investing is to be able to buy cheaply despite the presence of several bear items, so long as you can identify that the price is so cheap that it more than discounts the likely bearish developments and thus provides adequate margin of safety. With the current economic situation, it is quite possible prices fall a reasonable amount. The purpose of this thread is to examine whether that would be a long-term buying opportunity, and whether prices are sufficiently low now to take on that risk.
That advice would have advised not purchasing real estate in Buenos Aires in 2003, which subsequently quadrupled in 5 years.
The factors some people are citing here as bear points, do not, in my experience, inhibit bull markets in real estate. I've studied quite a few real estate bull markets worldwide since the post WWII period, and most of them have a certain similar set of characteristics to each other. As a result, I assume that future bull markets will not be prevented by factors that were present during yet did not prevent the prior bull markets. The future is not always like the past, so I could be wrong this time, but I have the weight of evidence and past experience on my side. Consider the following: FerdinandAlx: 1. "German real estate prices will stay where they are unless some reforms are made to promote home ownership." Numerous real estate markets in the past have soared or crashed without any change to home ownership promotion. Therefore the lack of the latter does not prevent a bull market happening. 2. "Germany is one of the few countries in Western Europe where it is required to pay down 10-20% on a mortgage." Numerous real estate bull markets have occurred when even higher deposits were a requirement. Some spectacular real estate bull markets have occurred when mortgages were not even available to most buyers. Therefore a 10-20% deposit requirement is not a necessary precondition for a bull market 3. "It's also one of the few countries where mortgage interest isn't deductable from income taxes." Many significant real estate bull markets have occurred without mortgage interest being deductible. Therefore it's not a requirement before a bull market can occur. 4. "As it stands right now the yields are attractive but the capital gains are not." In most cases, historically attractive rental yields for an area are predictive of future capital gains over the long-run (7+ years). Ditto with price at significant discount to replacement cost. Makloda: 5. "Possibly there are good reasons for GE and Berlin real estate being in the dumpster" Whenever real estate prices are in the dumpster, there are good reasons for it, otherwise no one would sell at those prices. But this in no way prevents a bull market subsequently taking place. Examples: E Europe during the 1990s, Asia in 1998-2002, Hong Kong 1974, London 1982 etc. 6. "For once, GDP per capita is 23.300 EUR/capita in Berlin (with one of lowest annual growth rates @ 0.3% among German states = the disparity is likely to grow rather than shrink) vs. e.g. 47.800 EUR/capita in Hamburg. Unemployment is high in the East in general, Berlin is no exception. Berlin is amongst the weakest job regional job markets @ 17.5% unemployment, compared to Bavaria's 6.4%." Yes - this is why it is cheap. Similar conditions, or worse, existed during the early phase of prior real estate bull markets. For example, cities like Liverpool and Newcastle in the north of England had similarly dire economic and employment figures in the early 90s, right at the beginning of their 15 year rampaging property bull market. 7. "Do your comparison again, exchanging Berlin for Frankfurt, Dusseldorf, Hamburg or Munich. How do real rental yields in Munich or Frankfurt stack up in international comparison?" The yields are lower in those areas, so from pure cashflow they are not as good value. For capital gains it's unclear, but then I am not trying to make a case that region X in Germany will appreciate faster than region Y. Again, regional disparity in rental yields and capital values has not prevented prior bull markets occuring. London had lower yields and higher prices than Liverpool in 1995, but both experienced a big bull market over the subsequent dozen years. 8. "IMO, Berlin is unfortunately going nowhere. Being ruled by a coalition of socialists and the former East German communist party one shouldn't be too optimistic about change." You don't need change to make money, all you need is excessively cheap prices relative to affordability. Buenos Aires in 2002-03 went nowhere, was ruled by a bunch of socialists, and there was no positive change, yet prices soared 4 fold because they were extremely cheap. Germany/Berlin is not yet at those bargain levels, but if it gets closer then it will become particularly tempting. short&naked 9. "The main problem is that home-ownership does not carry the allure that it does in Anglo-American societies. People are just fine renting (especially since this rent is at times heavily subsidised... so why buy!)" Major bull markets have occurred in real estate markets where owning did not carry allure, and where renting was popular and subsidized. 10. "Also, Germany has the second fastest aging population (after Japan)!" The biggest real estate bull market in history occurred in Japan during the 80s, despite an aging population. It is important to distinguish between static factors, irrelevant factors, and relevant dynamic factors. Generally only the latter have a really significant effect on price. IMO the biggest downside of German real estate is not any of the points that have been mentioned. It's the current economic situation and its effect on the export-based German economy. IMO this could cause a further dip in prices, and I suspect that could be a very interesting dip to buy for the reasons I listed previously. It reminds me somewhat of UK property in the early 1980s recession.