Berlin: Historic Values

After the U.S. Civil War, the northern and southern states reunited in an era of reconstruction. After World War II, and for the duration of the Cold War, …

After the U.S. Civil War, the northern and southern states reunited in an era of reconstruction. After World War II, and for the duration of the Cold War, Germany was divided into East and West Germany. The end of the Cold War nearly 20 years ago ushered in an era of reunification, which wreaked havoc on the German economy. In the years since, Germany’s economy has recovered, while real estate prices have remained low.

“The German economy is looking to achieve some serious growth over the next five years,” Michel Hendrickx, managing director of Solid Rock Consultancy, an Amsterdam-based firm that provides advice on Berlin real estate investments, said.

Germany overall has made a strong recovery, but Berlin in particular is emerging from “40 years of beauty sleep,” Alexander Korte, founder and owner of Alexander Korte Real Estate and, said.

“It’s coming off the historical lows, and there’s enormous upside potential,” Cathal Jennings of said.

According to, a website containing news and information for expatriates in western Europe, “A square meter of a redeveloped building in a top location costs around €1,500 in Berlin, while in London for example the price would be around €15,000.”

Reunification impacts prices

In 1945, after World War II, Berlin was separated into two sections: West Berlin, which was occupied by the U.S., the United Kingdom and France; and East Berlin, which was occupied by the Soviet Union.

East Berlin became the capital of East Germany, and West Berlin found itself entirely surrounded by East German territory. Cold War tensions resulted in the construction of the Berlin Wall, which enclosed West Berlin and separated it from East Berlin entirely. Construction of the Berlin Wall began in 1961. To make up for West Berlin’s geographic isolation during this period, West Germany provided subsidies to the city, even though it was not officially part of West Germany.

The Berlin Wall was torn down on November 9, 1989, reuniting the cities physically. The two cities officially became one when East and West Germany were reunified on October 3, 1990. Government subsidies ended soon after, throwing Berlin into a financial tailspin; unemployment rose and funding for many programs had to be cut.

“After the reunification of Germany, there was…a lot of excitement to invest in Berlin, and also a lot of tax subsidies given by the German federal government,” Ed Scheibler, managing partner of Berlin Real Estate Investment Partners, said. “When those disappeared, the real estate boom busted. Prices went down maybe for five, six, seven years consecutively.”

According to AllGrund, a German real estate company, “The cost of re-unification has been estimated at over $1 trillion (levied by taxation) to the German economy as a whole, with the result that today, property in Germany trades at historically low levels.”

The reunification process was a fiscal disaster for Germany overall and Berlin in particular. But time and growth are allowing the economy to regain its health. Germany’s unemployment rate recently dropped below 10 percent for the first time in 10 years.

“Property prices have started to rise,” reflecting growth in Berlin, though the prices are still great values, Damian Power, managing director of Power Overseas, an Irish company that matches clients with foreign property investments, said. “I think that’s only set to continue.”

An undervalued market

“Germany is considered the world’s most undervalued property market,” Petra Gajdosikova, founder of Alpha Real Estate Investments, a London-based company that helps foreign investors invest in central and eastern Europe, said. “Property prices actually collapsed in the early ’90s, after the reunification of Germany.”

“Germany as a country was under pressure,” Korte said, but it now has “a strong economy.”

“We have a really exceptional opportunity in Germany,” Julian Power of Berlin Capital Ltd. said. “The economy is looking healthier than it has in years. But at the same time you’ve got incredibly low property values.”

Berlin in particular has some of the lowest real estate prices in Europe—“often on a par with eastern European countries” and capitals, such as Sofia, Bucharest and Warsaw, Julian Power said.

Prices in Berlin are not only bargains when compared to other European capitals, they are bargains within Germany. “The property prices in Berlin are…30 to 50 percent lower than in other German cities,” Gajdosikova said. It is “the extremely strong rental market, with very high yields, of course, that makes Berlin more attractive than most of the other cities in Germany.”

Berlin’s property prices are at about 50 percent of the levels they were at before reunification, Gajdosikova said. “The German prices are among the cheapest in Europe. This is quite an exceptional affordability.”


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Central areas, such as Mitte, Prenzlauer Berg and Tiergarten, are already well established. “I really like Mitte,” Scheibler said. “It’s where the Reichstag is, the Brandenburg Gate, a lot of fabulous restaurants. It’s the most international of the different districts in Berlin.”

With prices so low across the board in Berlin, “I’m very bullish on buying in a very good location,” Scheibler said. “You might have to pay more, but the slope of your appreciation curve will be higher.”

“Capital appreciation will be found more readily in areas like Mitte, Charlottenburg, Wilmersdorf,” Jennings said. “The stock of housing…is considerably more up-to-date.”

“Charlottenburg would be the Park Avenue of Berlin,” he said.

Several other neighborhoods are increasing in popularity and desirability. “Besides the classic central areas in former West Berlin such as Charlottenburg, Wilmersdorf and Schoeneberg, properties are especially sought after in Kreuzberg, a trendy area,” according to Expatica. In addition, “spots in up and coming trendy eastern Berlin areas of Prenzlauer Berg and increasingly Friedrichshain are becoming especially desirable.”

Friedrichshain, Simon-Dach-Strasse and Kreuzberg are all undergoing revitalization and gaining popularity.

“The highest yield rates will be in the most risky areas,” Scheibler said. However, “The best properties, perhaps, with the most upward growth, are in the center of the city.”

In addition to Berlin’s three existing airports, the new Berlin Brandenburg International Airport is under construction southeast of the city, with completion scheduled for 2011. As a result, outlying areas toward the airport are now attracting more interest.

Construction of the airport will create approximately 100,000 jobs in the next two years, Damian Power said. “That is an up-and-coming area, and will be very interesting, with studio apartments there starting at around €50,000.”

Gajdosikova said that due diligence is essential. “Do your research. Understand why some areas are good and others aren’t,” she said. “It’s not always the cheapest areas that do make sense for a good return on investment.”

Culture and business

As Germany’s capital, Berlin draws both tourists and residents. It houses the federal government and hosts diverse cultural offerings. Berlin is popular among young Europeans, as evidenced by MTV Europe’s recent relocation to Berlin. The average age in the eastern area of the city is around 28 to 32 years old, Hendrickx said.

There are hundreds of cultural sites in Berlin, including museums, art galleries, theaters, operas, symphonies, zoos and historical sites. According to the United Nations Educational and Scientific and Cultural Organization (UNESCO), there are more than 1,500 cultural events in Berlin each day.

“Berlin combines the culture of New York, the traffic system of Tokyo, the nature of Seattle, and the historical treasures of, well, Berlin,” professor Hiroshi Motomura, a scholar at the American Academy, said in an interview that appeared in Berlin magazine.

Berlin already has a healthy tourism industry, and it has recently begun growing as a business center. The increased simplicity of traveling to Berlin could further boost its status as a business destination.

“Berlin is growing,” Gajdosikova said. “It’s a very attractive business destination, so therefore the prospects for the medium to long term for Berlin are very good.”

“There is unbeatable infrastructure here in Berlin,” Jennings said.

Market risks

Berlin’s unemployment rate is still relatively high, and the city is €60 billion in debt. “The city has humongous municipal debts and real challenges as far as unemployment, so it’s not without risk,” Scheibler said.

Dresden recently paid down its debt by selling 48,000 properties to investors. In contrast, Berlin refuses to sell its 250,000 residential properties. “Berlin’s left-wing government…is strictly against selling off state-owned residences,” according to Expatica.

If the city changed its mind and sold some of its properties, property prices would likely initially drop as supply grew and then rise as private ownership increased rents, driving some renters to become homebuyers.

“There’s a big rental market—only 13 percent of the population in Berlin actually own their own homes,” Julian Power said.

A low homeownership rate means that the resale market is comprised mainly of other investors, which results in lower prices for sellers. There is, however, a lot of potential for profit should owning, rather than renting, become the norm.

Because of the high percentage of renters, “there’s a lot of need and desire and demand for rental space,” Scheibler said. “You have to understand that it’s not like the United States or England, where you’re going to come in and have the really low rents and have those rents escalate in a dramatic fashion over a short period of time.”

That’s because the balance between landlords and tenants favors tenants in Berlin. “The tenants’ rights are very, very strong,” attorney Boris Reschucha, an associate at BMH Bräutigam & Partner, said. “The leasing law…is favoring the tenants. The rights to raise the rents are restricted.”

Although Berlin’s relatively young population is growing, Germany as a whole has an aging, declining population. This could lead to an oversupply of housing, which would diminish the profit potential for investors seeking renters. In order to maintain a steady housing demand, Germany will need to bolster its population, perhaps through immigration.

Finally, the real estate market has picked up substantially in the past two years. GSW, Berlin’s largest residential property firm, sold 65,000 units to a U.S. investor and its partner two years ago. As a result, “Berlin is a market now that is quite active,” Scheibler said.

The investment process

Germany is a country favorable for foreign investors. “The government has always respected the ownership interest of Germans as well as any foreigner,” Reschucha said.

“A foreigner is absolutely equal to a German,” Korte said. “Absolutely, 100 percent equal.”

Germany features freehold property ownership. “Freehold is very typical. We very rarely have leasehold property ownership,” attorney Patrick Hohl, an associate at BMH Bräutigam & Partner, said.

Banks lost a lot of money after the reunification boom and bust; thus, “German banks are still extremely cautious and quite conservative, so financing is not easy. We’re starting to see that change, though. More and more, the banks are now realizing that the market is now stabilized,” Julian Power said.

“I think you’re going to need 50 percent of your all-in costs,” Scheibler said. “For example, in Friedrichshain …you can buy a beautiful 100-square meter [about 1,075 square feet] apartment for €200,000.”

The purchasing process is mediated by an impartial notary who works for both parties in the transaction. One result of this impartiality is that, “We do not really have anything like title insurance in Germany because the system is so safe that there’s not really a market,” Reschucha said.

Working with a notary for the sale and purchase agreement is compulsory, and notary fees are approximately 1 percent of the purchase price, Hohl said.

“Then you have the registry fees of the local courts handling the registration. This is 0.5 percent of the purchase price,” Hohl said. “The real estate transfer tax is at 4.5 percent at the moment.”

The standard asking real estate commission in Germany is 5 or 6 percent, Julian Power said. “As there’s so much competition in the market at the moment, so much interest, it’s actually becoming more and more normal for people to pay high commissions in order to secure good buildings.”

Calculating a property’s land tax is complicated, Hohl said. “The good thing is that the landlord can fully charge back the land tax…to the tenants if this is provided for in the lease agreement. That’s a very common provision in every lease agreement,” Hohl said. “Having a living space of 2,600 square meters, [the land tax] would be €3,500 per year, approximately.”

Foreign investors in Berlin will face the same hurdles that all foreign investors face: issues of time and distance as well as the difficulty of finding the right people to assist with each step in the process.

“I wouldn’t recommend to anyone who lives in a foreign country to try and manage [foreign investment properties] themselves,” Julian Power said. “There’s a lot of companies providing management service.” Monthly fees are around €25 to €30 per apartment, he said.

“It’s really crucial to have somebody who can speak German and English to provide for good correspondence and communication,” Reschucha said.


The city of Berlin is full of culture and investment opportunity. With an improving economy and established and up-and-coming neighborhoods, Berlin may offer real estate investors some of the best value in Europe.

“Post-reunification, it’s been a very long, difficult road for the Germans,” Scheibler said. “I think prices are going to rise steadily over the next decade there, and I think it’s a good time to get in.”


Additional Information: Berlin Resource List, Berlin Service Provider Directory


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