What’s the Future of the German Real Estate Market?
Today, we have the opportunity to gain insights into the German real estate market from a professional property developer. With rising interest rates, geopolitical tensions like the war, and soaring inflation, many are curious about the future of the market. As a developer, how do you perceive the prospects?
Navigating the current global and local landscape is crucial for developers. Scenario analysis becomes essential to account for rising interest rates and their potential impact. By discounting sales prices, and considering exit prices, acquisition costs, and other expenses, developers create buffers to avoid surprises when selling properties.
Is Real Estate in Germany a Good Investment?
Considering the prevailing circumstances, is real estate still one of the best investment options in Germany?
Absolutely! Despite higher interest rates, historical evidence reveals that real estate can yield favorable returns. The key lies in considering factors beyond interest rates, such as location. Investing in properties situated in strategic locations minimizes the long-term influence of interest rates. Moreover, the German government provides special tax deductions for investors, further reducing the impact of interest rates. Real estate remains an influential asset class for long-term wealth accumulation.
Private vs. Professional Investors in Real Estate
What sets apart private investors from professional developers in the real estate market?
Private investors often lack the resources and ability to engage in full-time real estate development. While they can undertake smaller projects like single homes, scaling up becomes challenging. Additionally, private investors tend to have longer investment horizons, often planning for ten years or more.
In contrast, professional developers typically focus on projects with durations ranging from 18 to 36 months. This difference in time perspective also affects return expectations, with professional developers aiming for higher absolute returns.
Understanding the Role of a Professional German Property Developer
Could you provide us with an overview of your company, and its activities?
We consider ourselves a classical real estate developer. Our business model revolves around building and selling projects. However, our long-term strategy involves acquiring properties, obtaining construction permits, and managing the construction process through our companies. This enables us to generate consistent rental incomes and handle asset management for our projects.
Currently, we manage approximately 30 million euros worth of assets in Germany for example in Hessen, North-Rhine Westphalia, Köln, Düsseldorf and Mönchengladbach. near Munich, which boasts a strategic location within the S-Bahn region.
Our pipeline includes four projects in Germany, around Frankfurt, Stuttgart, Munich’s suburbs, and Nuremberg. We are revitalizing existing buildings through energy efficiency programs and developing new constructions on acquired plots.
Focus on B and C Cities: Strategy
Your company appears to have a clear focus on B and C cities rather than expensive A locations. What drives this approach?
A significant factor influencing our focus on B and C cities is the intense competition in A locations. As a growing but still relatively small company, it makes more sense for us to operate in B and C cities. The COVID-19 crisis has amplified the trend of remote work, increasing the demand for living spaces in these cities.
This heightened demand has contributed to rising prices and land values. While negotiating in these locations can be challenging, the sustained demand ensures our buildings find buyers. In the long run, B and C cities provide residents with economic stability and a preferred lifestyle, making them desirable places to live.
How Investors Can Benefit from Real Estate
Is there anything else you would like to share with our readers?
Real estate stands as one of the most reliable and profitable investment options. Unlike other assets, real estate offers both long-term appreciation and regular income through rental returns. It provides a tangible and valuable asset that can withstand economic fluctuations.
Additionally, real estate investments can benefit from tax advantages, such as deductions and depreciation. The ability to leverage financing further enhances the potential returns. Overall, real estate investment offers stability, potential for growth, and a hedge against inflation, making it an excellent choice for investors seeking long-term wealth accumulation.
Note: The interview has been edited for clarity and brevity.
However, understanding the financial and personal impacts of your choices is crucial. If you are already searching for a property or have found one, we are here to provide support.
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Disclaimer: Please note that the information provided in this blog is based on personal research and collected data. It is always advisable to conduct your own thorough research and seek professional advice before making any investment decisions or taking any actions.
