One of the joys of living in Berlin as opposed to London or New York was not having to endure tedious conversations about house prices. More than two decades after the fall of the Berlin Wall, only about 15 percent of its residents own their homes (in London it's almost half).
Until recently the city's vibrant cast of creative misfits didn't care a sausage about that because rents were astonishingly low for a European capital. So the feeling was: why buy?
But if you're a Londoner looking for a post-Brexit lifeboat, or a hipster priced out of Williamsburg, I'm afraid there's bad news: Berlin's no longer a bargain. Its population has swelled by 200,000 to about 3.5 million population since 2011, vacant properties have all but disappeared and new supply hasn't kept pace.
Foreign investors have decided German property is a safe place to park money, with predictable results. Asking prices for existing apartments surged about 24 percent in the 12 months to September, according to property portal Immobilienscout24, while rents climbed 10 percent.
Berlin housing is still cheap compared to other cities, of course. Last year the average sale price for an apartment exceeded 200,000 euros ($222,000) for the first time, which probably wouldn't buy you a parking space in parts of London. Berlin ranks only 74 on a list of the most expensive German cities to buy a home, far behind Munich, Hamburg and Frankfurt.
Even so, the median asking price for an apartment in central, trendy areas such as Mitte, Friedrichshain or Kreuzberg (where expats want to live) is well above 4,000 euros per square meter, almost double five years ago. Last year more than 500 Berlin properties fetched more than 750,000 euros.
After a long period when German property prices stagnated, a catch-up in Berlin was overdue and the market will probably rise further. With jobs plentiful and the economy in reasonable shape, Germans feel wealthier. Savings don't provide a return these days, which makes house-buying more attractive as mortgage rates tumble.
Yet there's a clear risk here of losing touch with reality. Berlin prices have risen much more quickly than rents, suggesting there's a limit to what locals can afford and that landlords might not get expected yields. Price-to-income ratios are more stretched.
For investors betting on an ever-rising market, there are other factors to consider. For one, flipping homes isn't very profitable in Germany. Agent fees, taxes and other transaction costs can add more than 10 percent to the purchase price, and if you sell a property within 10 years you'll pay capital gains tax. And while new mortgage loans jumped 22 percent to 244 billion euros last year, lending standards are still pretty conservative. German buyers typically bring a big chunk of equity.
German politicians also like to intervene to keep cities affordable. So far they haven't been too successful, nor have they put off buyers. The so-called Mietpreisbremse (a law to cap rent increases) has been largely circumvented. But that won't stop politicians trying again. This year Berlin has clamped down on people renting out apartments via Airbnb.
A lingering risk for investors is assuming Berlin will, over time, become like any other capital city: ruinously expensive. Sure, it's a tourist magnet but it's not a financial center. Germany's big employers are usually found elsewhere, limiting the high earners who might settle there. While unemployment has fallen, Berlin's 9.2 percent jobless rate is far higher than the national average.
Berlin's a start-up hub but plenty of other European cities are trying to lure young techies. If rents and prices go much higher, it will lose its chief attraction to the hipster crowd: low living costs and lots of cheap space. That might be a brake on the mania.
This column does not necessarily reflect the opinion of Bloomberg LP and its owners.
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