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Homeownership is cheaper than renting
It is roughly 41 percent cheaper to own a home in Germany than it is to live in rental housing. This is revealed by the “Cost of Housing Report 2016”, published jointly by Accentro and Cologne’s Institute of Economic Research (IW), and reported by the IMMOBILIEN ZEITUNG on 01.12.2016. As the report clearly shows, even owner-occupiers in Germany’s largest cities reap the financial benefits of homeownership. The study compared the regular housing costs for tenants and owner-occupiers, breaking these down into square metre units for easy comparison. The cost base for owner-occupier costs includes mortgage costs, lost returns on equity capital and savings, land transfer tax, maintenance costs, depreciation and changes in the value of the property. The study collected data on housing stock in 402 municipal districts across Germany, determining the average property and rental prices for each district. The figures reveal that, in Hamburg and Berlin, it is 45 percent cheaper to buy a condominium than it is to rent an apartment. Buying is also 34 and 35 percent better value in Munich and Stuttgart. A key driver of this development, which has emerged since Q4 2011, is that interest rates have fallen at a faster rate than prices have been rising. This means that the cost benefits for owner-occupiers will not be eroded even if interest rates have increased by the time they come to refinance after 10 or 15 years. The study’s authors have based their calculations on the assumption that interest rates will be higher in ten years, and have used what they have christened a “neutral interest rate”, assumed to be more than 4 percent in 325 of the municipalities, and as high as 5 percent in 280 of the districts. In Berlin, Cologne and Frankfurt they have based their calculations on interest rates of 3 percent and above. One element that has not been included is the rate at which homeowners pay off their mortgage loan capital as this is a form of asset building that has no equivalent among tenants. It is clear from the study, however, that even if this were included, there would be little change to the benefits enjoyed by homeowners. “In an overwhelming majority of districts, even if homeowners took out 100 percent mortgages, they would still be better of than tenants,” said Jacopo Mingazzini from Accentro. Similar findings are included in a new study from the Pestel Institute on behalf of the “Verbändebündnisses Wohn-Perspektive Eigentum'” (“Coalition for the Promotion of Homeownership”), reported the IMMOBILIEN ZEITUNG on 01.12.2016. In many of Germany’s cities, it makes greater financial sense for households with net incomes above EUR 1,500 per month, even if they don’t have any equity, to buy rather than rent an apartment. Without sufficient savings for a downpayment on their new homes, the study recommends that they should receive government support. The study highlights the fact that there are plenty of existing condominiums perfectly suited to lower-income, first-time buyers, particularly in Bremen, Nuremberg, Lübeck, Bochum, Darmstadt, Bamberg, Aschaffenburg, Oberhausen, Hagen, Hamm and Herne in western regions, and Chemnitz, Magdeburg, Weimar, Eisenach and Erfurt in eastern Germany. The Pestel study determined the relationship between property and rental prices in Germany’s largest cities, basing its figures on a comparison of the IVD’s price indices officially reported rental prices for standard apartments. “This represents an historic opportunity for huge numbers of people to build assets,” wrote Mingazzini in BUSINESS INSIDER DEUTSCHLAND on 30.11.2016.
Amendments to Germany’s Building Code will ease the development of land in outlying areas
The German government’s new draft amendment to the country’s Building Code contains a section that has been added since the original draft. This was reported by the SÜDDEUTSCHE ZEITUNG on 02.12.2016 Section 13 b regulates the “inclusion of outlying areas in accelerated construction approval processes.” This will allow the development of entire regions on the outskirts of villages and communities, so-called “outlying areas”, to be dealt with under new streamlined planning and construction approval procedures. For a period of three years, the new regulation will allow the zoning of new development land without lengthy public notification and consultation requirements. It is also possible that extensive environmental impact assessments and compensatory measures under nature protection laws may also be suspended. The new section has been inserted at the request of members of the governing CSU, but could still be amended if a majority in parliament want to do so. However, the Federal Construction Minister, Barbara Hendricks, thinks that this is unlikely.
Continued investor interest in Berlin real estate, despite rising prices
In an article on 01.12.2016, the IMMOBILIEN ZEITUNG reported that, although prices have risen, residential real estate in Berlin remains popular among investors in comparison with other capital cities. And this is despite the fact that prices are still rising. The article is based on the latest Property Price Survey published by the IVD Berlin-Brandenburg, which, unlike a number of other studies, uses actual rental and property prices, rather than asking prices and advertised rents. The data reveals that the average rent being paid for a standard apartment in a standard location has risen by 6.7 percent to EUR 8.00/sqm. In better locations, the increase represented 5.5 percent, with tenants now paying an average of EUR 9.50/sqm. The biggest price increases are reported in the lower price segments, largely as a result of modernisation costs being passed on to tenants in the form of increased rents. Prices for new condominiums have increased even more dramatically, by between 12.5 % and 13 %. The average price for a standard, newbuild condominium in a standard location has now climbed to EUR 3,600/sqm, and in better locations to EUR 4,300/sqm. These latest increases have been fuelled by increases in construction costs and land prices. Even in more affordable districts, the price of land has surged by an average of 26 percent, and now costs EUR 300/sqm. In particular, land on the outskirts of the city has become far more expensive. The average price of an existing condominium in a standard location has also risen substantially, adding 13.5 percent to reach EUR 2,100/sqm. This is slightly higher than the previous year’s increase, which represented 12.2 percent. In more sought-after districts, prices have risen by an average of 12 percent to an average of EUR 2,800/sqm in 2016, which is a slowdown from the previous year (2015: 13.6 percent). In a Berlin-wide comparison of desirable districts, Mitte (EUR 3,700/sqm, +12 percent) came out ahead of Charlottenburg (EUR 3,500/sqm). Significant price increases were also registered in the better neighbourhoods of Berlin-Marzahn (EUR 2,400/sqm). Of the standard locations, Charlottenburg (+17.4 percent) outperformed Friedrichshain-Kreuzberg and Mitte (each with +16.7 percent). In the mixed-use residential/commercial investment market segment, prices are not increasing quite as rapidly. In standard locations, prices have risen by 7 percent so far in 2016, reaching an average of EUR 1,500/sqm, whereas more desirable neighbourhoods have seen price increases of 5.5 percent to EUR 1.900/sqm The eastern city outskirts have seen some of the largest price increases, whereas prices in Charlottenburg-Wilmersdorf (EUR 2,500/sqm) have stagnated. Low interest rates are identified as a significant factor in driving demand for real estate.
Potsdam is an attractive investment location
As revealed by the FAZ on 02.12.2016, Dr. Lübke & Kelber has anointed Potsdam as one of the top investment locations for residential real estate in Eastern Germany. At EUR 9.82/sqm, Potsdam’s rental prices are higher than most of the region’s other cities. This has been confirmed by a new TAG Immobilien housing market report. In order to make Brandenburg’s state capital even more attractive, the city centre is being redeveloped following the demolition of a vacant high school building. On this 1.5-hectare site, a total of 32 houses have been individually designed to harmonise architecturally with the historic built landscape of the city. “With this new city quarter, we want to create a vibrant mix of residential and business space,” commented Potsdam’s Mayor, Jann Jakobs of the SPD.
More flexible parking space requirements in Frankfurt
On 01.12.2016, the IMMOBILIEN ZEITUNG reported that Frankfurt’s City Council had approved new parking space requirements for property developers. Investors are now able to partially reduce their obligations to build parking spaces by they making voluntary payments to city authorities and funding public transportation tickets. This cuts the amount of land they need to set aside for parking and limits the extra effort of building parking facilities. A payment of EUR 10,000 would free an investor from the obligation to build a parking space and a bicycle storage space could be omitted for a payment of EUR 1,000. Depending on the specific location and the existing public transportation infrastructure, developers would still be required to build between 25 and 50 percent of the specified number of parking spaces. Furthermore, the new regulation for residential housing contains a provision that allows the requirement for parking spaces to be as much as doubled, if planning authorities decide that this appears to be necessary for a specific project In contrast, in districts with extensive and well-established public transportation systems, where no new parking spaces would normally be required, developers will be permitted to construct one parking space for every 100 sqm of living space they develop. This provision does not, however, apply to commercial property developments. If the users of commercial and public sector buildings make particular efforts to reduce traffic, for example by providing employees with public transportation tickets, developers will be permitted to reduce the number of parking spaces they would normally be required to provide by up to 50 percent. The new regulations no longer base parking space requirements on gross floor areas, largely because of the problems in reliably determining this unit of measure in relation to retail properties, which will now be classed as shopping centres as soon as they exceed 1,750 sqm. Large-scale retail developments must now provide one parking space per 25 sqm of floorspace, while smaller retail developments will have to provide one space per 50 sqm. A distinction is now also made between detached and semi-detached houses on the one hand and apartment buildings on the other. In the first category, the new regulation requires space for 1.5 cars and 3 bicycles to be provided, whereas apartment buildings will be assigned to one of five new zones, depending upon the neighbourhood they are located in, which means they will need to provide space for between 0.8 and 1.1 cars per 100 sqm of floorspace, or no parking spaces at all if they are in districts with good public transportation.
New shopping centre space halves in just twelve months
As reported by the IMMOBILIEN ZEITUNG on 01.12.2016, the latest Cushman & Wakefield “European Shopping Center Development Report 2016” reveals that just 64,000 sqm of new shopping centre space opened for business in Germany in H1 2016, half the amount of the prior corresponding year period. Before the end of the current year, an additional 190,000 sqm of shopping space will come on-stream thanks to five new centre openings and the extension of a number of existing centres. A shortage of available land and Germany’s restrictive planning regulations are making it increasingly difficult to develop new shopping centres. As an alternative to new developments, the revitalisation of existing shopping centres in established retail locations makes perfect sense. Investors should make sure that any modernisation is targeted at increasing the length of time visitors spend in a shopping centre, advises Angelus Bernreuther of BBE Handelsberatung: “The amount of time shoppers spend in a centre is a key factor in determining the future potential of a centre.”
More money for urban development
In an article on 09.12.2016, the SÜDDEUTSCHE ZEITUNG revealed that Germany’s federal government has increased funding for urban development. Next year’s federal budget allocates EUR 790 million for seven different urban development programmes. EUR 190 million will be spent on the “Social State”, while a total of EUR 260 million will be used to redevelop industrial and brownfield sites, along with unused barracks and prefabricated apartment blocks under the “Urban Redevelopment” programme. Of this, EUR 120 million will be spent in Germany’s eastern regions and EUR 140 in the country’s western half. Eastern Germany will receive EUR 70 million to fund building conservation measures, while the western regions have been allocated EUR 40 million for the same purpose. The “Active Town and City Centre” programme is being funded to the tune of EUR 110 million, while a further EUR 70 million has been reserved for the “Small Town and Local Communities” programme. A new programme, “Green Urban Future”, has been allocated EUR 50 million. According to Axel Gedaschko from GdW, the real estate industry has welcomed this new funding and welcomed the increase in money for urban development as a strong signal of government intent.
No solution yet for the Alliance for Affordable Housing and Construction
The future of the Alliance for Affordable Housing and Construction remains unclear, reported the IMMOBILIEN ZEITUNG on 08.12.2016. Even crisis talks held between the Federal Construction Minister, Barbara Hendricks (SPD) and the relevant real estate industry associations have not been able to resolve the situation. Hendricks defended the government’s new “Climate Protection Plan 2050”, saying that the tougher targets for the reduction of carbon emissions from buildings were needed to ensure that the real estate industry makes the same contribution to cutting emissions as other industries. It is therefore the extent to which emissions have already been cut is essentially irrelevant; it is future carbon reductions that count. The real estate industry has responded by highlighting the massive carbon savings that have already been delivered in the sector. Industry representatives point out that, since 1990, greenhouse gas emissions from buildings have already been cut by 43 percent. There is consensus across the industry that, by 2030, emissions should be cut by at least 62 percent in comparison to 1990 levels. But the new plan now calls for reductions of at least 66 percent by 2030. The real estate associations have announced that they will only rejoin the Alliance for Affordable Housing and Construction if a common approach can be found in relation to the government’s climate protection targets. Working groups will now be set up between industry associations and the Ministries for the Environment and Construction to determine just how these stricter emission reduction targets can be achieved. Real estate industry associations have long complained that they are not sufficiently involved in the development of climate protection and energy saving regulations (e.g. EnEV). Meanwhile, it seems as if there is a possibility that the straight-line depreciation of buildings may be increased from 2 to closer to 3 percent per year, possibly during the current parliament. Government sources have indicated that a range of options are being considered. It is not yet clear what position the Federal Finance Ministry has adopted.
Could share deal restrictions lead to property transfer tax cuts?
With the forecast increase in tax receipts as a result of regulations intended to restrict real estate share deals, Hesse’s Finance Minister, Thomas Schäfer, has announced that he hopes to finance a reduction in the state’s property transfer tax, having increased the rate from 5 to 6 percent on 1 August 2014. His plans were revealed by the IMMOBILIEN ZEITUNG on 08.12.2016. Just how he plans to restrict share deals is, as yet, unclear, although it has been confirmed that an initial proposal has now been submitted, with a second due to be submitted in March 2017. One potential measure would involve reducing the threshold at which tax has to be paid. During initial political debates, it has been suggested that this could involve a reduction to 75 or 50 percent.
Personnel shortage is the main reason for building permit delays
According to an analysis carried out by the Cologne-based Institute for Economic Research (IW), the snail’s pace at which building applications are being dealt with is mainly due tho the fact that municipal authorities have spent the last few years attempting to get their finances under control by drastically reducing personnel. This was the subject of an article in DIE WELT on 03.12.2016. The problem has been compounded by the fact that public sector wages are significantly lower than the wages planning specialists can earn in the private sector. The starting salary for a construction engineer in the public sector is roughly EUR 33,000 per year, while property developers and real estate companies typically pay more than EUR 40,000 per year. Experts from the EBZ Business School in Bochum have blamed the situation on municipalities’ excessive desire to cut costs, particularly as, between 1996 and 2007, when the number of building permit applications sank below 150,00 per year, they consciously decided not to fill vacant local building authority positions. Prior to the current real estate boom, the number of students on construction engineering courses plummeted, creating a shortage of young, skilled employees. Even if municipalities decide to increase local building authority budgets in order to quickly refill vacant positions, they will find that there are nowhere near enough qualified new employees to recruit. There does not appear to be an alternative quick solution to the problem. One way in which the federal government and municipal authorities could ease the situation, would be to stop making the building permit process more complicated by constantly adding to existing building regulations. Streamlining and simplifying existing regulations would allow building authorities to work much more effectively.
Fewer transactions in the residential investment market
According to CBRE, a total of EUR 10 billion will be invested in the residential investment market in 2016, reported the IMMOBILIEN ZEITUNG on 08.12.2016. One reason that investment volumes are so low is that there is almost no product coming to market, said CBRE’s Konstantin Lüttger. In major metropolitan areas, investors are therefore being forced to turn to newbuild property developments, which have accounted for roughly 25 percent of residential real estate investments in 2016. This is an increase of 5 percent compared with the previous year. International investors have once again stepped up their interest in German housing portfolios. For the full year 2016, CBRE expects that around 25 percent of total investment will be attributable to foreign investors. CBRE also predicts a similar shortage of supply in 2017 and forecasts that the transaction volume will fail to break through the EUR 10 billion threshold.
Hamburg is heading to a building permit approval record
It looks as if Hamburg’s building authorities will approve more building permit applications this year than at any time since the record year 1995. This was reported bin an article in the IMMOBILIEN ZEITUNG on 08.12.2016. According to the article, 11,256 residential units had received building permits by November this year. The figure was announced by Hamburg’s Senator for Urban Development, Dorothee Stapelfeldt, during a presentation of the city’s Housing Construction Report 2014/15. 1995’s long-standing record was set when a total of 11,600 building permits were issued. If completion rates remain constant at last year’s level, a total of 38,000 residential units will have been built in the city between 2011 and the end of 2016. The construction backlog, i.e. the difference between completions and approved units, has increased from 7,136 in 2010 to 18,058 in 2015.
Research initiative launched to improve energy-efficiency in residential buildings
The newly established Alliance for a Climate-neutral Housing Stock is planning a broad-base of research projects to improve energy-efficiency within the residential real estate sector. The plans were examined by the IMMOBILIEN ZEITUNG on 08.12.2016. The Alliance, whose members include the GdW and Techem, aims to demonstrate that a range of simple measures can be used to deliver significant energy savings. This is important because, despite the fact that two-thirds of Germany’s housing stock has been modernised since 1990, modernisation rates are currently slowing down. The research initiative has recruited a large number of well-known real estate companies, who are now working closely together with universities and research institutes. A range of technologies are being tested in more than 500 apartment buildings and data is being collected on their real-world effectiveness, including the extent to which they reduce emissions and energy consumption. Among the technologies being tested are app-based Smart Home systems, hydraulic balancing in heating systems and intelligent ventilation assistants.
GERMAN REAL ESTATE NEWS
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Feri Real Estate Market Rating
The Feri Real Estate Market Rating provides a forward-looking assessment of potentials and risks for investment return on regional real estate markets. Ratings are based on detailed econometric forecasts of regional real estate markets including regional economic development. The rating currently includes more than 150 cities in Europe, in the United States and in Asia.
In this issue:
Real Estate Market Rating for Augsburg
Traditionally, Augsburg was an industrial location. But over the course of the last two decades, its economic structure has changed notably, and the manufacturing share of regional production has decreased. Even so, the output share of the manufacturing sector still exceeds the German average. At present, industry in Augsburg is mainly focused on mechanical engineering (especially printing machines) and electrical engineering. Complementing these more traditional enterprise segments, a growing array of high-tech and environmental technology companies is diversifying the sectoral configuration. The aerospace industry is another relatively recent and promising entrant to the region’s enterprise mix. The service sector mostly specializes in business-oriented services. Augsburg has a satisfactory research infrastructure. Its transport connections are good; one can reach Munich in only about 30 minutes, via a rail trip on the “Intercity Express.”
Feri rates Augsburg as a business location “A”, which is upgraded to the 3rd quarter 2015. It translates into “high potential, low risk”. With this rating result the city ranks 6th in the comparison of German B-Centers.
Office Real Estate
Regarding office real estate Feri rates Augsburg “B+”, which is upgraded to the 3rd quarter 2015. The city ranks 3rd among office locations of German B-Centers. Feri awards the office top locations “B+” and the side locations “B+”
Augsburg’s office market performance was weak for many years. Significant space expansions in the mid-1990s had a major dampening effect. Excess supply, together with restrained demand, induced a long, seldominterrupted trend of falling rents. In the meantime, a trend change has taken place at the office market. Both the prime locations as well as the sub-locations recorded strong rental increases. In the upcoming term of the forecast period, rents are expected to increase moderately, especially for well-equipped offices with good traffic connections.
Retail Real Estate
In the comparison of German B-Centers regarding retail real estate Augsburg placed 9th with a rating result of “B”, which is unchanged compared to the 3rd quarter 2015. Feri awards the retail top locations “B” and the side locations “B”.
Augsburg is a regional retail center. In the 1990s, big projects added a large volume of retail space. The upshot was a long period of falling rents, with especially adverse effects in the inner city. The opening of the Fuggerstadt-Center in the year 2000 added even more retail store space to the inner city area. This supply augmentation put further downward pressure on rents. By now retail rents in Augsburg have recovered. In coming years, retail rents at both top and secondary locations are expected to moderately increase in the inner city as well as in the secondary locations. First-class retail space in the inner city is well demanded by chain stores. The newly developed pedestrian zone enhances the improved inner-city quality.
Residential Real Estate
When it comes to residential real estate, Augsburg placed 6th among German B-Centers with a rating result of “B+”, upgraded to the 3rd quarter 2015.
Long term low new building activity in the period 2006 to 2012 in the multifamily residential segment supported a pattern of generally rising rents, for both new and existing apartments, that continued for several years. It is expected that the rental market is going to continue to develop positively due to increasing number of households. Students’ demand contributes to this development.
Augsburg’s residential property market is characterized by a high demand for property. This applies to town houses, single-family houses and over all condominiums. In the past years, residential property sale prices have been risen significantly. Demand for family-friendly, 3 to 4 room apartments and for 2-room apartments is especially high. Prices are expected to increase further.
Contact:
Franz Wolfgang Kubatzki, wolfgang.kubatzki@feri.de, phone +49 (0) 6172 916-38 11
Feri Real Estate Market Rating
The “Feri Real Estate Market Ratings” issued by Feri appraise the value potential of regional real estate markets, taking into account the attendant risks. The methodological approach underlying Feri Real Estate Market Ratings is rooted in the empirical observation that the performance of a given real estate market depends essentially on the economic power of the respective city. Before this background, Feri develops a separate prognostic model for each city, mapping the regional economy as a system of independent equations.
For the purpose of compiling its ratings, Feri uses a detailed regional forecast to analyse the socio-economic development, the economic structure, as well as the ten-year indicators specific to the respective real estate market. The forecast findings are evaluated using a mathematical rating algorithm.
The objective behind the ratings is to make the markets more transparent, and thereby to support pending investment decisions of private and institutional investors. Feri ratings are updated on a quarterly basis, and are currently available for 67 German cities and counties, as well as for 60 European cities outside Germany, and 45 cities in the United States.
Feri EuroRating Services AG
Feri EuroRating Services AG is a leading European rating agency, specializing in the analysis and valuation of investment markets and investment products. Feri is also a major economic research and forecasting institute. At present, Feri employs a staff of around 60 professionals to manage about 1000 customer accounts. The company is headquartered in Bad Homburg near Frankfurt, Germany, with sales offices in the United Kingdom, France, and the United States. In addition to its global industry analyses and ratings of companies, countries, capital and real estate markets, Feri regularly appraises the investment funds registered in each country. Annual market surveys on institutional and mutual funds as well as on closed-end participations provide an overview of the perspectives and actions of institutional investors. In the real estate sector, Feri conducts global real estate research, performs real estate valuations, and provides ratings of companies, REITs, real estate, real estate portfolios, and indirect real estate investments (open-end and closed-end real estate funds).
For more information on Feri EuroRating Services, please go to http://fer.feri.de/en/about-us/portrait/.
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