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Beeline for Berlin - 16 April 2007

The former East Berlin now has a thriving buy-to-let market, reports The Independent...

For the past decade, British property-investors have ranged over Europe, searching out the latest property hotspots. Many have poured money into countries they could not locate on the map if a gun was held to their wallet.

But nobody even looked at Germany. Poor economic performance combined with the staggering cost of bringing the former communist East in from the cold held back the property market and kept yields down.

But, just as growth in the current favourites such as the Baltic states and Bulgaria may be levelling off, there are signs that Germany might be on the up at long last.

Liam Bailey, the head of research at Knight Frank, says:

"Too many people look to invest in the top growth location like Latvia, assuming that high growth will continue. It might be a more interesting and perhaps rewarding strategy to look at the bottom of the table and think which of these countries will see the next upturn.

"We think investors could do well to look behind the headline figure and look more closely at some of the German sub-markets."

Seismic changes on the way

Most of these sub-markets are in the old East, in cities such as Leipzig or Dresden and, especially, Berlin, which is re-establishing its position as a major European capital.

Other factors are also at work, however. Stewart Law, at the buy-to-let mortgage specialists Assetz, has detected a new desire by Germans to buy their homes rather than rent them, a decision that could cause seismic changes.

"The burgeoning change in the psyche of the German population from lifelong rental into property-ownership presents considerable opportunity for investors," he says. "Growth is starting in cities such as Berlin, where, incredibly, just 13 per cent of the population own their own homes compared to 43 per cent in Germany as a whole, and 66 per cent in the UK."

As a result, prices are beginning to rise, Law says: "Interest in residential property is starting to increase, pushing up prices which are now typically still just €2,000 [£1,000] a square metre compared to five times that or more in Paris or London."

Lofty ambitions

The latest trend to hit Berlin is for loft apartments, says Bruno Nonaca of IPP Investment.

"A lot of the old fabric is available for refurbishment and we are doing a lot of loft apartments. A former commercial building can yield 7 per cent after refurbishment as lofts”

British investors are also getting interested in the bottom end of the market in the former East Germany, according to the auctioneer Mark Ronaldson of Wilmotts, who has put six assorted properties under the hammer in London. "The market is like the UK in the late 1990s, with institutional landowners selling on a market without enough buyers to take up the slack," he says.

Listen out for our On Demand Radio Show on Germany, coming soon. If you would like to put a question to our experts on the show, just ask us now.

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