“Are you looking for an investment property that will bring you secure and long-term income?” Says the website of the property marketer Accentro. “Then condominiums in Berlin are just the thing for you”. Fittingly, the listed company has numerous properties on offer, including a former Allied settlement in Dahlem.
But anyone who wants to shop in the “Green Quarter” has to be well-heeled. A rented 120-square-meter apartment with a view of the Dreipfuhlpark costs around 623,000 euros; if you want to buy an unlet property near the park, you have to put 792,000 euros on the table. A lot of money for a block of flats from the 1960s. It is in a prime location, but numerous apartments are still as they were in 1995, when German federal employees first moved into the former Army apartments. Asbestos exposure included.
Is concrete gold still worthwhile as an investment?
The desire for real estate is great, but is the concrete gold really worthwhile as a capital investment? Or can buyers only lose in the face of the gold rush mood of the past few years, which has driven up purchase prices especially in metropolises? The real estate experts at Stiftung Warentest have done the math. In the summer and autumn of last year you examined eight offers to buy rented apartments in major German cities, including the “Green Quarter”.
Your conclusion is sobering: “High prices, modest rents”, it warned in the current February issue of “Finanztest”. Profitable apartments are currently not easy to find. The purchase prices are too high and the rents too low for this, the consumer advocates point out.
This is particularly striking in the Berlin example. The Dahlem apartment assessed by the testers should cost 704,000 euros, excluding additional costs for brokers, land register, taxes and notary. Around 5850 euros per square meter are steep, but not unusual for Dahlem, write the testers.
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The prices are high, the rents are low
The problem: Even the 1010 euros rent excluding rent that tenants had to pay before the rent cap came into force are “almost ridiculously low” compared to the purchase price. Since November it has only been 878 euros, writes the Stiftung Warentest. The purchase price is now 67 annual rents, the initial net rental return is just one percent. This can only pay off if the future owner either increases the rent significantly – which is likely to fail because of the Berlin tenant protection laws – or resells the apartment well later. But one shouldn’t build on it, warn the consumer advocates. However, despite the rent cap, some tenants also pay slightly higher rents of 950 euros net cold.
The old rules of thumb no longer apply
For a long time, the rule of thumb was that the purchase price-rent ratio in metropolitan areas should not be higher than 20. The purchase price is divided by the annual net rent (monthly rent without operating costs times twelve). In the meantime, however, 25 or 30 times the annual rent is not unusual.
The testers view this with skepticism. Because whether the high price level will hold when interest rates rise again is more than doubtful from their point of view. Those who climb high have a lot to lose. Your tip: It is better to calculate for a possible resale only with 25 times the forecast annual rent.
How high should the return be?
The following applies to rented properties: Even the most beautiful apartment is only worth buying if the purchase price is reasonable in relation to the rent. The net rental yield helps to assess this. It puts the purchase price and ancillary costs in relation to the expected rental income. Ten years ago, a five percent return was possible, today you have to be happy to achieve three percent.
At two percent, the consumer advocates warn, one should be careful, because then buyers would have to hope for high increases in value and rents in order to make their cut. “After the brilliant price development of the past few years, this is anything but certain,” says the financial test.
The practical test also shows how high the prices are. In addition to Berlin, the consumer advocates were in Hamburg, Hanover, Dortmund, Frankfurt am Main, Leipzig, Dresden and Oberschleissheim near Munich. With all offers, the purchase price was more than 30 times the annual net rent, with one exception. In Hanover, the testers came across an apartment near the Expo site. The 90 square meter apartment should not even cost 200,000 euros, which is the equivalent of 20 times the annual rent. But this offer also had a catch: some of the buildings were in need of renovation, and renovation costs had to be borne proportionally by the owners.
Apartments cost a lot and bring little rent
“Investors must expect that after the price boom of recent years they will be offered real estate that costs a lot but brings little rent,” warentest warns. Real estate providers still seem to be speculating on a continuation of the boom. In the third quarter of last year, prices rose as sharply as they did in the fourth quarter of 2016, reports the Federal Statistical Office. If you believe the real estate portal “Immoscout”, Berlin is particularly in demand. The asking prices for the purchase of residential real estate on the Spree rose by 12.5 percent last year, more than anywhere else in Germany.
Why real estate is so popular
There are many reasons for the propensity for concrete gold: safe investments have not brought interest for years, but loans are cheap. And because trips were canceled last year, many people saved money in the corona crisis. According to estimates by DZ Bank, the financial assets of private households are likely to have increased by 393 billion euros in 2020 to a maximum of 7.1 trillion euros.
Real estate is also considered a reliable, crisis-proof investment. But consumer advocates see it differently. They warn against simply continuing trends. All the more so since large sums of money are at stake when buying real estate.
Buyers should be aware of this
Therefore, if you want to buy a property, you should observe a few rules, recommends Stiftung Warentest. It starts with the choice of location: Avoid expensive metropolitan areas and switch to less popular, but still attractive B-locations. Münster, for example, where apartments are still available in good locations for 3500 euros per square meter.
Check that the price offered is reasonable and do so on the basis of real sales contracts. You can find an overview for Berlin here. You can use nationwide values here see. Think about whether you want to buy a rented or vacant apartment. New contract rents are usually higher than existing rents.
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Read the minutes of the owners’ meetings
Before signing the purchase agreement, read the declaration of division, the community regulations and the minutes of the owners’ meeting. Let us also show you the last annual statement and the business plan.
And: Make yourself a picture. Visit the apartment – if possible, not just once. And take an expert with you, especially for older buildings. So that you actually get concrete gold for your money and not just concrete.
A note on our own behalf: The author is a tenant in the “Green Quarter” development described in the article. This has no influence on the reporting. It is a coincidence that Stiftung Warentest chose this system for its investigation.
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