House prices in Germany

Londine won't tell you (since she hasn't a fucking clue about Albany except that it's near Fortnums), so I will - essentially in the late 90's or early noughties the style editor of GQ was found dead in the courtyard - seems he'd fallen or been pushed from his window. Various theories spread, with family and friends suggesting murder most foul. The coroner, I think, finally recorded an open verdict, or one of mis-adventure - the best theory seems that he had an asthma attack, rushed to the window for air, leant out, passed out and fell out (to his death). To make matter worse he wasn't found for a day or so (as he feel into a staircase to the basement).

In order to establish truth - Londine, if you know Albany so well, perhaps you can describe the place (from the outside - I've been in, but not to your flat I don't suppose)?

http://news.bbc.co.uk/1/hi/uk/891492.stm

My memory impressed even me just then. Mind you, I started at a firm just a few doors down a week or two after that happened.

Thanks Jimbo... nice to have the suspense resolved before lunch. Also confirms that Londine is indeed full of crap, so closure all round.

That is an interesting experiment in international breeding, no?

Just digging up this old chestnut 'cos a link dropped into my inbox this morning, from a good independent website:

http://www.fool.co.uk/news/property-home/2...ioowftxt0010011

Normally we get these sad optimistic souls that have just purchased a house in Germany and now expect to make money. Dream on. From 2001 to 2006 the prices actually
dropped 5%.


So for most people it would appear that for flexibility and even financially - renting makes a lot more sense over here. Mortgage payments are 95%+ just interest, so renting and saving a bit on the side is the most sensible option.

The bit in the above quote that does not quite make sense, is that whilst it may be true that only 45% of Germans are homeowners, some bugger must own the other 55%!! So I assume this means that there is a MUCH bigger % of property held by private landlords. This would also to my unqualified mind seem to imply a greater division of wealth. There must be more German landlords with 2,3, 4 or more properties than compared to the UK.

Would be interesting to figure out how much of this is influenced by the tax laws etc. It would seem that landlord property ownership is "unusually" popular considering there is no increase in equity and also low % returns on your capital invested.

My wife's uncle said that it goes back to WW2 when after the war you lost all your cash, but if you owned a property - you still owned a property. So it is pretty much a subconscious mistrust of banks and the stock market?

p.s. I also think


does not quite make sense frankly? I don't see how this would make people averse to debt. I would be shit scared of lending - but borrowing is only ever truly risky for the lender!!

The hyperinflation of the Weimar Republic was 'beneficial' to debtors to the extent it wiped out the real value of their debt- of course it wreaked massive havoc in all other economic realms and circumstances.

What exactly is the tax treatment of rental income, and interest expenses for mortgages on rental properties? What about insurance and other costs, are they tax deductible as well? If we know the answers to these questions, we can analyze the conundrum from the landlord's point of view.

EDIT: also, if the market for owner-occupied housing is weak (i.e., low to no capital appreciation) is that also the case for rental housing, whose value is heavily derived from income flows (rents paid by renters)? I suspect that the 10-year holding period to avoid capital gains tax has a strong hand in depressing property prices here, as do the relatively high transaction costs.

In Munich, lots are owned by banks, breweries, trust funds etc though some of course are owned by wealthy indviduals.


Depends on where the rented housing is, what type of tenants, the social rise (or fall) of certain areas and new rental contracts.

again, this begs the question - what are banks and breweries doing involved in being landlords? Is it again a tax game?

I think it started out after the late unpleasantness when various trusts/companies were founded to manage rebuilding housing in Munich.

It should also be mentioned that there is another factor affecting housing prices in Germany- demographics. Working age population seems to be shrinking and the welcome mat is not out for immigrants, trends which if they continue, would augur for a continued weakness in housing prices.

It's a stable investment for some of their portfolio?


But household sizes are shrinking at the same time as well as people form partnerships and families later.
BTW, flat house prices are only a "bad" thing if you are after a relatively quick buck.

There are a lot of perspectives from which to analyze the effects of flat nominal housing prices, which still lose real value when inflation is taken into account. No way for me to address them all here.

In a lot of situations, real (after-inflation) housing prices are zero over an extended period of time. Absent any tax benefits, if viewed as an investment, you end up losing money after taking transaction and maintenance costs into account in such a situation. In this scenario, unless rents are higher than the cost of a mortgage, you are better of renting and putting your money into assets that have a better chance of being profitable after inflation and taxes.

If housing prices are outstripping the inflation level sans-owner occupied housing over an extended period of time, then (AOTBE) housing will attract more investment, will see an increase in supply, and some sort of wealth effect.


EDIT: I expect a lot more corporate ownership of residential properties if residential REITs are ever legalized.

Which is why corporates in the housing business view it as a LONG term investment.
Disregarding any tax issues, as long as the rental income is higher than the capital cost and maintenance over a period of X years then it is worth it.

They could of course alternatvely invest all their money in a an alchemist in China who says he can turn horse shit into gold...but not quite as safe.

This of course doesn't square as a concept with people from English speaking countries who view significant fast rises in the "value" ie market price of a property anherently "good" thing.

Well, obviously overheated markets for any asset have negative consequences, but I see nothing wrong with moderate asset price increases in real terms.

Landlords who can buy property with cash or obtain capital at a favorable fixed rate of interest will, in an inflationary environment (anything above zero) over time probably see their income outsrip any costs of servicing debt and maintaining a property. That said, a property rising in value means more valuable collateral for future loans on it or other properties, a lower cost of capital, and may also indicate scarcity (the prime reason for UK housing increases) or otherwise improving income flows.

Inflation benefits the landlord, especially the leveraged landlord; however, Germany usually enjoys low inflation. It all depends on the various conditions and assumptions whether or not it makes sense. If you expect future inflation to rise, it makes even more sense. Deflation, although rare, or zero inflation, would not benefit a hypothetical landlord.

Given the overvaluation of the euro on a PPP basis against other currencies, I think that an investor might find higher returns investing in foreign real estate or financial assets. It just depends on each situation's individual circumstamces, and whatever the future holds.

and the Catholic Church, (and not just freising). i think goes back to Middle Ages.

Yep, a woman I know was a heroin addict and turning tricks at the Hauptbahnhof to feed her habit.
She then managed to get her life back together, off that shit and was caring, living in for an elderly relative in a block of flat owned by the church.
When he died they sold the flat for rennovation into yuppie luxury flat and she was thrown out.
Now guess what she is doing?
Halle-bloody-lujah!

You may have noiced that all the pubs that used to sell Pöttmes Bier in Munich are now selling HB. Why that?
Because for 101 reasons, Pöttmes are currently not brewing but all the pubs in the building they own need beer so they subcontracted the supply to HB.

Perhaps some of the big institutions like the breweries or banks have a responsibility to invest locally and SHOULD be in the business of providing housing that enables them to mak a long term profit without short term speculation?

i'm not really understanding this whole discuussion -

can someone explain to me in simple terms why it is that these large companies are so heavily invested in something that seems to live little or no return?

1) Some companies in Munich, especially the big insurers like Allianz and Munich Re, have massive assets (ooer) and more than anything don't want risky investments. As well as having large investments in almost everything else they each own thousands of flats in Munich as this is a low risk way of holding the capital while generating some return in cash.

2) Although the capital appreciation is low I would be willing to gamble that there are some tax advantages to be had by owning all these flats, which in essence gives them return.

Either way you can be sure it's not altruism that leads them to renting out flats...

Because it is a stable long term investment.

Ignoring for a minute tax and maintenance (some of which you can get the tenants to pay):
You as "Pitchfork Brewery" in Munich build flats at EUR 200K a go and rent them out at 500 a month.
In 30 years time, ignoring any rent increases, inflation working in your favour, you'll have paid off the capital costs and it is pure profit.
And Munich is full of blocks from the 50s, 60s and 70s that are now "paid off".

Plus of course if you are a large employer, you can offer the flats "cheap" to staff and pay under local market wages.
Plus if you are a brewer, you can shift your beer through the pubs on every street corner that are tied to you.

Short term profit maximisation and "shareholder value" are less of a priority.

It can give you diversification- in the case of Allianz, most of their assets are financial ones which are sensitive to changes in inflation and interest rates like government bonds. "Hard" assets such as property are hedges against inflation.

It really depends on the investor.

Exactly, this is why the English speaker in Munich who wants the "rise in value" (sic) from home is disapointed in the local housing market, it isn't the product for him to invest into.
As we ll as the corporates with their "own" money there's a lot of private money in the Munich housing market, from small scale savers.
If you go to the local Sparkasse to save EUR X a month they will offer you various schemes.
The safest ones see your money going into government bonds and housing financing.

Cos as they say, the value of your investment can go down as well as up.

thanks for the replies everyone - makes much more sense! i understand that property is relatively stable but next question - why do they invest in munich property and not property in another country with better returns

In my opinion, the bulk of your assets as an indivdual, depending on your risk preferences, age, and your tax structure, should perhaps be in financial assets with the highest after-tax return, and that means equities. One rule of thumb is 100-your age. As for buying a place, well that has been addressed on other threads, but it has merit if it has a lower opportunity cost than renting.

Corporate investors sometimes need to match their income streams with the duration of their liabilities, so they are in a different situation. The closest approximation to this for individuals is a pensioner.

EDIT: rents in Munich are generally the highest in Germany, so if they are disproportionately high to land, construction, and financing costs, why not build here? In another country, you might elect to invest indirectly for tax purposes and to spread risk. Currency risk is a factor to consider when investing overseas as well, something you don't have to worry about if your liabilities and income stream are in the same currency. Changes in exchange rates will affect your returns for any overseas investment, so AOTBE, it makes sense to invest outside of the eurozone when the euro is well above PPP against your target currency. Once again, diversification is key. If you are already heavy on German assets, you might look overseas, or vice versa. It depends, which is the tough part of speaking hypothetically about possible investments. The devil is in the details, and every investor's situation is unique.

1. They feel / are obliged to invest locally.
2. Has various knock on beneficial effects.
3. Higher returns elswhere = higher risks.

Well, we bought our little house, in Landkreis Starnberg, 20 years ago, for 440,000 DMs. It is now worth 400,000 Euros, which is quite a profit I would say. Just 2 hours drive from here, in the Bavarian Forest, one can buy beautiful houses for little money. Seems the Germans don't commute. However, within the past year prices have started to rise in the Bavarian Forest as well. So if anyone wants to invest in property that could be the place to do it.

People in Germany tend not to commute the crazy times/distances they do in the UK and given that the Bavarian Jungle is a relatively poor area without that much high paying employment, the prices are going to be low. Trobule is when housing costs increase without a general increase in icomes where do people go?

Starnberg is one of my favorite parts of the greater Munich area. Since we have a few numbers to work with, I would like to use them as a reminder of the effects of inflation on housing values. 440,000 deutsche marks would convert to approximately 225,000 euros. Now factor in inflation. I wasn't able to find inflation data for Germany going back to 1987, but I did find it going back to 1991: https://www-genesis.destatis.de/genesis/onl...225B06734D7.tc2
http://www.bundesbank.de/statistik/statist...w&tr=YUD420,

Anyway, 400,000 euros in August 2007 is about the same, adjusted for inflation, as 291-292,000 euros in 1991. This is just a crude comparison, and doesn't take into account things like the non-monetary benefits of the house, transaction costs, maintenance costs, any tax benefits, interest payments, and any hidden inflation from the changeover from the deutsche mark to the euro.

EDIT: using OECD data for consumer price inflation on all items, it looks like 400,000 euros in July 2007 was about 260,000 euros in 1987. http://stats.oecd.org/wbos/default.aspx?qu...p;queryname=221

It is one of the "nicest" places to live and the most desireable.
Also amongst the worst expensive.

Not sure how many TTers let alone ordinary Germans could ever deam of buying there now.
Hose price inflation isn't so great if you aren't on the ladder already.