Berlin Real Estate Story. PART II: Surfing the wave

And suddenly Berlin real estate was at the top of the wish list of international buyers. Flat and house buyers from Europe and overseas came in several waves. 

by Peter Guthmann Published on:

Big bang ninja and subprime

We remember. In 2007, a development had begun in the USA that would soon shock the financial and real estate markets worldwide as the subprime crisis. The shock wave had started with a new law in the USA a few years earlier. The US government under President Bill Clinton, pressured not to do enough to combat inequality among Americans, had made it much easier to grant real estate loans for the purchase of houses or flats to households with limited financial means. Having one's own flat or house was considered a basic right of every American. Clinton's Housing Secretary directed the two government-sponsored mortgage lenders, Fannie Mae and Freddie Mac, to soften current lending standards. Suddenly, millions of households were enabled to purchase one or more properties without equity, sufficient or sustainable income. Without credit checks, millions of loans were waved through by lending institutions. The banks found it even easier to grant the loans thanks to the favourable refinancing conditions resulting from the low key interest rate. The result was a mega-boom. People built, sold and financed. A price spiral was set in motion. Often a property was sold again at a profit after a short time and further properties were bought with the profits. Over 1.5 million private houses were built with so-called ninja loans ("no income, no job and assets") year after year between 2000 and 2007. On paper, many Americans became richer and richer thanks to the assets. 

Overkill from interest rate helix

In 2007, the whole tide turned. Since 2004, the Federal Reserve had raised the key interest rate in several steps from 1 percent in 2000 to 5.25 percent in 2006. This made the credit volumes that had grown over the years unaffordable for consumers. A huge amount of bad real estate loans had grown into the biggest real estate bubble in history. Nearly 5 million vacant homes, many of them foreclosed due to missed loan payments, were effectively unsaleable on the market. Subprime had become the global crisis term of the young millennium.

From the USA to Europe

In the USA, banks were sitting on loan defaults of several trillion US dollars. Financial market experts knew that the crisis could no longer be controlled locally. For years, the American banks had transferred their loan receivables to so-called SPVs, Special Purpose Vehicles. The quite common practice of bundling receivables and selling them as a product now led to gigantic sums of reinsured bundles of receivables falling due worldwide. In other words, the bad consumer loans had been sold as packages worldwide and previously secured by insurance, which now became due. In 2008, the US government finally denied one of the largest US banks any further help in shoring up its liquidity. With the fall of Lehman Brothers, chaos broke out. Savers and investors worldwide tried to get their money to safety and cleared out their accounts en masse.

In Berlin, houses and flats were as cheap as in the days of the Wall.

Berlin was far from being a boom town. The newspaper Tagesspiegel wrote in 2004 that property developers would not even take Berlin plots for free. Rents in Berlin were low, incomes were low, the hopes of the 1990s for growth and an influx were gone. Berlin indeed seemed to be alone with its problems. Other German cities were booming and abroad there was a veritable building boom. In Spain, Portugal, Italy, France, Greece, Ireland, England and Scandinavia, the cranes had not been standing still for years. Here, too, prices had risen and fuelled the market. Many properties had been designed as investments from the start. Investors queued up to buy holiday properties in southern countries with the prospect of good returns. In all countries, the share of construction investments became a mainstay of the gross domestic product. After the crisis years in the national labour markets, the construction sector was hailed as a perpetual motion machine. 

Bursting real estate bubbles

Although the causes of the European financial and economic crisis were multi-layered and complex, the bursting of the real estate bubble in Spain is considered one of the causes of the domino effect that set in in Europe. Similar to the USA, low interest rates were the fuel for the building boom in Spain. As in Portugal and Italy, owning one's own property has always had a high social status. In Spain, on the other hand, construction and real estate loans were not granted with long fixed interest rates as in Germany; rather, the interest rate modalities are adjusted to the market and the key interest rate several times during the term. What is advantageous when interest rates are falling, leads to losses for millions of consumers when they are rising. At the same time, the value of many properties collapsed due to oversupply and the deteriorating economic situation. Similar trajectories were observed in Portugal, Italy, Greece and Ireland.

Berlin: Lifestyle in the crisis

The situation from 2007, 2008 was complex. Many European domestic markets were in crisis mode, property values were in the bottom, unemployment was very high and the outlook was not good, especially for young people. At the same time, there was a lot of money in circulation. The problem: the security of bank accounts was in principle in question, one could not invest in the domestic real estate market and the financial market was extremely uncertain.

In this situation, Berlin proved to be a place of desire for a whole generation of young Europeans. Berlin became the epitome of the crisis lifestyle. The description of Berlin by the then governing mayor Klaus Wowereit as "poor but sexy" hit the nerve of the time.  Berlin was affordable, cool and diverse. Freely accessible universities, an inspiring cultural scene, jobs, flats, nightlife: For many young Europeans, no other city radiated more attraction than Berlin. In each case, with a short delay after the beginning of the economic, financial and real estate crisis in some European countries, a noticeable and measurable wave of migration started in Berlin. Just a few examples:


In 2008, the city filled with young Spaniards. In the wake of subprime, the country was at the edge of the economic abyss. Boosted by tourism, but above all by the flourishing construction industry, Spain had previously experienced a phenomenal boom. It was not only in the years of the upswing that home ownership became a matter of course for most Spaniards, with an ownership rate of over 80 percent. In addition to the city house, at the beginning of the 2000s many Spaniards still planned their lives around a holiday home. Financing was not easy: fixed interest rates were largely uncommon. The loans were designed to be paid back as quickly as possible. A little speculation through buying and selling was and is common in Spain, among other reasons, because profits from resale are used to pay off loans and finance the next property. No wonder, then, that many Iberians enthusiastically threw themselves into the Berlin property market after a short time and despite the real estate crisis at home. Even today, many flats in Berlin are owned by Spanish owners.


Already at the beginning of the new millennium, many visitors from the green island found Berlin appealing. The flight connections were excellent, the climate not unfamiliar and, in general, there was a real sympathy match between Irish and Berliners. And although the ownership rate in Ireland, at just under 70 per cent, ranks rather in the European midfield, for many the first step was to go to the estate agent. Because the flats in Berlin were simply unbelievably cheap compared to the much more expensive property purchase in Ireland. Incidentally, flats were also affordable for Berliners at that time. The only difference was that Berliners didn't buy.


We cannot say how many Berliners were moved to Italy in the mid-2000s. What is certain, however, is that a large number of Italians came to Berlin. Italians love Berlin. And they also love living in their own flat instead of renting. In Italy, about 83 per cent of people live in their own homes, about the same percentage as Berliners live in rented accommodation. Having your own home is a central trait of Italians. Why pay rent to someone, especially since tenant protection is unusual in Italy? Contracts are almost always concluded for a fixed term. The usual period is 4 + 2 years, but often much shorter, after which the rent is renegotiated. One's own flat thus also serves as a firewall against rent increases, termination and unwanted changes.

Real estate buyers from over 110 nations

Overall, there were property buyers from over 110 nations in the period from 2010 to 2019, with buyer preferences and profiles varying considerably. For example, most buyers of new-build flats between 2010 and 2019 came from Russia, followed by Swiss and buyers from China.

The situation is different in the housing stock segment. Here, Italians and buyers from Israel, France and Switzerland top the list.

Find out soon in Part 3 of our Berlin Real Estate Story what price elasticity on the Berlin real estate market is all about.