Challenges of Berlin’s real estate market

Berlin is again undergoing a transformation. The first time that the city reached the mark of 100.000 residents was in the 18th century.

by Peter Guthmann Published on:

Population development in Berlin

About 3.550.000 people from 128 nations are living in Berlin on an area of approx. 890 sq km. On average the Berliner is 42.94 years old. During the first half of the 19th century, Berlin went through another phase of population growth. The industrialization and the economic boom threw hundreds of thousands of workers to Berlin. People started moving to Berlin, hoping for a better life in the big city. At the end of the 19th century Berlin had become a megacity. By the year 1939 the population had reached 4,32 million. And today, about 80 years later, Berlin is facing new challenges again: a transformation caused by a general boom, migration and an enormous population growth.

Apartments for 400.000 people need space to be built on

The Senate of Berlin is aware that the urban densification will sooner or later will reach its limits and has recently implemented a system in order to identify building land more efficiently, to cluster it and to make it available. Berlin has around 1.300 locations available, with a potential of 150.000 apartments. The 10 largest locations could provide enough space for approximately 50.000 apartments. In order to speed up the construction of new apartments at these locations, the current land zoning plans need to be adapted on a large scale.

New Law to speedup apartment building is supposed to boost options

A new law, which passed in the beginning of 2016, is a fundamental base for building policies of Berlin’s senate. The new law is replaces many old provisions. Processes, which used to take very long and disturbed process flows are supposed to improve and become faster. This includes planning processes for greened areas and monumental protection. Provisions for cemeteries, monuments, forests, trees and construction methods in Berlin are influenced or changed by this new law. Provisions for the conservation of the countryside as well as nature protection acts are not changed.

Reintroduction of subsidies for residential constructions

The city supports new building projects on a restricted level since 2014. The developed apartments are connected to set rental prices and assignment (Belegungsgebunden). In 2014 around 1.200 apartments were built, 2.400 in 2015 and 3.000 in 2016. This year around 3.000 new apartments are in the planning. As the demand is much higher with 20.000 to 25.000 apartments needed every year, the questions comes up if this development program is even too small.

Many projects get approved but not started

The amount of building permits and completions of buildings are both growing. 22.500 building applications have been approved in 2015, which is four times more than in 2010. The problem is that at the same time only approx. 12.500 apartments were completed. Doing the math shows: around 10.000 apartments are permitted per year but not actually built. The senate is considering raising the property tax in order to avoid speculations with planned and permitted building projects.

Price factors and a shortage of developable land

Not only the demographic changes but also rising prices for building land have an influence on Berlin’s real estate market. As owners are expecting continued rising prices for land, they did not tend to sell as much in 2016. At the same time there are not many other options than to invest into real estate. In addition to this comes the low interest period, which is a reason for many not to sell their property.

Increasing regulation of Berlin’s real estate market leads to yield pressure

Building in Berlin has become more expensive in 2016 and 2017: building costs are rising and guidelines for energy are becoming stricter. The provisions introduced by Berlin’s senate lead to rising prices. A combination of rising land prices, over-regulation and (unnecessary) energetical requirements is currently blocking the market for new housing construction. New planning regulations, testing and execution requirements create an additional pressure and lead to lower returns. According to the housing association Berlin-Brandenburg (BBU), the costs of building for one square meter of living area in projects realized by BBU member companies already costs more than EUR 2,600. These costs can easily exceed the 3,000-Euro mark if the high plot prices in central city areas are taken into account, financing costs not included.