Apartment blocks in Berlin
There are almost 2 million apartments in Berlin, of which around 87 percent are in some 330,000 apartment blocks, 70 percent of which are owned by private individuals and private-sector companies. Between 2006 and 2021, around 23,000 apartment buildings changed hands. This shows how much demand there still is for the classic Berlin apartment block as an investment property. And the general conditions for a purchase or sale are currently very good. Buyers know that the security of the investment is high with long-term planning, and sellers can achieve high market prices, provided they have the right strategy and pricing.
Many owners, including those from abroad, believe the time is right to look at an exit. The motivation is driven by a loss of certainty as to what will happen next. The Ukraine conflict, rising interest rates, market regulation and, at the bottom line, the incipient sideways movement in purchase prices show that there can be other directions than always upward. In one location or another, purchase prices have also already softened somewhat after initial exaggerations. In addition to this perfectly normal differentiation, there is also a maintenance backlog here and there, which is becoming increasingly expensive to repair in view of the sharp rise in construction costs.
The apartment house market is thus slowly entering a new phase. Anyone who bought in the years between 2011 and 2013 is currently facing refinancing. But even forward loans are now increasingly showing a 2 before the decimal point. Follow-up financing becomes significantly more expensive towards the middle or end of the year.
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Trend reversal ahead?
Since 2009, the number of apartment block transactions in Berlin has been steadily declining. The development has been accompanied by consistent key interest rate cuts by the ECB. In 2021, a trend reversal has begun to emerge, which is reflected in a growing number of transactions. The ECB's key interest rate has remained unchanged at 0 percent since March 2016. The first, gradual increases have been announced and are expected soon due to the recent sharp rise in inflation figures. Foreign owners in particular are anticipating this move and are beginning to sell in order to avoid deteriorating credit conditions on the market.
Development of multiplier factors for apartment buildings in Berlin
The "multiplier" stands for the multiple of the annual net cold rent of a property. The term is often used to explain after how many years the purchase of a property is amortized through the rental income. This definition falls short, as it does not take into account either the investments made over the term or the development of rents in the property. Nevertheless, the multiplier, also known as factor, is used to price a property in the market. The calculation is factor = purchase price / annual net cold rent. In Berlin, the multipliers have increased considerably in the period from 2008 to 2022. With the beginning turnaround in interest rates, the upward trend has been stopped. The achievable factor is no longer determined solely by location, but more than before by the combination of location, property condition and development potential. This means that the factor must always be viewed as an initial yield that must be optimized over the holding period.
The chart shows the development of multipliers from 1995 to 2020, an approximation of minimum and maximum values, and the range between minimum and maximum values.
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Typical timing of a sale
In the case of sales in milieu protection areas, the districts are still entitled to check whether they can make use of the preemption right, despite the federal administrative having stopped the preemption practice in Berlin. With the introduction of the Building Land Mobilisation Act, the review period for the districts was extended from two to three months.
Provided an apartment block is managed in accordance with the regulations of the milieu protection statutes, there is no risk of pre-emption being executed by the district. The period of three months from the moment on when the district receives the sales contract from the notary is the „worst case“ scenario. In practice, the districts should comply more quickly than before with the negative certificate application.
Price and duration of marketing
Can prices rising over a decade be without a significant impact on the marketing duration of properties? In fact, the median marketing duration did not move up noticeably until 2017. Our analysis of asking prices and marketing duration below only tracks properties that have been advertised. Nevertheless, it allows conclusions to be drawn about the correlation between asking price and marketing duration, even in the case of internal marketing. In principle, the marketing period depends on other controllable factors in addition to competitive pricing. We will be happy to advise you on this.
Trend and Outlook
In 2022, players on the apartment building market will benefit from last year's developments. Now that the courts have restored legal certainty, buying an apartment block in Berlin has become calculable again. In fact, the right of first refusal no longer applies and the rent cap is also history. The housing policy, which had been guided by ideology for two legislative periods, has given way to a more practical approach.
Rising interest rates are making construction financing more expensive for owners and buyers. Interest rates have doubled in some cases within a year. This problem is faced by owners who are forced to arrange follow-up financing after a loan expires and buyers who have to match high prices and high interest rates. Most recently, some banks have raised construction interest rates to over 2 percent. Even forward loans are no longer a guarantee for securing favorable loans. Against a background of high market prices, the turnaround in interest rates is causing more and more owners to consider selling. More sales mean more supply, and experts believe that given the real threat of inflation, interest rates will continue to rise.
Pure inflation could prove less of a problem, as real estate prices also rise in its wake. Inflation is viewed more critically in connection with the development of real wages. The development of wages and salaries currently cannot keep pace with the rate of inflation. This makes rent increases more difficult, as they represent a proportionally higher burden for tenants. It cannot be ruled out that the legislator will intervene here with further regulatory measures.
Some 10 years after the Syria crisis, the traces are still visible across Europe. Millions of fleeing people increased acute demand and exerted significant pressure on national and local real estate markets. Once again, the conflict in Ukraine is forcing millions of people to flee. Many are coming to Berlin. Even if emergency housing can be partially reactivated, the pressure will gradually escape to the housing market and increase demand for a long time.
Although there is little talk of regulation at present, given the parameters described above, that could change very quickly. Currently, efforts from the Social Democratic Party (SPD) and the Left Party (Linke) spectrum to amend §§ 24 - 28 in the BauGB (right of first refusal) are fueling discussions.
On the political radar are the following points:
- A nationwide rent cap is currently considered unlikely, a so-called rent moratorium is not.
- One possible scenario in view of unexpected and high government spending is profit taxation. This would include a possible abolition of the speculation period in its current form or an extension of the holding period.
- Share deals will most likely be restructured and made economically unattractive.
- Capping the permissible rent increase from the current 15 percent to 11 percent in 3 years.
- Requiring municipalities to prepare a rent index on a uniform basis.
- Tightening of the rent brake is considered likely.
- Current developments suggest that the next few years will be characterized not only by major efforts in new construction, but also by efforts to regulate the housing market even more.
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District Market Reports
This report was last updated on 16.05.2022 .
The Guthmann Market Report is a semi-automated report about the property market in Berlin. All information has been carefully researched and is given to the best of our knowledge and belief. We assume no liability for completeness, deviations, changes and errors. Our report does not represent an investment recommendation.
Amt für Statistik Berlin-Brandenburg: Einwohnerregisterstatistik (Bewegungsdaten), Fortschreibung des Wohngebäude- und Wohnungsbestandes, Ergebnisse des Haushaltegenerierungsverfahren KOSIS-HHGen, Baufertigstellungen. IMV GmbH: Rohdaten Preise und Mieten. Senatsverwaltung für Stadtentwicklung und Wohnen: Umwandlungsdaten (2018), Geoportal Berlin (FIS-Broker). Immobilienverband Deutschland IVD (2018/2019): Immobilienpreisservice 2018/2019.
Housing deficit (Treemap): The Statistics Office updates the household data based on the 2011 micro-census. Determination of household count and statistical household size via household generation procedures (KOSIS). We calculate the real household size / housing deficits via the ratio number of inhabitants to number of apartments.
Purchase prices and rents (charts and reports): Calculation of the median on the basis of raw data, own visualization.
Migrations: Aggregation and visualization based on transaction data.