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Investing in German real estate: Property in Germany can make good sense

The press has well reported the fact that Germany is experiencing unprecedented economic growth and its long-term prospects are good.  This is at a time when the economies in most of the rest of Europe are developing distinctly in the opposite direction and suffering the stifling effects of austerity.

Germany appears to be an attractive island of security and prosperity.  But for those who don’t know the language, culture and ways of doing business, it is a remote and inhibiting place.  Portfolio Germany can provide you not only with good property investment opportunities – we specialize in secure rental income producing properties with good return on investment –  but also the professional support and information that will enable you to step into the German real estate market, to participate in Germany’s growth and security and to share its real prosperity. 

If you are interested in German real estate, please take a look at our Choice Portfolio and High Yield Portfolio (properties with more than 9% yield). 

Hamburg: a dynamic growth center

The harbour in Hamburg

Wind farm on the Elbe: leading technology

Wind turbines on the Elbe

Mosel landscape:  a rich hinterland

Vineyards in Cochem on the Mosel

Astute investors know that during the recent period of rapid and extreme appreciation in real estate markets in much of Europe and in the US that ended in 2008, German properties – supposedly lacking sex-appeal – generally just plodded on, generating income.  In most parts of Germany, property maintained its value or slowly but surely appreciated.  German real estate did not experience bubble-like growth.  It also did not lose much value when the bubble burst.  Today, prices in Germany are in many cases still quite realistic and yields respectable.

Of course listings promising extravagant return on capital for properties in Germany are also easy to find.  But beware; unlike a truly good real estate investment, extremely high yields are usually bought at the price of poor location — something especially difficult for the foreign buyer to assess — or hidden defects and other problems associated with possibly incalculable expense.  Factors that might make the property difficult or impossible to sell again.

An opportunity to diversify

Some commentators see a threat to UK’s growth and the pound’s long-term value in the current debt crisis, others are sure that the government’s austerity programme imposed to diminish debt is the real danger.  Really, nobody knows how the British pound  – or, for that matter, how the currency market in general – will behave in the long run.  That is why it makes sense to diversify into other countries and currencies.  If the UK pound were to fall in relation to the Euro, an investment in German real estate, even if prices only remained stable there, would appear to be valued higher from the UK standpoint, while assets valued in pounds would shrivel in international terms.

Of course the Euro also faces some risk due to current national debt problems.  A good real estate investment in Germany, however, enjoys a built-in hedge.  Any Euro currency weakness only tends to strengthen the heavily export oriented German Industrial machine.   As that economy and domestic demand grows in Germany, well placed real estate equity will tend to increase in value and compensate for currency movement.  The (in our opinion) unlikely demise of the Euro or (perhaps less unlikely) restructuring of Euroland would, on the other hand, certainly lead to a appreciation of German equity in a new, stronger currency.

Good fundamentals through decentralised development

Visitors to Germany are impressed with its extensive and well maintained transport network.  We all love to drive on the autobahn and to use the comfortable, fast and reliable trains.  Investment in this infrastructure, built and improved over generations, has paid off.

Modern Germany is, of course, a decentralised federal state.  But the hundreds of small German states surviving the middle ages first became unified in 1871.  The country is still highly regionalised with many quite distinct linguistic and cultural areas.

Berlin Main Station: most modern infrastructure

Berlin's main rail station

Frankfurt: dynamic economic center

Frankfurt, an old but dynamic city

Germany's infrastructure:  a tradition of investment

Elaborate transport  infrastructure

Building on its multi-state history, post-war Germany has pursued a policy of decentralised development aimed at minimising regional economic disparities while maintaining local cultural identities.  It has invested broadly in regional and sub-regional urban centres with the goal of providing good opportunity and quality of life in all parts of the country.  Governments have consistently been committed to a broadly developed nation-wide infrastructure and made the necessary long-term investment in educational, social and cultural institutions.

Germany’s decentralised development has strengthened its Mittelstand – its many small and medium sized businesses – that are the backbone of its dynamic and stabile economy.

The well informed real estate investor can take advantage of Germany’s pattern of dispersed growth and distributed economic potential.  Unlike the other most important countries in Europe (especially the UK and France) and the United States, smaller urban centres in Germany are relatively vibrant, provide good quality of life and often home to healthy small industry.  Real estate in these secondary towns can bring a better return and represent a smarter investment than that in the more important urban centres.

Strongly recommended reading and viewing:

Portfolio Germany:  About Germany  >>

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