It seems that the real estate market of the German capital city is invulnerable before crises and economic vicissitudes. Apartments are rapidly becoming more expensive and just as quickly sold, despite the sky-high prices. Realtors analyzed what has been happening in Berlin for the last ten years and what real estate buyers should expact in 2021.
The German agency Guthmann Estate has prepared a report on the state of the real estate market in Berlin. It is based on statistical data for the last ten years. The goal is to understand whether the sector will be able to cope with the consequences of the coronacrisis, how it will be affected by the lifting of the rent freeze and other social factors.
Property prices in Berlin
A huge increase in prices is the main characteristic of the market. The housing in Berlin has risen in price by 205% since 2010. The starting point was the median price of the prices indicated in the ads that year - €1,610 per sq. m. In May 2021, sellers asked for an average of €5,140.
Compared to the same period in 2020, the median offer price increased by 7%. This is another proof that, contrary to the hopes (wandering in society at the beginning of the pandemic), housing in Berlin has not fallen in price. New buildings are leading the way: the median price of a fresh square meter in April reached €6,750.
Changes in the size of the purchase and sale transaction in Berlin for ten years. Source: Berlin Real Estate 2021, Guthmann Research
The rent situation is no better. In February 2020, the city even froze rents for five years to put in hold the rapid rise in rates. However, at the beginning of 2021, the decision was overturned by the court, which immediately led to an increase in average prices from €11 to €12 per sq.m. per month. Renting new apartments, as well as buying, is more expensive: prices here reach €19 per sq.m.
Shortage of properties to buy and rent
These developments took place against the backdrop of a markedly reduced supply. In May 2010, there were more than 18 thousand properties available for purchase on the market. And in May 2020 there were only 10,240. It's not just the coronavirus: the number of vacant options decreased systematically, which led to a noticeable increase in prices.
The structure of the proposals has also changed. For ten years, the budget segment has come to naught: if in May 2010, apartments worth from €500 to €2,500 per square meter accounted for more than 80% of the market (15,550), then in March 2021, there were only 70 objects like that. The price segment from €2,500 to €5,000 took the main share, and the number of elite options (from €7,500 per meter) only grew.
The changes in the rental market were even more significant. In January 2012, tenants could choose from 32,650 offers, and in January 2020, the number of rental apartments decreased by more than half (14,780). 2021 is characterized by the lowest number of offers and the highest prices in the last ten years. The median price per square meter in April reached €12.5 per month. 42% of the properties are rented at a price of €14 per square meter or higher.
Changes in rental offers in Berlin in ten years. Source: Berlin Real Estate 2021, Guthmann Research
The ludicrous consequences of a real estate shortage
At the end of 2019, somebody published an ad about giving out for rent a modest two-bedroom apartment with an area of 54 sq.m, located in the Berlin district of Schoeneberg in a typical 1950s house. The owner was not greedy and asked only for €550 per month. A giant queue of 1749 people came for viewing (!!!). The realtor had to launch the applicants in groups of 20-30 people, and then arrange a competition to choose a tenant.
Construction crisis
As of the end of 2018, there were almost 327,000 mostly multi-storey residential buildings in Berlin. In total, there were 1.95 million apartments on the market, of which 1.45 million were rented out. Thus, 75% of the capital city's housing stock is rented housing, 17.5% is occupied by owners, and another 7.5% is empty.
According to experts, Berlin lacks 205,000 residential facilities. An acute shortage is experienced by almost all districts of the city, except for Marzahn-Hellersdorf and Köpenik, where it would not hurt to build "only" 3,000-5,000 apartments. The most serious supply problems are in the Vedding district, which needs 17,500 new facilities.
The deficit is only partly due to Berlin's growing population: demand has been high even without taking into account waves of immigration. In 2013, when 3.4 million residents were registered in Berlin, about 88.6 thousand apartments were already missing. But since then, the city has only grown.
The most important reason for the shortage of housing is the peculiarities of local legislation, which does not allow developers to increase the volume. The Guthmann Estate specialists pay attention to the phenomenon of Milieuschutz, which are specially protected areas of Berlin. The declared purpose is to protect the architectural appearance of the city and the interests of local residents.
These territories have strict rules for the construction and modernization of property. For example, a ban on combining small apartments into one, adding elevators and balconies, installing underfloor heating, and even carrying out expensive repairs. The last rule was introduced so that tenants do not move out because of the increase in rates, which usually occurs after the apartment is renovated. Any renovation of the property in Milieuschutz requires a separate agreement with the local authorities or the residents' communes.
After a while, the good intentions of the city authorities made life difficult for both sellers and buyers of real estate. The transaction time has increased, the sellers have to acquire the right to purchase the object in protected areas from local governments. At the same time, the number of such areas continues to grow not only in Berlin, but also in other cities in Germany.
Expectations for 2021
Few countries have coped with the effects of the coronavirus pandemic as well as Germany. For example, in April, the German capital city was included in the list of the most COVID-safe cities in the world. This will be the key to further economic recovery.
Despite the slight slowdown in prices due to the pandemic, Berlin has not ceased to be an attractive city for investors. The composition of the population is constantly changing, new residents come to replace the old ones, regardless of the level of prices for renting and buying apartments. Paradoxically, even measures to limit rental rates, according to realtors Guthmann Estate, have a positive effect. After all, investors already have experience the rules of the game in Berlin, while in other countries they will still have to face it.
Institutional investors, who were interviewed by the German public opinion research institute Kantar in September 2020, also agree with realtors. According to experts, Berlin is among the top 3 most attractive cities in Europe for real estate investment.
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