June 8, 2012 3:17 pm http://www.ft.com Financial Times
Property: Desirable homes seen as haven against feared inflation rises
An advert on a lamppost in Frankfurt’s highly
sought-after Westend district offers a fairly chunky financial reward to
anyone who can help a family to find a flat to buy in the
neighbourhood.
Such tactics would probably be irrelevant in most of Europe, where property prices are falling and demand is lacklustre. But Germany’s market has been at odds with wider international trends for years. Prices flatlined even as bubbles inflated in countries such as Ireland, Spain and the UK.
Now, however, they are rising strongly in many parts of the country, propelled by low interest rates, a healthy jobs market and the faith of German nationals in bricks and mortar as a store of value if inflation takes off, which many believe it surely will.
The price rises were put at an average of about 5.5 per cent last year in Germany’s 125 largest towns and cities. But the Bundesbank, Germany’s central bank, has cast doubt on the sustainability of some of the increases.
The headline national rise masks stark regional differences. In some less economically successful areas of the country, including many towns in the one-time communist east, prices for property are expected to fall, exacerbated by Germany’s population decline. By contrast places such as Frankfurt are expected to see growth and continued demand for homes.
A recent report by Savill’s, the property consultancy, which considered investment risk in more than 120 German cities based on economic and socio-demographic factors, gave Frankfurt a favourable score. The city was ranked fourth as a low-risk investment location, behind three southern cities – Munich, Regensburg and Stuttgart – and scored best marks in some categories measuring economic performance, such as the city’s tax revenues and number of companies being formed.
Stefan Niedermeier, managing partner of the Frankfurt office of Engel & Völkers, an estate agency, says the city’s rental market is one of the most robust in Germany, with prices above €20 per square metre for flats in the best locations.
“Frankfurt is so small and the top areas are small in number, and yet there is a whole lot of purchasing power,” he explains.
Another explanation is that the city, arguably Germany’s most cosmopolitan and international, has a relatively large transient population that helps to drive demand in the rental market. “There are always people coming and going, more than anywhere else in Germany,” Mr Niedermeier says.
F+B, a property consultancy, says Frankfurt has the 13th-highest average sale price per square metre in Germany, and the fourth-highest average rents.
Tobias Just, professor at the International Real Estate Business School at Regensburg university, says price rises in some of Frankfurt’s most sought-after areas are eye-catching.
“They have not been echoed across the board in the city, in spite of the fact that all market segments should be benefiting from economic conditions including low interest rates and a strong labour market,” says Mr Just. “What seems to be happening is that investors are nervous and want to put their money into areas where they are taking as little risk as possible. That means properties in core areas at the top end of the market.”
Westend, where high-ceilinged old buildings stand on tree-lined streets within a short walk of the city’s banking district, as well near as its largest green spaces, remains a much
sought-after location. Houses near here can fetch €8,500 per sq m, says Mr Niedermeier, while flats of a desirable size and with the right amenities, such as a parking space, can cost more than €6,000 per sq m.
Another popular area, Westhafen, has a very different feel, with modern apartments overlooking the river Main and a lively nightlife. Flats costing €4,000 per sq metre a few years ago are now sold for more than €7,000 per sq m, Mr Niedermeier says.
An indication of how things can change for the worse, however, is given by the developments in Frankfurt’s once popular Sachsenhausen neighbourhood, south of the river Main. It is on the flight path of aircraft using Frankfurt’s expanding airport and prices have suffered accordingly.
What of the damage that might be caused by less tangible factors? Mr Just acknowledges that tougher regulation looms over the banking and asset management industries, which drive much of Frankfurt’s economy and hence demand for property.
“But there are many other facets of the city’s financial and professional services that continue to be in high demand, while the city also has a broader industrial base than many people realise,” he says. “So I think the long-term future for the city’s housing market is positive.”
Mr Niedermeier of Engel & Völkers says: “It stayed stable during the financial crisis. There was always demand for property in good areas. There is not so much of a bubble effect here.”
Such tactics would probably be irrelevant in most of Europe, where property prices are falling and demand is lacklustre. But Germany’s market has been at odds with wider international trends for years. Prices flatlined even as bubbles inflated in countries such as Ireland, Spain and the UK.
Now, however, they are rising strongly in many parts of the country, propelled by low interest rates, a healthy jobs market and the faith of German nationals in bricks and mortar as a store of value if inflation takes off, which many believe it surely will.
The price rises were put at an average of about 5.5 per cent last year in Germany’s 125 largest towns and cities. But the Bundesbank, Germany’s central bank, has cast doubt on the sustainability of some of the increases.
The headline national rise masks stark regional differences. In some less economically successful areas of the country, including many towns in the one-time communist east, prices for property are expected to fall, exacerbated by Germany’s population decline. By contrast places such as Frankfurt are expected to see growth and continued demand for homes.
A recent report by Savill’s, the property consultancy, which considered investment risk in more than 120 German cities based on economic and socio-demographic factors, gave Frankfurt a favourable score. The city was ranked fourth as a low-risk investment location, behind three southern cities – Munich, Regensburg and Stuttgart – and scored best marks in some categories measuring economic performance, such as the city’s tax revenues and number of companies being formed.
Stefan Niedermeier, managing partner of the Frankfurt office of Engel & Völkers, an estate agency, says the city’s rental market is one of the most robust in Germany, with prices above €20 per square metre for flats in the best locations.
“Frankfurt is so small and the top areas are small in number, and yet there is a whole lot of purchasing power,” he explains.
Another explanation is that the city, arguably Germany’s most cosmopolitan and international, has a relatively large transient population that helps to drive demand in the rental market. “There are always people coming and going, more than anywhere else in Germany,” Mr Niedermeier says.
F+B, a property consultancy, says Frankfurt has the 13th-highest average sale price per square metre in Germany, and the fourth-highest average rents.
Tobias Just, professor at the International Real Estate Business School at Regensburg university, says price rises in some of Frankfurt’s most sought-after areas are eye-catching.
“They have not been echoed across the board in the city, in spite of the fact that all market segments should be benefiting from economic conditions including low interest rates and a strong labour market,” says Mr Just. “What seems to be happening is that investors are nervous and want to put their money into areas where they are taking as little risk as possible. That means properties in core areas at the top end of the market.”
Westend, where high-ceilinged old buildings stand on tree-lined streets within a short walk of the city’s banking district, as well near as its largest green spaces, remains a much
sought-after location. Houses near here can fetch €8,500 per sq m, says Mr Niedermeier, while flats of a desirable size and with the right amenities, such as a parking space, can cost more than €6,000 per sq m.
Another popular area, Westhafen, has a very different feel, with modern apartments overlooking the river Main and a lively nightlife. Flats costing €4,000 per sq metre a few years ago are now sold for more than €7,000 per sq m, Mr Niedermeier says.
An indication of how things can change for the worse, however, is given by the developments in Frankfurt’s once popular Sachsenhausen neighbourhood, south of the river Main. It is on the flight path of aircraft using Frankfurt’s expanding airport and prices have suffered accordingly.
What of the damage that might be caused by less tangible factors? Mr Just acknowledges that tougher regulation looms over the banking and asset management industries, which drive much of Frankfurt’s economy and hence demand for property.
“But there are many other facets of the city’s financial and professional services that continue to be in high demand, while the city also has a broader industrial base than many people realise,” he says. “So I think the long-term future for the city’s housing market is positive.”
Mr Niedermeier of Engel & Völkers says: “It stayed stable during the financial crisis. There was always demand for property in good areas. There is not so much of a bubble effect here.”
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