High Yield Property Investments | ProVenture Property

38 New Investments

noreply@blogger.com (Gareth) — Sat, 18 May 2013 16:55:00 +0100

38 New Investments into German Property

ProVenture Property present a range of new investments that we bring to the market, with yields to around 12% - if you would like to find out more about any of these properties, please contact us.

City: HAGEN

Apartments: 6

Current Rent: 24.660 EUR

Purchase Price: 316.000 EUR

Yield: 7.8%

City: KREFELD

Apartments: 12

Current Rent: 32.400 EUR

Purchase Price: 320.000 EUR

Yield: 10.1%

City: KREFELD

Apartments: 5, Commercial: 1

Current Rent: 24.060 EUR

Purchase Price: 325.000 EUR

Yield: 7.4%

City: KREFELD

Apartments: 6

Current Rent: 24.590 EUR

Purchase Price: 327.75UR0 E

Yield: 7.5%

City: KREFELD

Apartments: 14 (2 MFHs)

Current Rent: 34.652 EUR

Purchase Price: 346.500 EUR

Yield: 10%

City: KREFELD

Apartments: 7, Garages: 10

Current Rent: 28.038 EUR

Purchase Price: 373.750 EUR

Yield: 7.5%

City: ESSEN

Apartments: 4

Current Rent: 32.085 EUR

Purchase Price: 410.685 EUR

Yield: 7.8%

Contact us for more details on any of the properties listed

German housing set for strong year...

From Property Investor Europe:

German residential property is set for another strong year, following the doubling of transaction volume last year to over €20bn, says realtor Engel & Völkers. It sees more activity in regional cities, driven by high pricing in the main centres, and further large portfolio deals.

The German housing market has held its ground in a volatile situation, said E&V in a new report. “We also expect this to be the case in 2013 – correspondingly, we also expect a similarly high transaction volume,” it said. Investors trying to avoid high pricing in A locations are moving out into regional locations. E&V also expects open-ended property funds currently in liquidation to step up divestments, leading to further portfolio deals. “Demand for residential property will continue to be high, but the supply of major portfolios will be limited in comparison with other asset classes,” it said.

Apart from the just concluded €2.5bn sale of 32,000-unit GBW to a consortium led by Augsburg-based listed Patrizia, E&V sees a possible sale of the 38,000-unit Berlinovo residential portfolio, majority-held by the state of Berlin and initially formed as BIH by Bankgesellschaft Berlin, this year. Further market movement will come from the successful listing of LEG with its 91,000 apartments and the planned IPO of Terra Firma’s housing giant Deutsche Annington with 190,000 units. The realtor also expects smaller portfolio deals from US and UK investors who will bring stabilised properties to the market, as well as some distressed portfolios from banks.

International financial investors, listed housing companies, institutions and family offices have returned to German residential property, said E&V. Interest is driven by the low interest rate environment, the country’s safe haven status amidst the European debt crisis, a lack of secure investment alternatives and the asset class’ function as inflation hedge. But E&V also identified several drawbacks for investment prospects: “We increasingly observe different expectations with regard to pricing in the market and this often represents a major obstacle in transactions,” the report said. Prices for core properties are currently so high that only very few buyers are willing to pay.

On the other end of the scale, banks are unwilling to sell assets for prices offered by opportunistic buyers. Another obstacle is lack of debt avalability, especially for non-core assets, as new regulations cause more restrictive and selective financing. “However, we have also identified new players in the market, such as insurance companies and pension funds, which could in turn serve to partly close the financing gap,” said the report. Project financing funds and debt funds are two further additions that have become increasingly popular.

More German Property:

City: ESSEN

Apartments: 8, Garages: 5

Current Rent: 32.946 EUR

Purchase Price: 412.000 EUR

Yield: 8.0%

City: HAGEN

Apartments: 14 (2 MFHs)

Current Rent: 34.267 EUR

Purchase Price: 439.000 EUR

Yield: 7.8%

City: ESSEN

Apartments: 3, Commercial: 4

Current Rent: 40.736 EUR

Purchase Price: 468.500 EUR

Yield: 8.7%

City: KREFELD

Apartments: 6, Commercial: 3, Garages: 4

Current Rent: 39.342 EUR

Purchase Price: 492.000 EUR

Yield: 8.0%

City: KREFELD

Apartments: 9, Garages: 19, Parking Places: 5

Current Rent: 43.652 EUR

Purchase Price: 502.000 EUR

Yield: 8.7%

City: OBERHAUSEN

Apartments: 12, Commercial: 2

Current Rent: 42.863 EUR

Purchase Price: 506.000 EUR

Yield: 8.47%

City: HAGEN

Apartments: 6, Commercial: 1

Current Rent: 49.110 EUR

Purchase Price: 579.500 EUR

Yield: 8.47%

City: DUISBURG

Apartments: 15

Current Rent: 43.454 EUR

Purchase Price: 593.500 EUR

Yield: 7.3% (Potential: 8.7%)

City: DUISBURG

Apartments: 5, Commercial: 1

Current Rent: 65.258 EUR

Purchase Price: 593.000 EUR

Yield: 11%

City: DUISBURG

Apartments: 6, Commercial: 4, Garages: 7

Current Rent: 50.541 EUR

Purchase Price: 606.500 EUR

Yield: 8.33%

City: GUMMERSBACH

Apartments: 17

Current Rent: 67.968 EUR

Purchase Price: 614.000 EUR

Yield: 11.11%

City: DORTMUND

Apartments: 11, Commercial: 2

Current Rent: 54.075 EUR

Purchase Price: 622.000 EUR

Yield: 8.70%

City: ESSEN

Apartments: 5, Commercial: 1, Garages: 6

Current Rent: 54.276 EUR

Purchase Price: 624.000 EUR

Yield: 8.47%

City: BONN

Apartments: 10

Current Rent: 39.198 EUR

Purchase Price: 627.000 EUR

Yield: 6.25%

City: OBERHAUSEN

Apartments: 13 (2 MFHs)

Current Rent: 52.612 EUR

Purchase Price: 674.000 EUR

Yield: 7.69%

City: DUISBURG

Apartments: 19

Current Rent: 65.820 EUR

Purchase Price: 757.000 EUR

Yield: 8.7%

City: GELSENKIRCHEN

Apartments: 18, Commercial: 4

Current Rent: 70.579 EUR

Purchase Price: 776.500 EUR

Yield: 9.09%

City: LÜDENSCHEID

Apartments: 22 (4 MFHs), Garages: 5

Current Rent: 71.785 EUR

Purchase Price: 789.500 EUR

Yield: 9.09%

City: DORTMUND

Apartments: 15, Commercial: 3

Current Rent: 71.906 EUR

Purchase Price: 790.950 EUR

Yield: 9.09%

City: BOCHUM

Apartments: 17, Garages: 10

Current Rent: 82.222 EUR

Purchase Price: 1.030.000 EUR

Yield: 8.00%

City: ISERLOHN

Apartments: 16, Garages: 19

Current Rent: 76.794 EUR

Purchase Price: 990.500 EUR

Yield: 7.75%

City: KREFELD

Apartments: 2 MFHs (number of apts TBC)

Current Rent: 86.824 EUR

Purchase Price: 1.000.000 EUR

Yield: 8.68%

City: LÜDENSCHEID

Apartments: 26, Garages: 4

Current Rent: 96.318 EUR

Purchase Price: 1.136.500 EUR

Yield: 8.47%

City: HERTEN

Apartments: 18, Commercial: 1, Garages: 3 (3MFHs)

Current Rent: 112.898 EUR

Purchase Price: 1.298.500 EUR

Yield: 8.70%

City: DUISBURG

Apartments: 20, Commercial: 2, Garages: 17
(2 MFHs)

Current Rent: 109.247 EUR

Purchase Price: 1.311.000 EUR

Yield: 8.70%

City: DUISBURG

Apartments: 41

Current Rent: 118.461 EUR

Purchase Price: 1.398.000 EUR

Yield: 8.5%

City: DUISBURG

Apartments: 42, Garages: 20

Current Rent: 126.255 EUR

Purchase Price: 1.489.950 EUR

Yield: 8.5%

City: DUISBURG

Apartments: 23, Commercial: 1, Garages: 30

Current Rent: 132.395 EUR

Purchase Price: 1.565.000 EUR

Yield: 8.5%

City: OBERHAUSEN

Apartments: 17, Commercial: 6

Current Rent: 148.865 EUR

Purchase Price: 1.905.500 EUR

Yield: 7.81%

City: DUISBURG

Apartments: 66

Current Rent: 183.742 EUR

Purchase Price: 2.147.000 EUR

Yield: 8.5%

City: RHEINE

Apartments: 48, Garages: 24 (6 MFHs)

Current Rent: 200.121 EUR

Purchase Price: 2.201.500 EUR

Yield: 9.1%

For any more information on any of these properties

Please drop us a line to james@proventureproperty.com or via our website - www.German-Property-for-Sale.com

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Interview with a German Property Finance Expert

noreply@blogger.com (Unknown) — Thu, 7 Mar 2013 20:17:00 GMT

This month we are delighted to present our interview with Martin Bonnet, a mortgage broker that we work with in Germany:

Hi Martin, many thanks for agreeing to do this interview. To start us off, can you please give us a quick introduction to yourself and your history.

Hi James, it is a pleasure for me, I am almost 47 years old, two children, I live in Berlin-Köpenick where I can directly feel the pulse of Germany's fascinating capital but at the same time enjoy its large forests and waters. From 1988 until 1992 I studied business administration at Mannheim University, and finished with a diploma. Thereafter I worked for the financial department of a big company before I became a financial advisor in 1999. Since then I have been working as an investment consultant and mortgage broker. In 2005 I started to focus on arranging for mortgages for foreign investors.

Since ProVenture Property have operating in Germany, we have noticed willingness to lend has decreased. Can you please provide a bit of background on how you have seen banks' willingness to lend change in the last few years.

The boom of lending money to foreign investors was steadily increasing when I started my activities. The peak was in 2007. After the default of Lehmann Bros. in 2008 the willingness of banks to provide reasonable mortgage dropped immediately and sharply. It then recovered slowly to kind of a pre-Lehmann level. As property prices, however, have developed much faster than rents, the LTVs banks offer have slightly declined in areas where yields have dropped significantly.

How does the financing process in Germany function in general for foreign investors?

The process itself mainly depends on the kind of the property and the strategy of the investor. Normally the investor has to firstly decide whether he prefers to finance as an individual or as a company. Once he has selected the possible investments the next step is to provide his finance broker with the property details, which the bank requires for assessment, as well as personal details. The broker edits the data and forwards them to suitable banks. The banks then indicate how much they will loan and on what terms they might provide for the investment. The resulting offer needs to be confirmed by closer examination, often in connection with a survey. Normally the investor has to pay for such a survey in advance. Thus after the indication an investor’s first essential decision is whether to continue the finance process by paying for the survey, or to stop it, in the event that the best finance amount indicated by the bank does not match his expectations. Once the result of the survey has been provided by the evaluator, and once the loan has finally been approved by the credit department, the loan contracts will generally be ready for signing within few days. Apart from this, additional details and documents might be requested by banks for their final decision at some time during the process.

How many and what banks are involved in an enquiry?

All banks operating in Germany are in the pool. It has turned out that most finances are arranged with an ever-changing hard core of seven banks, which include mortgage or retail banks.

Some of our clients are unsure whether to purchase a property under a company vehicle or as a private individual. Can you please give a short outline to the pros and cons of buying through each.

Primarily this is a matter of an investor's preferences and strategy. Setting up and running a company will cause extra expenses, but might provide tax advantages. Some banks even accept non-recourse terms for companies, some insist on personal liabilities of the partners. Some banks only provide mortgages to individuals, some only to companies. A rule of thumb is that the higher the mortgage the more likely it is that a company is the better choice. If an investor feels unsafe about this decision he/she should consult a German tax advisor and mortgage broker in time to discuss pros and cons.

What is the minimum loan possible?

Euro 25,000 – this means that a property should at least have a purchase price of Euro 50,000 because for small flats banks rarely give more that 50-60% of the purchase price.

What properties can be financed?

Almost everything, everywhere: residential, commercial, blocks and single flats in big cities as well as the countryside. The bigger the property (or bundle of properties), the better the sustainable yield, the better the state of the property, the less vacancies and the better the location (macro as well as micro), the higher the LTV which should result. Important for commercial units: The longer the remaining duration of the lease contract, the better for the LTV.

What are the current fixed rates for 5 and 10 years?

5y some 2% p.a.; 10y some 3% p.a.

The big question we get asked by most of our clients is, what LTVs are currently available?

The range goes from 40% to 80% of the purchase price. Where one will finally land mainly depends on the sustainable yields a property will earn for the investor, the quality of the property and its location. Most mortgages will be somewhere between 55% (flats) and 75% (high-yield, but good quality multi-storey buildings in acceptable areas)

What criteria do banks look for, both for the property and also the individual, to get the highest LTV possible?

The investor's background is - if at all - less relevant. Some banks want to see stable economical figures as well as a reasonable track record in your home country. The latter rather applies to bigger investments starting from € 2-23 millions. As mentioned above, concerning the property the main criteria are the sustainable yield as well as the substantial quality and the location.

Are there any cities in which the banks prefer to lend?

Definitely, but a more precise definition would be that all areas where there is population growth are preferred - for obvious reasons! ProVenture Property in the past has done some very valuable research on this criterion for its clients.

Redemption (early repayment) fees can be very high for clients looking to sell at the moment since interest rates have dropped since they purchased. what would the early repayment fees are charged by banks if interest rates increase between purchases now and the point of sale?

In Germany such penalties by law must be not more than a compensation for a bank's damages. If an investor repays earlier and the bank can reinvest the previously repaid amounts at same or higher rates at the capital markets, then there must not be a penalty (apart from a negligible service fee). If the capital market rates are lower then the bank can charge the difference (for experts: The discounted differences as we talk about future payments when looking at the remaining period of the mortgage which have to be turned to present compensations). Increasing rates therefore might lead to no penalty at all.

Finally, if someone wants to speed up the finance application process, what documentation/evidence can they collect together before submitting an offer on a property?

There are some standard documents like a recent copy of the property's land register, floor plans etc. - which all are to be provided by the seller or the agent, respectively. The rest is bank-specific, but it is definitely no mistake to have one's proofs of income (most recent tax assessment notices, payslips etc.) at hand when going for a mortgage.

Anything else our investors should know?

As you are buying in a foreign country it is essential to be able to rely on good advise. Like a reasonable tax advisor or a good real estate agent an experienced mortgage broker might add considerable value to your investment. Not only will he find/negotiate good terms for you, but also will he accompany you actively through the process and moreover provide "after-sale" service to you.

Thank you Martin, that was very insightful.

If you would like to find out more about investing in German property, from Berlin to Bremerhaven and beyond or to discuss finding finance then - please don't hesitate to contact me, James at ProVenture Property.

Snapshot of the German Economy and the Property Market - March 2013

noreply@blogger.com (Unknown) — Wed, 6 Mar 2013 12:30:00 GMT

The month has broadly better news for the German economy, after the Eurozone uncertainties of 2012 Q4. German unemployment fell in February amid signs that the economy is returning to growth after a pull back at the end of last year.

The number of people out of work fell to 2.92 million, the Nuremberg-based Federal Labour Agency said today. The rate remains at post-unification lows, at around 5.9%.

Equally encouraging was to see Inflation continue under control - according to Office of Statistics the inflation rate is now 1.5% and trending downwards over the last 2 years.

Continuing on the improving trend, consumer confidence up as measured by the Gfk index, now at a 12 month high. In line with this trend the business confidence, as also higher according to Ifo, up dramatically in Feb 13 and back in “boom” territory when looked at in terms of the “business clock” which positions the economy in recession-downswing-upswing-boom categories.

The business outlook according to Ifo actually his a post-reunification high, signally a strong recovery in the Germany economy is really underway now.

Property Sector

According to the property fund Patrizia Immobilien, their findings in the latest residential property investment compass make some surprising reading. It is usual when looking for rental sustainability, that a key indicator is a growth in population in a given city. Indeed, we at ProVenture Property almost always look for this condition in any of the markets in which we participate.

Contrary to conventional wisdom, cities with shrinking populations also offer prospects for real estate investors provided it is high class apartments according to Patrizia. According to the study, investors in those cities can expect significant rent increases for new, higher-quality apartments thanks to a shortage of inventory in this segment. However, many institutional investors are giving little consideration to this trend in their investment behavior. Therefore, an opportunity is being suggested in this niche area which is escaping many investor’s attention.

From a lending perspective, the Bundesbank has been laying down some initial markers in the sand should the booming economic conditions in the country and historic low interest rates lead to a bubble in housing and asset prices in general. The Bundesbank cites that whilst house price rises in 2012 were moderate at 5.3% across the 125 biggest cities in Germany, some cities are starting to increase at a faster rate and caution in lending should be taken. That said, the bank points out that much of the finance to purchase housing is non-leveraged i.e. cash equity from individuals or funds looking for sustainable yield with relative safety.

This confidence in housing is seen not only from investors but also now, at last, by owner-occupiers. Owner-occupation levels are rising quickly, up from 43 to 46% in the last year, and set to be bigger than the rental sector by 2018. Low finance rates and increasing consumer confidence are apparently driving this important market. According to Savills research in Germany, Ultra-low interest rates are encouraging Germans to become homeowners.

"Five years ago buying property was not really a topic of conversation," a spokeman said. "Today you can get mortgages at three or four percent, which is significantly lower than five or ten years ago when they were above six percent."

For example a typical 75 square metre flat in Frankfurt cost 640 euros ($840) per month to rent and 710 euros to buy 10 years ago based on a 30 percent deposit. Today, thanks to lower rates, it would cost 795 euros to rent and 540 euros to buy, despite the price rising to 215,000 euros from 180,000.

Indeed, the largest lender in the country, Deutsche Bank, sees good evidence for a continued climb in prices now until 2020. Their research seems to rest also on low interest rates and the consequent record affordability of housing now when compared to wages. With affordability now at record lows when compared to the German market over the last 20 years, thanks not only to lower finance rates but also rapidly rising wages, the market is seen to have a good deal of support. Even when compared to all other EU countries over the last 20 years, Germany now represents the most affordable market and so a good deal of room for a run up in prices is still in place.

German Property Management

noreply@blogger.com (Unknown) — Wed, 27 Feb 2013 13:30:00 GMT

Background

This is a huge topic, one which I am still learning after 5 years in the market as an investor in both single apartments and also of apartment blocks across different regions of Germany. There are some huge differences in the way property is managed, certainly to my domestic market of the UK, mainly commensurate with the higher level of renters in the sector and longer residence times.

There are 2 distinct markets to cover here, that of single apartment management and that of apartment houses (including commercial offers). The management functions are broadly similar in each of course, it is just how they are controlled:

Tenant Finding, tenant management and rent collection
Communal repairs and property development
Management of ancillary costs such as heating building insurance etc
Caretaking and general maintenance
Establishment and building of maintenance fund.

For point 1, this is generally the same for both apartments and apartment houses. The structure and reward systems vary across regions of the country but it is typical for the following:

Tenant Finding – 0 – 2 month net rent
Tenant management and rent collection – 15 to 25 Eur per month, regardless of unit size or a percentage of the collected rent, typically around 8%.

It is less common to find a percentage-based management system, but these be attractive where they are offered. This system brings manager and landlord closer together, sharing the rewards of collected rents and rental increases, whilst not rewarding managers to keep units vacant.

Tenant finding rates differ according to buoyancy of the tenant market and effort required to find and install a tenant. For example, in Bremerhaven it can be common for all marketing fees to be passed to the incoming tenant, such is the demand in the city. In Leipzig and Berlin, 1-2 months net rent is usually charged to reward the marketing and inspection effort needed to find and and reference a tenant. Of all the fees, other things being equal, this is not one to negotiate down. You will put your unit(s) at a distinct disadvantage in doing so, unless you have a large scale of business with one agent. It is quite common however to market a unit with multiple agents to give maximum exposure. Things to check here are what marketing strategy the agent uses. Is he on the major national internet platforms [most successful, but they cost money] or does he rely on local press and banners in the window [effective only in the areas of highest demand]. In terms of the charge for tenant management, these are usually fixed and not proportionate to unit size or level of rent. As long as a unit is renting and paying, the fee is extremely good value and a sign of a competitive and fragmented market.

For the other 4 points on our list, the manner in which they are managed differs for single apartments and apartment houses. In terms of point 2 and 5, communal repairs and property development and the maintenance fund, with an apartment house this is clearly the gift of the owner of the whole building. Repairs development and maintenance can be planned and budgeted for. It is usual for a letting agent to offer their services in this area, perhaps charging 10% to project manage works, take up quotes and see the job through satisfactorily. For single apartment owners, any works need to be planned and agreed by all owners. This is usually conducted at an annual meeting, or in emergency cases by contacting all owners for agreement. It is normal for a maintenance or “sinking fund” to be established for this purpose, so works can be planned and paid for in an efficient manner. Owners cannot opt out of this arrangement!

Next on the list is the management of the ancillary costs associated with the running of the property and caretaking duties.

This would include items such as:

heating costs, where a shared heating system is in place
Building and liability insurance
Ground Tax [not always included]
Caretaking duties such as bins, sweeping stairs, small repairs such as painting and locks.
Street cleaning
water and sewerage services
boiler maintenance
lift maintenance
Chimney sweeping
Communal lighting
snow clearance to the front of the property

These ancillary costs are in the most cases transferrable to the tenant and called “warm rent”. Cold rents are net of these costs and are what the property yield is based upon. Nice and transparent. In the case of an apartment building, these costs amount to between 1.5 Eur – 3 Eur per sqm, depending on heating arrangement, level of caretaking service etc. Your letting manager will usually take care of all of these aspects. For single apartments, it should be remembered that you will usually have a mix of owner-occupation and renters in the property. For this reason, these costs, and the sinking fund will usually be lumped together and called the “wohngeld”. One further charge unique to single apartments is the cost of managing the co-ownership arrangement, the holding of meetings, communication to owners etc.

Communication

Be sure to ask a potential manager how they will communicate the rental income, expenditure, reporting of rent arrears and property maintenance tasks. Some managers will be happy to produce monthly reports, others will offer only 3 monthly updates coupled with by-exception updates on more urgent matters. As an absent landlord, communication will be key during the term of the investment and you should be comfortable how your managers will communicate and have this written to the contract.

Things to Look for – Apartment Houses

When evaluating an investment and its management, here are a few things to consider:

Who has been managing the property in the past, and should I continue? It maybe that the owner has run the property himself, in which case a new manager should be found.
How is the current manager doing? What is the feedback from occupants with regard to conducting maintenance and caretaking duties?
How is the current manager doing with rental collection and tenant finding? Don't just ask the seller, demand to see the last 1-3 years accounts.
Does the warm rent stated on the rent list you are given actually cover the costs of running the property? Again, get the last 1-3 years accounts and check. If the charges are not high enough to cover the running costs, this will come from the net rent cashflow. This is particularly relevant when renting to government-paid tenants, as the government will usually only pay warm rent to a specified level, and the tenant must pay for any additional costs. And try getting it from them..
What length of management contract is being offered? A one year contract should be sufficient for you to evaluate the manger's effectiveness and amortise the setting up effort on the part of the manager. Question longer contracts, sometimes 5 year contracts are attempted. Unless you have a strong reason to sign, and are convinced by testimonials from other owners do not sign!! trying to withdraw from a contract can be emotional and expensive – trust me!
For single apartments, all of the above is relevant. In addition, just be careful when evaluating an investment for its cashflow. Ensure that you consider all costs that will come out of the gross rent. You could argue that the payment for the sinking fund should not be taken out of your yield calculation, but all other elements of the wohngeld should be discounted from cashflow. It's important – the wohngeld can be more that the net rent in cities such as Berlin.

Tenant Arrears

You hear reports in Germany that the tenant has all the rules in their favour, and arrears in rents are common and difficult to reclaim. From my experience, the rent default or “delinquency” rates as fairly low in Germany in well managed property. Perhaps 2% of tenants would be behind their rent by 2 months or more. In terms of the process in reclaiming late rents, each managing agent is different, but the following will usually apply:

The tenant has to pay till the 3rd day of each month.
It is normal to send a reminder letter at the 15th of the month, reminding them to pay until the end of the month.
If the tenant fails to pay, a letter requiring all late rents to be paid in 14 days
At this point, if no rent forthcoming, a lawyer is engaged and stipulates the legal position and the need to pay. At this point, most tenants negotiate a payment schedule to get back on track.
If the tenant fails to heed the legal letter, then an action for possession is applied for and the property taken back.

It is good practice for management agents to communicate by telephone or calling to the property at early stages, to discuss problems with payment and find a way forward that works for all.

If step 5 is invoked, the tenant will be entered onto a national database and will find it very difficult to gain a new private tenancy. This database also allows for continued contact with the tenant for reclaim of fees via legal means if this is seen as a viable route.

So, in all, the process is well-laid out, responsive and understood well by all parties.

Conclusion

Careful selection of a manager for your investment is perhaps the most crucial decision you will make, once a building is found and a purchase price has been set. We really recommend getting quotations for management from at least 2 companies and meet them if possible to evaluate their services. Once you have found a potential company, ask them how many international landlords they have on their books then ask for references from a selection of them.

Following this selection procedure should keep you safe, but ensure you put a short review period of your management contract to ensure that if things do slip then you are free to select another manager. A one year contract should be the longest you need to sign at anytime.

To discuss any issues raised in this article, or to discuss your own management position, then do get in contact with the team at ProVenture Property: enquiry@proventureproperty.com

Positioning In the German Property Market in 2013

noreply@blogger.com (Unknown) — Sun, 17 Feb 2013 19:34:00 GMT

Within the context of the wider European property market, Germany looks well set to continue to enjoy much stronger growth than its neighbours whilst enjoying still historic low interest rates.

Looking at the economic cycle and property price histories in Germany, it can be asserted that the country is in the early to mid cycle of growth. This short article will look to the different factors affecting taking a position in the market in 2013, and some ideas to the next 5 years of growth. General Growth in Last 10 years In the context of multi-family apartment house sales, across Germany we see the below price trend:

The black line shows capital values, set to a base of 100 in 2003. We see that the market remained broadly static from 2003 to 2010, with some recent strength over the last 2 years taking the average of the market up by around 10%. There are some big variations within the data, with bigger cities generally performing above trend and smaller cities below. For the bigger cities in Germany, over the last 5 years according to the IMX data survey:

Munich - 40% increase
Cologne - 18% increase
Berlin - 37% increase
Frankfurt - 26% increase
Hamburg - 43% increase

These bigger cities really have been an excellent place for property investors in Europe to shelter, during the last 5 years of the global financial crisis. Markets across Europe as a whole have really suffered by huge amounts, so some good stories are permeating out of the country now. Germany up until the financial crisis was unloved by investors, and had been largely static. Perhaps the time has come now for the market.

Indicators for Growth in Coming 5 Years

The property price levels in Germany still remain far below that of most other developed countries in the world, especially when measured against annual incomes. Whilst rising of late, rent levels also are low and show excellent affordability and capacity for increase. With these factors in mind, apart from smaller towns which maybe depopulating, it is easy to assert that the German market will appreciate across the board in the next 5 years. This is a view held by the major national bank, Deutsche Bank, as well as all major commentators. But where will fair the best?

Indicators for above trend growth in next 5 years

Looking to clues as the areas which will benefit the most from the market in the coming years, the following indicies should all be important and factored into research:

Population growth – overall German is declining slightly in population, so any areas of population growth should fair well. GDP per capita growth – a measure of a city's relative growth in wealth.

Rents – affordability – the proportion of take home household income rent makes up. Higher yield than the average market- but good LTVs in place Inward investment to the area

These are the type of factors which Proventure Property look for in determining where we operate and sell property. Please get in touch if you wish to discuss opportunities in the German market at the moment.

ProVenture Property - 18 months on in Bremerhaven

noreply@blogger.com (Unknown) — Thu, 7 Feb 2013 20:17:00 GMT

With ProVenture having been operating in Bremerhaven for 18 months now, we thought it about time to do another little follow up with a summary of activity and a 'how goes it' for our clients who have purchased there over the last year and half.

The biggest success story for all of our clients who have purchased up on the North Sea coast has to be management. Our partners, Haus und Grund, have been doing an excellent job there, but it is not only testament to them and the service they provide, but also to the city itself.

With a growing population, fully renovated buildings and with CURRENT yields in the region of 9-10%, management isn't the hardest job in world in this coastal city. I am pleased to say, and hopefully without tempting fate, all of our clients are happy with the current situation and are sitting back and enjoying the hands off investments they all signed up for.

The city continues to grow; as one of Europe’s largest ports, Bremerhaven has always been closely associated with logistics and the maritime industry. In recent years, the exploitation of offshore wind energy has brought a new, booming industry to the River Weser estuary.

This industry hasn't stagnated either, and continues to flourish. Several construction projects are planned for the southern section of the Fischereihafen port , at the south of the city, which will open up more space for businesses already located there and improve access to the planned Offshore Terminal Bremerhaven (OTB) on the banks of the River Weser.

A southern bypass road will be built around the “Luneort industrial zone” where major manufacturers are looking to expand their manufacturing facilities to meet the order demand. An application for closing the regional airport has already been submitted. The 1,200-metre long and 30-metre wide runway will be reinforced here to later serve as a storage area for heavy turbine components. From there, a ramp bridging the dyke will lead to the planned offshore terminal.

Further information on the development of the Offshore Wind Industry and its expansion in Bremerhaven can be found in the link here:

Unemployment continues to come down, after it reached a high point in 2005 at 22% (based on the fact the American military left in 2003), the closure of the ship building and fishing industries. Since then, unemployment has been on the decline with January 2013 at 14.8%. The biggest issue for reduction is the growing industries, which include car import and export, the container port and Offshore Wind Power. Unfortunately the unemployment rate has stalled a little, not due to negative factors, but a "mismatch of employment" as all the new industries that have emerged rely on more skilled workers, rather than the residents that were left unemployed in the early 2000s. The good thing is that the population is increasing to fill the voids in the new industries and these people are skilled workers, looking for good apartments, in turn driving the rents up.

In addition to the wind energy sector, due to it's position on the coast, it has a HUGE container port, where it imports goods for distribution all over the country and cars from Korea and Japan, whilst I have never seen so many BMW, Audi and Mercedes cars lined up to be sent all across the world. There is quite literally thousands and thousands of them leaving the city, with a similar number coming in.

Bremerhaven still continues to be the only city in the former West Germany, with a population of >100,000 ppl where you can still achieve a yield of greater than 10%; current yield, not potential yield. Vacant apartments in any of the buildings we have sold are only things that happen in other cities, like urban legends or mythical creatures, which is why management companies charge nothing (you heard me right, zero euros) for find new tenants. The average tenancy tends to be around 7 years, akin to the rest of the country.

Let's look at some examples of what we currently have on the market:

PV561 Great yield MFH in Bremerhaven

328,000€ | Bremerhaven
Potential Yield: 9.54%
Type: Residential
Approx. Size: 540 sqm

The Property is an overall very well maintained multi family house with a full basement, 4 full storeys and a partially converted attic. It has 9 spacious apartments with beautiful layouts, a newer thermal insulation façade, intercom and plastic framed windows with insulation glazing.

View Property Details

PV560 Newly Refurbished MFH Bremerhaven

325,000€ | Bremerhaven
Potential Yield: 10.08%
Type: Residential
Approx. Size: 500 sqm

The Property is a 2012 refurbished multi-family house with full basement, four full storeys and a converted attic. It was built approx 1939 in a massive construction with a plastered facade and is equipped with plastic framed insulating glazed windows. It has 7 apartments of approx 36 to 91 sqm and 2 commercial units in the ground floor (catering service). The house and the apartments have been renovated extensively in 2012 and are, in our opinion, in a good condition and well maintained. Repairs and renovations have been made in a timely manner, no abnormalities were detected.

View Property Details

PV555 - New Refurbishment MFH, Bremerhaven

320,000€ | Bremerhaven
Potential Yield: 9.69%
Type: Residential
Approx. Size: 618 sqm

A solid brick-built, quaint building in the heart of the district of Lehe, close to the city centre. This side by side buildings consists of basement, two full floor, plus converted attic and contains 12 apartments in total. The entire building will undergo a full refurbishment and new tenanting before delivery. The communal areas and grounds are already maintained regularly and kept in a very neat condition. The building is heated with oil fired central heating.

View Property Details

All of these properties are renovated, fully tenanted and delivering a return, month on month. It really is as simple as that. I can't convey this point enough.

So, if you want hassle free yields of 10%+, fancy a bit of sea air and don't mind getting up early to join me on the Ryanair flight to neighbouring Bremen, I'll see you at the Departure gate at Stansted.

Email James

Leipzig in 2013 – A boom city in Europe?

noreply@blogger.com (Unknown) — Thu, 7 Feb 2013 19:59:00 GMT

The city of Leipzig has had a turbulent past, both from a historical perspective and from a property point of view. The 20^th century saw the effects and devastation of 2 world wars, assumption within the USSR and then the collapse of communism followed by German re-unification and later the adoption of the Euro. Quite a lot to make sense of, and the city is still makings sense of these massive developments today you would say.

Unlike Berlin, which was always in the headlights for investors since the Berlin wall collapse, Leipzig has remained “under the radar” for international investors with mainly domestic investors making up the sales transactions. This is somewhat unjustified you would say, and the economic and cultural scene in Leipzig certainly demands attention from investors. We have certainly thought as much, and set up our headquarters here in 2007.

To give a flavour to the city, I offer this link from DW website which asks if Leipzig is the new Berlin, which also has an excellent audio commentary towards the end of the page.

I also draw your attention, if you have not seen, to our many and varied articles from the city at our own research centre on our website - German property research:

With the general doom and gloom which surrounds the majority of Europe today, Leipzig can be seen as somewhat of a good news story and is one of the last cities standing which offers good growth potential for the coming years.

But the more wisened investors amongst you will be thinking “well, if the city is in the media already then perhaps the growth has already happened and I am too late!!”

Lets look at the different property types, with some historic data, to see what positions can be taken in the city today.

The story of Apartment House

As investors and consultants, this part of the market has been the prime area of activity from 2007 to the present day. In 2007-08, apartment houses in the A-B grade parts of the city were most active, say in the district of Schleussig where the properties pictured above are located. The house above right sold for 450.000 Eur with a rental income of 51.000 Eur per year or a yield of 11.3%. Today the rental income is 56,000 Eur per year and a likely sales price of 800.000 Eur would be expected, giving a yield compression down to 7%. Other parts of the city have favoured differently, with the south and west generally compressing more and having greater ability for rental increasements.

You could say that the most recent low point in the market occurred around 2007-2008 in most parts of the city, perhaps being a feature of the lack of money around at the start of the financial crisis we are still in. But confidence is certainly in the city now, non property folks are talking about investment and prices in most areas are rocketting.

As investors in this market ourselves, we are now off-loading property that has the rents at the market level and is located in average or above locations. Early investors with us are doing likewise. Here, after a hold of around 5 years, we are enjoying uplifts of around 50-60% typically. For property that still requires management to get rents to the market level, or for property in below average location we are still holding in this market and would still find value here for new investments if bought at the right price. You feel that the high point bell will not ring for a year or 2 in Leipzig, and indeed long due rent increases in the city could keep the upswing going for a little while yet. But certainly now we are advising clients to look to their portfolios in Leipzig, and consider any sensible disposal, based on their own individual investment strategies.

So, focus on single apartments then?

Well, this is a play that some investors would consider depending on their objectives. From our own sales in the city we can say that only 5% of transactions we have overseen for clients have been for single apartments and in many parts of the city they remain a rather unloved and overlooked asset. Why is this? Well, investors have been able to complete and finance deals of complete apartment houses at a relatively low outlay. With banks financing up to 80% at times, and apartment blocks starting as low as 200,000 Euro then only a modest amount of cash is needed to invest in a complete block. This is somewhat of an oddity around Europe you would say, being able to buy complete apartment blocks with such a small budget. But times now move on, and the Leipzig property market continues to mature. Complete apartment houses become increasingly difficult to find for sale, and they have increased greatly in price meaning that banks will not lend as highly against them. Perhaps it is time to look at single apartments then?

We do see the price of single apartments, in the average locations, to often be below per sqm that of complete apartment houses now and in some ways, as long as the building is in good shape, that it is a signal to perhaps buy. For example, this unit in Grosszschocher which is an average or just above average location in the city.

Here we have a small 1 bed apartment, 40 sqm, with balcony and car parking space. In very good order, the unit has been rented with the same tenant for 5 years and delivers 9% return. With a price of 25.000 Euro or just over 600 Eur per sqm, this makes an interesting proposition to invest. There are many such deals on the market, and much easier to find than good apartment house deals now.

According to an aggregate of sales data recorded from property portals from 2012, we have the following increase over the last 12 months, for single apartments:

Suburb	Purchase Price / Eur per sqm	Price Increase in Last Year
Sudvorstadt	1400	16.70%
Centre North	2000	17.70%
Forest Street Quarter	2800	0.00%
Alt-Lindenau	990	0.00%
Lindenau	1120	0.00%
Schleussig	1400	-6.7
Music Quarter	2100	33.00%
Kleinzschocher	1350	55.60%
Plagwitz	1700	0.00%
Grosszschocher	800	0.00%
Neustadt	840	12.50%

We only list some example suburbs here from around the city, but we see a large spread of growth rates within the last 12 months. A health warning here is that some data will only be based on as few as 100 sales, so can be easily skewed by the listing of new developments say which will always have a higher price [no doubt the case for Kleinzschocher's meteoric rise]. But the data is still useful to look. For investors looking at detail to the market, and want to get a full suburb breakdown, then please get in touch.

Which position to take Today?

There are reasons to invest in any given market at any time, and Leipzig is no different. Based on our time in the city we would say the following. With the Leipzig market maturing into sales of single apartments more easily and a backdrop of increasing prices, the market needs to be thought of with good care. General points, and each investment needs to be looked at carefully, but here are our general tips:

Buy

Single apartments in good condition buildings which do not have a maintenance backlog in as good a location as you can afford.

Apartment houses in average or below average locations, but in good condition.

Apartment houses in average or above locations, but in lower grade condition and needing tenanting [perhaps these are cash buys].

Hold

Apartment houses in average or below locations, where rental increases are yet to take hold

Most single apartments, unless in good locations where price rises have already taken hold.

Sell

Apartment houses in good locations, tenanted to the full potential – the demand is high

Single apartments in good to top locations, perhaps splitting down an apartment house if already owned as a block and selling to smaller investors or owner-occupiers.

So, a lot of ideas here for the current and interesting market ofLeipzig. But just ideas, so please do get in touch to discuss anystrategies with us in more detail.

Good luck in the market, and have fun.

Stability Ahead – According to Leading German Insurer

noreply@blogger.com (Unknown) — Thu, 7 Feb 2013 19:40:00 GMT

German property markets will display stability this year, amidst the general weaker EU property markets, reported the leading German Insurer Gothaer. With some growth potential in prime locations and stable prices and rents throughout the periphery, says the investment manager of German insurer Gothaer. It sees no pricing bubble emerging ahead.

The limited supply of core assets is holding prices stabile, GoAM found in a report. “Interesting assets in good inner city locations have become relatively expensive,” said Gothaer Asset Management Head of Property Ingo Bofinger. Growth is not only limited to the largest cities any more, like Munich or Hamburg, but can be seen now in almost all cities with more than 100,000 inhabitants. This has been the prime location characteristic for ProVenture in Germany, with our city locations ranging from 100,000 to 500,000 inhabitants typically. This has led to a yield compression, down to 3.5% in Munich and Hamburg, while yields of 5%-6% can still be found in regional cities and B locations, says Gothaer As we see from our website, even higher yields are possible if markets are deeply researched and units selected with care.

Gothaer said another sign that no pricing bubble looms ahead is that German property prices and rents had catching up to do with European neighbours. Last year, a single-room apartment tenant in Rome had to spend 49% of income on rent, followed by Warsaw at 44% and London at 40%. Yet a tenant in Germany’s most expensive city Munich has to pay 25%, followed by 21% in Berlin and Cologne and 18% in Hamburg. Still room for rental expansion then, within affordability of wages which continue to rise in Germany.

Find out more about investing in the German Property Market - Get in touch with ProVenture Property.

The Property Market Cycle - Where are we?

noreply@blogger.com (Unknown) — Thu, 7 Feb 2013 16:00:00 GMT

New Year's Resolution – Get on the Cycle

Main points:

All property markets tend to follow cycles
Cycles differ in rises and falls, depending on conditions [finance mainly] but tend to follow 18 year cycles
Sticking to cash flow positive principles, ie property with a positive yield reward from Chapter 4 of our E-Book, it is possible to buy property that fits this criteria in most if not all of the cycle
The types of property to look for in different parts of the cycle

Introduction

Like capital and equity markets, asset markets like minerals and natural products follow cycles which can be recorded and observed. The property [and to be more precise land] asset class is no different, indeed the cycles here are if anything more defined and predictable.

A commentator from the UK, Fred Harrison is the most famous person to be linked with stating that the residential property market in most mature economies follows a distinct 18 year cycle, 14 years of growth and 4 years of decline. Indeed, Fred Harrison was sage-like in his predictions for the UK market and its crash in 2008-10, speaking of this as early as 1998.

The graph below shows this cycle being played out:

Years 1-7 – growth

Year 7 approx – market “takes a breath” with a mid cycle recession

Year 9-14 – accelerated growth

Year 15-18 - declines

A slightly more detailed graph splits these stages, and gives characteristics to the market in each phase, as follows:

As an investor, do you recognise these cycles in your home market? Well, maybe and maybe not. Certainly the research shows that in markets such as UK and USA the property market really does follow this cycle with alarming accuracy. Indeed research goes back 400 years to prove it to be the case. In other markets such as Japan at the moment for example, you could claim that the cycle is not well-mapped [but in Hong Kong maybe so].

When we look at graphs for UK and USA, the cycle is more clear:

USA House Price Graph – 1976 – 2012

UK House Price Graph – 1982 – 2012

So, the idea is all well and good. If we follow that property markets do tend to follow fairly reliable cycles, then we can start to think about our timing in buying and selling.

Clearly, the old [and not very helpful] “buy low, sell high” principle seems an obvious one to follow. Looking to the UK market for example, a purchaser in the so-called stealth phase of the market in 1995 and a disposal just before the end of the mania phase in 2007 would seem a sensible and obvious strategy to try and replicate. Well, yes I agree! But this approach has a few problems:

Identifying the buy and sell points in the cycle so precisely is very difficult unless done with hindsight.
The graph shows average values of the market, certain location and property types will have done better or worse relatively at any given time.
Waiting for the lowest possible point in the market will mean a very short and infrequent opportunity for you to buy in any given market, even if timed well.
Much opportunity can be lost trying to time the market exactly right.

So, what can we do with this idea of property cycles to make meaningful and successful investments?

Location, Location, Location

And here we go again, looking to where we are buying and now tying it into the “when” we are buying or selling also. If we think about property grades, in a given city say we can define groups as follows.

Grade Property Quality from A to D:

Grade A – best located property, in a good refurbishment standard

Grade B -average location property in a good condition or Grade A located property in a lower refurbishment standard

Grade C – below average property locations

Grade D – property which is difficult to finance due to poor location or micro location or very bad refurbishment standard. The property may have other blights, such as a sitting tenant on low rent or blighted by new building around it.

An exercise here will be to think of a market you know well, and look to where you think you are in the property cycle right now. Additionally, think about the different grades of property and if possible plot have these have performed in the last 10 years or so. This will be very interesting, and I have done this with a number of markets in UK and Germany to see what thoughts emerge.

Our findings, using this 4-category approach and the idea of the 4-phases of the 18 year cycle are captured in the table below:

Summary and Conclusion

We have said that the market is seen to follow roughly 18 year cycles, with 4 distinct phases. Looking more closely at the market, we have split the properties within a location down in 4 depending on quality of unit and sub-location, and introduced some ideas as to when these locations support different activity in the cycle as a whole. In each phase of the cycle, there is something to do as an investor, either buying, holding under management or selling off.

And, So What? As we sit here at the start of 2013, what are we doing as investors, where, why and when?

Germany – we see Germany as a whole in the “awareness” phase, with some cities which can said to be drifting into the “mania” phase like Berlin and with other cities like Wuppertal perhaps back in the stealth phase. For property markets which are earlier in the cycle, like Wuppertal, we would advise looking at A grade or perhaps very good B grade units. In many markets, like Leipzig or Berlin, where we are further now down the cycle, we would advise a hold or careful sell strategy now.

United Kingdom – looking at most data around now, there is lots here in comparison to Germany, we would state that we are somewhere between the end of the “blow off” phase and at the start of the “stealth phase”. Outside of London, a market seemingly stuck in the “illusion” part of the cycle with capital inflows from fearful foreign investors supporting things, we would suggest picking up prime assets in big cities now. These assets will perhaps be held for 7 years or so to ensure that good gains are felt, so not a quick flip here.

Spain – the market seems like it is still in capitulation and not even “despair”. A market to perhaps leave altogether for the foreseeable.

Investment Focus - The Rhine-Ruhr Area of Germany

noreply@blogger.com (Unknown) — Tue, 5 Feb 2013 19:30:00 GMT

Investment Focus – The Rhine-Ruhr Area of Germany

Whilst ProVenture have operated to a great extent in the former East of Germany for our first 5 years of operation, we continually seek new markets in which to operate across the country. The economy across the country is continually performing well despite the headwinds of the current Eurozone crisis [I sit her now in Feb 2012] and the economy is set fair for a positive decade you would say. Certainly after it sat in the doldrums for much of the 90s and early century whilst re-unification weighed down and productivity was improved. Our journeys in the West have so far taken us to the port of Bremerhaven, a yield market which we opened up for clients in 2011. Here, we are achieving 8-12% yields, backed with 80% finance and a strong tenant sector. Perfect conditions you might say. Whilst the Bremerhaven market is fairly small, we seek similar conditions across the state of North Rhine Westphalia {NRW], and set out our case for investment in this short paper.

The state of NRW is home to one of the biggest industrialised areas in the world, the Rhine-Ruhr area or Ruhrgebeit in German. The area is mapped below, with familiar cities such as Cologne and Dusseldorf.

One in 3 residents in the European union live with 500km of this region, this is the heart and life blood to the EU.

In the table below, the population in this area is given, with the major cities broken down. Some 10 million citizens makes for a huge market, which is still dominated by tenants in the residential housing sector, albeit to a lesser extent than the cities in the former east.

Broken down further, here we see a table of the independent cities by population, and density which is uniformly high across the region.

Background

Historically, most of the Ruhr area was for the most part characterized by heavy industry since the age of industrialisation in the late 19th and early 20th century. Since the Middle Ages, Cologne, Dortmund and other cities were important regional trading cities, but during the 19th century the city of Düsseldorf grew to become the administrative center of the region and since 1945 its political capital.

Today, the Rhine-Ruhr metropolitan region accounts for roughly 15% of the GDP of the German economy, which would place it as the 3rd largest GRP of metropolitan area in the European Union and the 16th largest GDP in the world. Despite this size, the Rhine-Ruhr region often lacks international competitiveness from the lack of a unified presentation, in which cities and urban areas within it, often pursue a separate investment policy against each other.

From within, Düsseldorf and Cologne are by far the largest economic centres, with specialisation in financial/high tech and insurance/multi media services respectively. Other major economic centers are Bonn, Dortmund and Essen. The region is home to twelve Fortune Global 500 companies, among them E.ON AG, Düsseldorf, Deutsche Post AG, Bonn, Metro AG, Düsseldorf, Deutsche Telekom AG, Bonn, ThyssenKrupp AG, Essen/Duisburg, RWE AG, Essen, Bayer AG, Leverkusen,Franz Haniel & Cie. GmbH, Duisburg, Evonik Industries, Essen, Arcandor AG, Essen, Hochtief AG, Essen and the Henkel Group, Düsseldorf.

From west to east, the region includes the cities of Duisburg, Oberhausen, Bottrop, Mülheim an der Ruhr, Essen, Gelsenkirchen, Bochum, Herne, Hagen, Dortmund, and Hamm, as well as parts of the more "rural" districts Wesel, Recklinghausen,Unna and Ennepe-Ruhr-Kreis. Historically, the western Ruhr towns, such as Duisburg and Essen, belonged to the historic region of the Rhineland, whereas the eastern part of the Ruhr, including Gelsenkirchen, Bochum, Dortmund and Hamm, were part of the region of Westphalia. Since the 19th century, these districts have grown together into a large complex with a vast industrial landscape, inhabited by some 7.3 million people (when including Düsseldorf and Wuppertal). It is the fourth largest urban area in Europe after Moscow, London and Paris.

Road transport

A 40 in Essen at night

The Ruhr has one of the densest motorway networks in all of Europe, with dozens of Autobahns and Autobahn like Schnellstraßen (expressways) crossing the region. The Autobahn network is built in a grid network, with 4 east-west (A2, A40, A42, A44) and 7 north-south (A1, A3, A43, A45, A52, A57, A59) routes. A1, A2 and A3 are mostly used by through traffic, while other autobahns have a more regional function. Both A44 and A52 have several missing links, in various stages of planning. Some missing links are currently not considered to be constructed.

Additional expressways serve as bypasses and local routes, especially around Dortmund and Bochum. Due to the density of the autobahns and expressways, Bundesstraßes are less important for intercity traffic. The first Autobahns in the Ruhr opened during the mid-1930s. Due to the density of the network, and the number of alternate routes, traffic volumes are generally lower than other major metropolitan areas in Europe. Traffic congestion is an everyday occurrence, but far less compared toRandstad, another polycentric urban area. Most important Autobahns possess six lanes, but there are no eight-lane Autobahns in the Ruhr.

Public transport

All public transport companies in the Ruhr are run under the umbrella of the Verkehrsverbund Rhein-Ruhr, which provides a uniform ticket system valid for the entire area. The Ruhr region is well-integrated into the Deutsche Bahn, both in passenger and cargo rail.

Air transport

Düsseldorf International Airport serves as the interncontinental airport for North Rhine-Westphalia and is within 20 km for most of the Western Ruhr area. Dortmund Airport in the Eastern Ruhr is a mid-sized airport, offering scheduled flights to domestic and European destinations.

City Focus

Whilst the affluent cities of Dusseldorf and Cologne-Bonn support typically lower yields in the range 3-5%, there are cities within the region which support much higher yields, and are backed by good levels of finance to 80%. These areas are of interest to us at ProVenture and we will be operating in some of them in 2012-13.

For the purposes of this paper, we will select 2 cities, Herne and Gelsenkirschen for a focus on the investment case, although the cities of Duisburg, Essen, Bochum and Wuppertal are also areas in which we expect investment activity in the coming months.

Focus on Herne

In the middle of the region, nestled within and crossed by a myriad of autobahns and trains services, we find Herne, a city of 165,000 inhabitiants. Former employment was focused full square on heavy industry, but as Europe loses much of this to the developing countries, Herne has taken up the slack with service industry and high tech. Unemployment is slightly higher here than the region average of 9%, standing at 13% [2010 figures] but strong job supply. Population peaked in 1975 at around 190,000 and has fallen back over the years in line with many cities in the area. But the declines of late have been very small, in the order of 100s per year. With the expansion of the German economy over the next decade and the resultant migrant workers it will bring in, Herne is set fair for an increase in population.

In terms of its placing across the top 50 German cities based on economic factors for future development, Herne performs well at 11th place. The table below shows Herne's position as compared to other cities in the NRW:

The factors which drive the city ahead are unemployment falling [5% over the last 5 years], an increase in disposable income by 12% and a 22% increase in GDP per capita over the same period.

So, we see a city which is repairing from the boom industrial years of the 70s and 80s and now diversifying and beginning to grow. But the wider investor confidence is yet to take yields down to the more normal levels of the region, and we see some interest here today.

Typical Property in Herne

Located on a quiet side street not too far from the commercial centre by foot, here we found an attractive period property with a lovely side building which has been turned into townhouses. Refurbished in the last year, there are 16 residential units which deliver at yield above 11% and priced per sqm at 516 Euro. The guide price is 540,000 Eur, and finance should be expected in the 70-80% range at today's low rates of around 3,4%. In terms of cashflow, this type of unit cannot be beaten in all the areas in which we operate, at least in this quality of presentation.

In terms of typical rent levels, an average across the city of 4,87 Eur per sqm is paid with the following breakdown according to size:

Compared to income, rents are very affordable in the area. Expansion in rents should be expected if the population upswing occurs and also as the cost of living index increases over time.

Focus on Gelsenkirchen

To the west of Herne is the city of Gelsenkirchen, population bigger now at 260,000 apporx but with much the same character as Herne is terms of local economy and infrastructure.

In terms of local industry, the city houses a large science park and also a solar farm which was the first in Germany, with many off-shoots into the new energy sector as a result. Typical companies are below

In terms of population, the city follows much the same trend as Herne, however parts of the city are already experiencing population growth such as the Altstadt and Feldmark. As far as econmic development, from the table above for Herne, we see the city as 12th over the whole country in terms of forward looking indicators. Big things pulling ahead the rest are unemployment falling 9% over the last 5 years, disposable income up 9.6% and GDP up nearly 16% over the same period.

Rental Scene

Rental levels are much as Herne today, with an average rent in the city of 4,76 Eur per sqm, and across the apartment sizes:

In terms of rental development over the last 12 months, the city shows a general increase of around 5%, and rent still are very affordable

Property Example

We find here a typical apartment house in the Rurhgebeit area, with 12 rented apartments and an asking price of 420,000 Eur which gives a price per sqm of 528 Eur per sqm. Recently refurbished, the unit deliver 10.6% yield and finance should be expected in the 70-80% range again.

Conclusion

As investors, we continually look to new areas to deliver the much sought-after yields in the range 8-12% backed with up to 80% finance at good interest rates. Whilst much of this region delivers yields far below this range, we are finding deals which do meet this criteria which is a real surprise in this economically vibrant region. If you are planning a property tour of Germany, we would be delighted to show you current property examples in this area, you can view a selection here and support your research further.

German Property Market - 2013 Predictions

noreply@blogger.com (Unknown) — Sun, 3 Feb 2013 09:09:00 GMT

Review of 2012 and Outlook for Next Year

It is that time of year when we start to look back at what we have [or have not!] achieved on a wider or personal level in the year, and look forward to what the next year will bring. Here will do just that, and look at the big developments in 2012 and look at what we predicted for the year. We will also make some predictions for 2013.

2012 – Review of German Economy

As the Eurozone crisis went from bad to worse, it is useful to look at the year as a whole and look at the economic situation in our primary market of Germany. Using key factors, the year panned out like this:

Unemployment – Fell from 5.6% to 5.4% [seasonally adjusted, Eurostat]

GDP up 0.8%

Business Confidence [Ifo Figures] – fell from 115 to 100 [a now neutral outlook]

German 10 Year Bund – Fell from 2,2% to - increased appetite for German government debt

Mortgage Interest Rate – 10 year fixed rates fell from 4% to around 3% by year end.

Inflation – steady at 2%

Stock Market – DAX up 25% on the last year

Budget Deficit – cut from 0.8% to 0.2% [government to cut deficit to zero in 2014]

Exports up 3.5%,

Tax Revenue – Billion Euro higher than forecast

Its been a torrid year in the Eurozone, and Germany in the centre is by no means immune. But the inherent strength in the economy and focus on global exporting, and the lack of excessive financing in the credit boom has meant that Germany is still growing. Indeed, being the “last man standing” has meant that German assets such as property have really benefited from the crisis. Amid all the public strikes and unrest in the weaker Eurozone countries, folks are now starting to talk with more seriousness of Germany returning to the Deutschmark, perhaps with a clutch of solvent neighbours. Indeed, Germany's reliance on selling its exports to the Eurozone has dropped significantly since the inception of the Euro [in 2000 46% of German exports went to Eurozone, now it is 38% and falling fast]. Germany has been able to capitilise on its lack of public and private debt during the financial crisis and frankly make stuff what the emerging economies want to buy. All at an Exchange rate which is artificially devalued by around 30% thanks to the failing economies such as Greece.

2012 – Review of ProVenture Markets

Readers of the article written this time last year may remember us forecasting increased activity in the city of Bremerhaven in 2012, in comparison to our other markets of Leipzig, Chemnitz and Magdeburg. In terms of our activity this year, it has panned out in terms of visits and purchases as the graphs overleaf. We have seen a huge shift towards the markets in the West, Bremerhaven and North Rhein Westphalia this year. During 2012, around half of the client inspection trips went to the West, as opposed to our home base of Leipzig. More interestingly, investors found increasing value and sustainable yield in the markets in the West, which actually made up over 75% of the sales volume.

Bremerhaven has proven somewhat of an oddity in the market, where both A and B grade property still enjoyed 80% finance with yields between 9-12%. Investors have found this market has offered very good value and been reliable in the management phase.

In terms of rental levels, in our most established market of Leipzig we have seen rental increases averaging around 5%, with 10% and higher in some parts of the city which have been most in demand. This is in line with the growth in population of the city, and rent levels that have otherwise remained fairly static for the complete decade beforehand. Leipzig is a town entering its “boom phase” you would say, with new commercial centres opening, transport links being further developed and sky-high investor confidence in the city. All this has pushed typical rental yields in the city down to a typical level of 6-8% for apartment houses. Underpinning it all are economic factors. The percentage of east Germans who said their financial situation was very good or good rose from 36.7 percent in 2010 to 47.9 percent today. The percentage who said their situation was poor or very poor fell from 19.1 percent to 16.2, bolstering demand in “lighthouse” cities in the East like Leipzig and Dresden.

New Markets Researched in 2012

Whilst we are focused full-square on Germany, we have also looked to new markets in which to operate. In Germany, many markets in the east and west of the country have been researched, before arriving at North Rhein Westphalia as a new market for us in 2012-13. The area offers suprising high yield in places, and should be an area which benefits well from what may prove to be a golden decade for Germany, it being the industrial heartland and most populus area.

Beyond Germany, we continue to look to markets around Europe for emergence of value, yield and mainstream bank finance in place. We feel that markets such as urbanised Spanish prime residential may look attractive in the coming years. For a more discretional purchase, markets in Spain where very reliable tourism year round can be achieved, again buying in prime resorts from distressed second home owners. We like parts of the Canary Islands, but feel an entry perhaps not as early as 2013. But we keep our eyes to this in the coming year.

But we only see Germany as a place we will be working in 2013.

2013 Predictions

Here, we stick our necks out and make some predictions for our property markets. To “name and shame” ourselves, first lets look at some of the headline predictions made this time last year:

The Euro withstands the pressures currently on it. Perhaps some fragmentation from peripheral countries becomes apparent through the year as the consequences of living with a German style financial discipline becomes apparent. Maybe 1-2 countries depart the Eurozone due to local unrest, but largely managed. NOT A BAD PREDICTION?

The pressures on the highly indebted Eurozone countries that are too big to exit the Euro such as Spain and Italy weigh heavily on the zone. Rating agencies downgrade these countries, and perhaps Eurozone as a whole if some form of ECB backed bond is issued. FAIRLY CLOSE TO WHAT HAS HAPPENED IN TERMS OF DOWNGRADES

Mortgages become increasingly sparce in Germany, contrary to the very liquid market so far in the global financial crisis. The need for banks to deleverage in line with recent European policy means an increase of assets being brought to the market and an increase of finance restrictions for domestic and international clients. Mortgage rates rise from their current historic lows, back to around 5% for 10 year fixes. WE GOT THIS WRONG. RATES CAME DOWN TO 3%, BUT HIGHER LTVs ARE MORE DIFFICULT TO FIND NOW

The German economy increases by 2%, on the back of global exporting and increased domestic demand GDP ONLY UP 0.8%

The ECB interest rate remains flat through the year, maybe a 0.25% decrease in Q1. BANG ON

The markets of Chemnitz, Leipzig and Bremerhaven all enjoy 10%+ capital increases, as Germany is seen as the only property safe haven in Europe. This is pushed mostly by domestic demand, where rising incomes and wealth force investors to look closer to home for wealth protection. Rents rise in many cases by a similar amount, meaning that yields hold up in 2012, except in A and A- grade locations where 20% or more increases could be felt pushing yields down from 6-8% today to 5-7% ABOUT RIGHT

The rest of Europe sees price corrections, both through erosion by inflation and also in nominal terms. Most countries enter recession, or perilously close. Predicted is 10-30% drops in most countries, on top of losses already seen, returning markets to more normal affordability levels with respect to wages. Hardest hit could be Spain, with the most overbuilt market and highest owner-occupation rate [and also highest unemployment rate]. These markets start to correct in 2013-2015, and still low interest rates mean that certain countries become viable again for investment between 2013-2018, especially as finance availability increases. This lack of confidence in all other European markets continues to place demand on the haven of Germany for the whole of 2012. ABOUT RIGHT?

Predictions for 2013

Activity in our markets continues to be around 40% in the East and 60% in the West.

All our markets see capital growth, with average of 15% in Leipzig and 10-15% in the West.

Rents increase fairly quickly in Leipzig [10% increase in average locations], and pressure also elsewhere.

Mortgage rates remain fairly flat, at around 3% for a 10 year deal, although finance levels remain lower at around 60-70% loan to value being typical.

Germany starts to experience wage and general inflation a little higher in 2013, forming part of a re-balancing with other Eurozone countries.

Germany stays within the Euro, Greece struggles to do so.

Growth in Germany reaches 1.5%, higher than anywhere else in Eurozone once more.

James, the most travelled in the team, misses just 5 flights this year, down from 2012 total.

Whatever you get up to in your investment life in 2013, we wish you the very best luck and hope you enjoy it and find it stimulating.

German Property Tax Matters - Interview with a Tax Expert

noreply@blogger.com (Gareth) — Sat, 2 Feb 2013 08:37:00 GMT

German Tax Interview

In December 2012, Mat catches up with Frau Luise Sange and chats over some common points which new investors in Germany often need to find out:

Hi Luise, having worked closely with our clients now for many years, what typical issues do international clients not appreciate about the German Tax system?
Some of the investors are not aware of the fact that they have to file German income tax returns on an annual basis since they include the rental income into their domestic return. The truth is that Germany has the primary right to tax income from German property comprising rental income and capital gains. This income is calculated on the basis of German accounting principles allowing interest, depreciation, certain refurbishment expenses and other property related costs to be deducted. Due to diverging accounting principles and the fact that the fiscal year in Germany usually is the calendar year the net income will have to be adjusted when transferring it into the domestic returns. In general, German taxes will be credited against income taxes at home, the so-called “double taxation treaty”. Furthermore, it is vital to keep all documents and receipts to prove deductible expenses.
It is often reported that selling a property after 10 years of ownership means that it is free of capital gains tax. Is this true for all individuals, and true for companies as well?
It is true that a capital gain from selling a property after 10 years is exempt from German individual income tax. However, individuals will have to check whether they will need to tax the capital gains at home. In this case a credit of taxes paid in Germany (i.e. nil) would not lead to a reduction of domestic taxes. Only individuals are entitled to the tax exemption in Germany. Corporations cannot claim this relief.
One from that point Luise, one of the decisions an investor needs to take before buying a property is if to buy as an individual or in a company structure. What kind of things guide this decision for each investor?
There are a couple of things which need to be taken into account: The first thing is probably the size of the investment. Especially if you buy the first property in Germany it may be recommendable to buy as an individual to cut down side costs (e. g. incorporation, more complex accounting). These extra costs need to be compared to the benefit arising from lower taxes (individual income tax rates are currently between 14 – 44.31 % as opposed to a flat corporate income tax rate of 15.825 %.).
If there is more than one potential investor a property could be owned jointly leading to a smaller taxable profit and therefore lower tax rates for each individual investor.
What is also important is whether you are a buy-and-hold investor (tax exemption of capital gains may be interesting for individuals) or you plan to build up a larger portfolio (low corporate income tax rates allow you to invest into more property). What also needs to be considered is the question of dividends (withholding taxes in Germany, taxation of dividends at home). The question of dividend taxation and the avoidance of German trade income tax play an important role when deciding whether to use a German corporation (usually a so-called GmbH) or a non-German corporation.
Sounds like there is a good deal to think about then. What must clients do through the year to make filing their tax as simple as possible at the end of the tax year?
It is as simple as this: Keep all property related documents. When in doubt (since they are often in German!) rather keep them and show them to an expert without delay. Usually you should keep in mind to file your travel expense receipts, bank statements, certificates of interest for mortgages taken out and all invoices you may have paid out of your private bank account.
What are the deadline dates for filing tax each year?
In general, the deadline for filing is May 31 of the following calendar year unless you use the services of a German tax advisor. In this case it usually is December 31 of the following year. However, the tax office may ask for an early filing.
Do you speak with the management teams of investor's properties, and what format do you need management documentation in?
When preparing tax returns for our clients we usually get the information on current rental income and expenses paid from the house account directly from the management company. We mutually agree what documents are delivered in which format and by what date. The client does not have to worry about these issues.
What are the common problems that you see with how international investors arrange their investments and tax affairs?
Very often investors only contact a tax consultant after they have bought the property. If it turns out later that the chosen structure is not tax efficient it may be quite costly to straighten out this mistake (usually additional notary fees and stamp duty of approx. 5 % of the purchase price will have to be paid). Another issue which is often disregarded is VAT and the question whether to opt for VAT for certain business premises to be entitled to input VAT deduction."
Any top tips from a friendly tax consultant?
You are investing in a foreign country. Some of the correspondence (e.g. letters from the tax office) will inevitably be in German. Still it may be important. You should be aware that German regulations may differ considerably from what you are used to. Early consulting may spare you unpleasant surprises, so we find it is best to speak to us sooner rather than later!
At what point should an investor get in touch with your team if wanting advice on their tax position?
The best time would probably be before the actual investment is made. Ideally you still should have time to set up a corporate structure before buying should you decide so. At the latest, please seek advice when you start getting letters from the tax office asking for payments. In this case it is very likely that your income has been estimated (which is seldom in your favour). Quick action is required!
Thanks Luise, very helpful for our clients and we offer your contact details below for investors to contact you for an initial consultation as the time is right for them to do so.
Luise offers a free tax consultation to all our clients, so please contact her to take advantage of this great service:
Frau Luise Sange
sange@confianza-steuerberatung.de
Confianza Steuerberatung
Weinligstr. 11
04155 Leipzig
Tel: +49 341 2539750

You can read more about German Tax from a property investors' perspective here

Selling your Investment well | Timing the Sale, as Well as the Purchase

noreply@blogger.com (Gareth) — Thu, 11 Oct 2012 20:12:00 +0100

Intro

It is often said with regard to the stock markets, that nobody rings a bell when the FTSE or Dow Jones hits its historic high or its low point. That's a real shame isn't it, as economists helpfully tell us to “buy low and sell high” and the sound of a bell would surely prove a very useful indicator to lead us into action. The property market moves in the same way, albeit in a slower and more predictable fashion perhaps than the stock markets.

At ProVenture we spend a great deal of our time looking at locations to determine the point in the market when someone with a bell would ring it when it hits the bottom. We spend all day as consultants thinking about this point really. And I guess you do too. It is perhaps human nature for investors to focus on the purchase phase in property investment, paying less heed to the selling phase until it becomes necessary for financial or lack of time to manage the property. Additionally, we are all bombarded by marketing messages to tell us what the next best place is to buy, and how we should part we our cash.

In this short article we will look at methods to plan the timing of the sale of your investment in a methodical way, making this part of your business as pro-active as the purchasing side. Even with yield investments, the capital appreciation for property held more than a few years usually far outweighs the rental income, so it makes good sense to plan the release of your hard-earned money well.

Market Features going from Low to High Point

Well, practically the complete articles on property investment and books on the property investment cycle our team has written focus on this part of the equation. Those who know us will understand that we use rental yield as a key indicator to how low a market is, together with other factors which look at general confidence of fellow investors and financing banks.

Whilst we will avoid a discourse of our ideas here, it is perhaps worth looking at features of a market which perhaps had the “low point” bell rung out long ago and are not so interesting to make new investments. This will help us when we are guessing at when the “high point” bell may start to peel out.

Some of the indicators we would suggest point towards the end of any buying point, for those who seek to purchase near the bottom of a market:

1. Activity in the market increases. More than one investor is present at a viewing, agents finding it easier to just get them to form an orderly queue! Agents become less attentive, and do not get back, or a number of your offers are refused or you were outbid and your offers were realistic.

2. Confidence Increases. On from above, you hear stories in the media of the area being the “next hot spot” for property, banks lend readily and non-property folks start talking about property investment as the next thing to get into.

3. Sales pitch changes. Agents move on from marketing for cash flow investment and things which can be measured today, to things which cannot be measured and may happen in the future. This is because investment prices have now gone so high that a cash flow each month after expenses cannot be predicted, and only future rent increases or rises in value will make the investment work.

4. Property auctions become increasingly busy, and prices reached at auction seem to be as high or even higher than that which can be achieved in the open market.

Yield Depression / Compression

I will use a term used by investors commonly during this article, yield compression or sometimes known as yield depression. Sounds like a bad thing, right? Well quite the opposite if it is a market you are invested within. Lets say you purchase a property at a point when the yield is 10%, based on a sales price of 100,000 Eur and 10,000 Eur rental income a month for simplicity. You hold the property for 5 years, and you then measure the yield based on the value of the property at that stage. Unless the investment climate has remained entirely static, unlikely, one of 4 things will have happened, or a mixture of 2 of the 4:

The property value has increased.
The property value has decreased.
The rental income will have increased.
The rental income will have decreased.

If effect 2 or 3 have occurred then the yield will have expanded during your hold period. Say the property value decreases to 80.000 Eur and the rental income increases to 12.000 Eur per year then the yield will have expanded to 15%.

In every market that ProVenture have participated in during the last 20 years, we have noticed the opposite effect, yield compression, if the investment is held for longer than say 3-5 years, but often shorter. So, using the example above, the property value may increase to 140.000 Eur and rent increases to 12.000 Eur per year over a given period. This would give a yield of 8.6%, so the yield has compressed from an intial 10% to 8.6%. We will next analyse each of the markets we currently participate in to see how anlaysing yield compression can assist with planning the sale of your investment.

Examples of Markets – ProVenture Operations

Lets look at each market where will still are active then, in the context of low and high points in the property market. Are any low or high “bells” ringing where we are right now?

Berlin

When yield investments were no longer possible in the markets of UK, ProVenture began acting as both investors and consultants in 2006 in Berlin, and we still market a limited number of units in the city today. Price increases in the better areas of the city from around 2002 meant that investment areas in the B or C grade areas of the city were most active, and still are to an extent today. The picture shows a typical apartment house in the C grade district of Neukoelln. In 2006, this property sold for 500.000, with 55.000 Eur net income and with a yield of 11%. Today's figures would give a sales price of around 1 Million Euro and a rental income increased to 66.000 Eur, or a compression to 6.6% yield. In terms of the low and high points, with the benefit of hindsight, you could say 2002 was really a low for Berlin, with lower grade parts not joining in until around 2006-07. You could make a strong argument now, based on not just confidence but exuberance of investors in the city and yields dropping like a stone that the high point of the market is now near. Difficult to pick the very top, the Euro crisis is making behaviour fairly illogical in shifting capital from areas like Greece and Spain to Berlin, but it is certainly a market we have sold everything in as investors ourselves.

Leipzig

As investors and consultants, this market has been the prime area of activity from 2007 to the present day. In 2007-08, apartment houses in the A- grade parts of the city were most active, say in the district of Schleussig where the properties pictured above are located. The house above right sold for 450.000 Eur with a rental income of 51.000 Eur per year or a yield of 11.3%. Today the rental income is 56,000 Eur per year and a likely sales price of

800.000 Eur would be expected, giving a yield compression down to 7%. Other parts of the city have favoured differently, with the south and west generally compressing more and having greater ability for rental increasements.

As investors in this market ourselves, we are now off-loading property that has the rents at the market level and is located in average or above locations. Here, after a hold of around 5 years, we are enjoying uplifts of around 50-60% typically. For property that still requires management to get rents to the market level, or for property in below average location we are still holding in this market. You feel that the high point bell will not ring for a year or 2 in Leipzig, and indeed long due rent increases in the city could keep the upswing going for a little while yet. But certainly now we are advising clients to look to their portfolios in Leipzig, and consider any sensible disposal, based on their own individual investment strategies.

Bremerhaven

This was a new market for ProVenture in 2011, This is a smaller market with a mixed recent past which gave us lower confidence with respect to the rest of Germany and very good yields in Bremerhaven. We started work in the city as we felt that the rental yield, based on the tenant demand, was very good as the city was re-populating quickly. As an example, this property is a well-located apartment house sold in September 2011 for 255,000 with an annual rental income of 29.000 Eur and yield on purchase of 11.3%. The typical yields in this market are 9-10% today, just one year on, so yields are already beginning to compress but still good value. Difficult to say when the bottom of the market was called, perhaps it was 5 years or so ago and we are seeing a more steady return to confidence based on the gradual population growth / unemployment decline. Yields seem to have further to compress, and we are still advising clients to look to this market, in all location grades, for the coming 12 months at least.

Wuppertal

Wuppertal, another new market for Proventure in 2011. Above are listed 2 property offers near the city centre. The offer on the left is listed at 499.000 Eur, with a current yield of 10% and on the right is an offer for 596.000 Eur with 10.5% yield today.

Conclusions

What should we make of all of this? Well, we can first see that even when buying income producing property, capital increases can often [indeed always in the markets we have participated within] outweigh the money from rental income. A search of the markets we have operated in show that capital increases have outweighed income by around 700% [when property is leveraged to 70%], a surprising amount when we crunched the numbers. So, we should try and plan and manage this effect as much as we plan and manage the rental income through the hold period.

The Big Idea – It seems prudent to put a marker down for exit yield, as well as the yield off which we analyse new purchases. By analysing the markets we have operated in recently, an exit yield of around 2% above finance pay rate has been seen to be a useful measure for when prices usually level off. That's not to say someone rings a bell when the peak in the market has been reached, markets can often overshoot this yield level particularly where a high proportion of owner-occupiers are in place, where yield is not a consideration and only ability to service finance is considered.

Having learned some of these lessons the hard way over the last 20 years, I now put on my spreadsheets an exit yield for each property, and put to the market once the property nears this. But the real fun is looking for new markets in which to operate, ones that show signs for future yield compression or rental increases. That's our job at ProVenture.

Do get in touch if you want to discuss topics in this article, or markets that we are operating in or markets that you are considering for investment.

German Property Market Lively – But is it a Good Time to Enter?

noreply@blogger.com (Gareth) — Thu, 11 Oct 2012 19:44:00 +0100

News articles and market reports this month are continuing the growth story of the German economy and property market, with the uncertain backdrop of the Eurozone crisis bubbling away in the background.

Bloomberg reported early in September on the apparent exuberance in the market, with investors flocking even for the ugly pre-fabricated homes that are still standing in the old East.

Price gains have accelerated over the past three years, and property that was once unloved is now being snapped up by international investors, according to the report. In Berlin and Munich, where the boom has been the strongest, values have gained 16.8 percent in the last 12 months, according to Berlin-based online broker ImmobilienScout.

Apartment houses and flats have been snapped up by foreign buyers who see the market as a lucrative place to invest, spending €3.3 billion in the first half of 2012. This is the highest level of overseas investment in German property since 2008 and a considerable increase on 2011 when the figure was €2.4 billion for the entire year, figures from real estate company Jones Lang LaSalle showed.

Home-ownership in German-speaking nations, the lowest in Europe at between 44% and 57%, is also set to rise over the next years as a form of private retirement provision, says German mortgage lender LBS, the nation's largest. It says Germany has already jumped to 53%.

LBS Research found that German home ownership has already risen and is now at home-53%, a large jump from a rate of nearly 10% below this just two years ago. However, this is still far below the EU-27 average of 71%, which is supported by high ownership rates in eastern and southern countries, it notes.

However caution is being noted in a number of quarters. Recent price gains might be the beginning of a bubble, said Steffen Sebastian, head of the Real Estate Institute at the University of Regensburg.

“Investment in the German home market right now has a strongly speculative character to it, and that’s what makes it risky,” he said. Cheap financing, fear of inflation and a dearth of investment options elsewhere are driving home prices to “ludicrous” levels in some parts of the country, Sebastian said.

“Especially foreign investors see Germany as a safe haven, but it’s not like the German real estate market is separate from the rest of Europe,” he said.

Some commentators are making particular reference to the capital Berlin as a now overheating market. With unemployment ar 12% [national average of 6.7%] and a fragile economy based not on manufacturing so much as tourism, Berlin is seen as a market to tread carefully in. “You have a serious danger of a housing bubble developing in Berlin,” billionaire investor George Soros said in a Berlin speech 2 weeks ago. “It has a lot to do with the flight of capital and negative real interest rates.”

A market that still has angles I am sure, but ignoring the sage George Soros rarely ends well in investment.

But German residential markets, outside of overheating centres like Berlin, are still widely seen as – 20% below fair value. “Despite recent price rises, residential property in Germany remains heavily undervalued to the extent that in many parts of Germany property values are at, or below, the cost of construction," said senior PMM partner Mike Hilton in a release. "Germany is now one of the cheapest residential property markets in the developed world, with prices standing 20% below fair value, in sharp contrast to the markets such as France which are considered to be 40% overvalued."

Hilton said German home prices did not enjoy the boom witnessed in other markets, and rose by just 8% between 1996 and 2010 - in contrast to the UK, for instance, which saw a 210% rise. However in the last year prices in Germany have started to increase significantly, driven partially by low interest rates which have made mortgages more affordable.

And from a domestic demand standpoint, things still look rosy also. German investors believe that market volatility will continue for at least another five years, and the country is perceived as the most secure economy in the world, according to Goldman Sachs Asset Management. With the Dax German index at 18 month highs, and finance rates historically low, the domestic demand picture is strong and growing.

Rental Developments in Bremerhaven, Germany

noreply@blogger.com (Gareth) — Thu, 6 Sep 2012 08:04:00 +0100

Background in Bremerhaven

With the population trend over the last decade having been either negative or neutral, until 18 months ago, rental levels have remained low and fairly static for much of the past decade. The times when this coastal city of Bremerhaven had over 140,000 inhabitants is a thing of the past, with the population of the city most likely causing some residents cause for concern at times, finally in 2011 there was, for the first time for a long time, a clear positive migratory movement into the city. Now, with things on the up, rental prices are finally following suit and also increasing due to greater demand for quality housing, and with that we are seeing an increase in purchase prices due to greater investor confidence.

In addition, Unemployment is coming down, it reached a high point in 2005 at 22% based on the fact the American military left in 2003, the decline of the ship building and fishing industries. Since then, unemployment has been on the decline with July at 14.9%. The biggest issue for reduction is the emergence of new industries, which include car import and export, the container port and Offshore Wind Power, as the city has become Germany's new centre for offshore wind energy manufacture, research and development.

Unemployment has stalled a little, that is not due to negative factors, but a "mismatch of employment" as all the new industries that have emerged rely on more skilled workers, rather than the residents that were left unemployed in the early 2000s. The good thing is that the population is increasing to fill the voids in the new industries and these people are skilled workers, looking for good apartments, in turn driving the rents up.

Latest Developments in Bremerhaven

As seen from the picture below, 12 months ago there were still pockets of the city where rents were below 4 Eur/sqm.

The picture below shows what has happened 12 months on with the typical lowest rents in the city being no lower than 4,10 Eur/sqm.

OK, so all we see above is a load of blue, what exactly is happening on a suburb level? This information is not so easy to find and collate in a useful and easy to read format. That's what we try and do in this article, and make some comment on the results.

Taking from the latest listed rents over the last 12 months, we arrive at the rent table for the various districts below. It is an average of all property, but gives a good idea to rental values, when used to analyse districts on a macro level.

Recent Developments at a District Level

Looking at each of the main residential districts, according to the major portal Immoscout, we see the increases for each area as posted overleaf, and summarised in table form below:.

Suburb	Rent Level / Eur per sqm	Rent Increase in Last Year %
Geestemünde	4,40	0
Lehe	4,70	2.1
Leherheide	4,40	0
Centre	5,00	4.1
Wulsdorf	4,90	6.4
City Overall	4,60	2.1

Looking to the table, it shows a general picture of the central and higher rents increasing more quickly. This is to be expected as the market just starts to increase, after a long period, areas where there is a shortage of stock will feel the coming rental pressure the most as in any market.

There are a few surprises in there, some areas doing better than expected and some under-performing, based on what we see on the ground. To look at this in more detail, we look now to each suburb.

Further Bremerhaven Suburb Analysis

On the following pages are breakdowns of each suburb, giving household size and trends in rents for each household size. Some caution should be exercised when interpreting these figures, they can be based on small sample sizes and can be skewed by a new development in the area for example. But the data offers us good food for thought in terms of areas to acquire property and current management and rental development programmes to instigate.

Geestemünde

Summary:

This area is becoming increasingly favourable with new Bremerhaven citizens. It is the closest suburb to the new wind turbine plants and therefore these single workers coming to the city are moving here and pushing the rents up in the smaller apartments.

Some good increase in the larger apartments too. Most buildings in this area are built post 1950 and in turn tend to be in better condition. Families who can afford the overall increase in sqm and thus rent, will move to this district for higher quality apartments.

Lehe

Summary:

Some good new builds happening in the area bringing up the quality of the district as a whole, but not a great increase across any of the sectors, in particular the big reduction in the larger apartments.

On the ground, we are seeing a mixture of quality in this area. Check the micro location and avoid the larger apartments to ensure a success story in this district.

Leherheide

Summary:

Not a great deal happening in this district, The area is characterised by many owner-occupation houses, and is very stable and family-orientated. Stability seems to be the key word in this region, not dramatic rental increases.

Centre

Summary:

Some great increases in this part of the city. It looks like owning a small unit in the centre of town will ensure great tenant demand in Bremerhaven. Other sectors have performed okay, but the larger units show signs of weakness, a point to note for an investor in this area as unit sizes affect fortunes greatly here.

Wulsdorf

Summary:

This area has performed well above average over all, and continues to be popular to a range of tenant sectors. A very robust set of figures, and should give confidence to any investor in this area.

Conclusions on the rental market in Bremerhaven

Rents, after a period of no increase, finally seem to be on the move in Bremerhaven.

As the economy continues to develop, expect to see greater increases across the spectrum in districts of Geestemünde and Wulsdorf, with their proximity to the city's newest industry and popularity for the young working sector.

The next 12 months look set for perhaps even quicker rental increases, as inflationary pressure builds.

Germany and the Eurozone – The Last House Standing?

noreply@blogger.com (Gareth) — Mon, 3 Sep 2012 21:28:00 +0100

Making sense of the Eurozone and the German property market

There is a current plethora of articles which are commentating on the current Eurozone woes and speculating on the impact and forecast for the various world markets in the coming years. There's a fair amount of doom and gloom about, which can be a good time to go shopping. In this article, we bring together a lot of the research on the Eurozone and try to make sense of all of this in evaluating if the German property market is one to participate in at the moment.

Backdrop to Demand

Due to its “last man standing” status, and historic low interest rates, Germany is experiencing a boom in interest in the property markets from around the world. Is this demand justified or is it just the least worse place to put your money? Lets look at demand.

Transaction levels in the last 12 months, across Germany, have doubled compared to the previous 12 months. The transaction volume for residential portfolios amounted to approximately €6.13bn in the first half of 2012. This represents an increase of 75 % compared with the same period last year and already exceeds the total volumes for the years 2008 to 2011. According to Savills Research:

"The very high demand for German residential property will create a 5-year high in transaction volumes this year.”

Karsten Nemecek, Savills Corporate Finance - Valuation

Looking at the breakdown of this demand, we see much remains to be national, with a smattering of demand mainly from Europe and USA:

From a rental yield point of view, rents rose by an average of 4% last year, bolstered by good employment, continued increased German GDP growth and other economic factors:

Germany Within Europe

As the mess of the Eurozone works through, it is useful to look at how Germany sits against the other main member countries. The various graphs overleaf underline not only the lack of price growth in Germany [laughably cheap according to Klaus Baader at Société Générale], but also the latent wealth than can propel German asset prices off their current historic lows.

The graphs show residential property prices having flatlined in Germany for the last decade, whilst boom and now the bust in the rest of the EU. Indeed, this bust may only just be beginning in some countries as banks offload non-performing loans in increasing volumes. The graphs also show a growth in German wealth and a reduction in liabilities in real terms. This purchasing power is unlike in any other EU country.

German House Prices Affordability

So we have seen that we have record demand in Germany for property, underpinned by macro economics, and a wealth in the country with unrivalled purchasing power. Now lets look at asset prices, to determine what appetite for investors, owner-occupiers and banks there will be to support a growth in the property market, whilst other neighbouring markets falter and decline.

Firstly, the chart above shows that affordability of German property as a whole is actually at its best in recent history. Low finance conditions, and the fact that Germany did not participate in the global property bubble [together with an increase in disposable income] has made German property now the cheapest it has ever been. It is interesting to see how the other 2 markets of Greece and Ireland compare here, with the graph suggesting that both markets have returned to long term average affordability.

Looking to the German affordability in more detail, we see this is brought about by a combination of flat prices and increased incomes / lower finance rates:

Winding the clock back even further to 1980, we see the affordability index very clearly in Germany's favour right now:

By another measure of price-rent ratio, we can see how Germany fares in terms of affordability:

By every measure, despite a recent uptick in prices, Germany looks historically cheap, and still much cheaper than its EU neighbours who are working their way through the woes of the last decade credit binge.

German House Prices in Detail

The recent boom in demand is now at last feeding through to some increase in German house prices.

Below is a table showing the single digit growth experienced in the various city sizes over the last 2 years. Momentum is growing behind this growth now.

Looking to the future growth, well it is always a collection of mini markets in real estate with overall growth masking much of this.

In the below “fan graph” we see 3 different outcomes for prices, based around 2005 prices indexed at 100. We see growth in the next 7 years forecast under each scenario, of between 10-60%.

Our Conclusions

Whilst the Eurozone crisis will no doubt have its casualties, it is difficult to look to the current German economic picture in relation to its house prices and conclude that at the very least that stability will remain in an uncertain global marketplace. Indeed, you do not have to be that bullish to conclude as the banks do that affordability for housing is at a all time high and a good deal of growth [lets say between 30-40%] can be sustained in the coming 7 years or so and still not overheat the market. Despite the current woes then, we say Germany remains worthy to keep to any property investor's radar, despite the recent price climbs. Indeed, with historic affordability and historical low finance readily in place, is this the last market standing?? You can find out more about where ProVenture Property's clients are buying investment property in Germany by contacting us or browsing our properties.

It's not every day that we get a property deal in Germany like this one...

noreply@blogger.com (Gareth) — Fri, 17 Aug 2012 20:47:00 +0100

Very Special Investment

				Special Property Update
		Rare 12%+ Yield Investment in Leipzig PV165 - New Construction 1,800,000€ \| Leipzig Potential Yield: 12.3% Type: Residential Approx. Size: 4428 sqm In the fast moving Leipzig market, it is rare to find double-digit net yields these days as many of you know. But here we have a bank sale, recently reduced from 2.2 Million to 1.8 Million Euro to secure a swift sale. The property is very well located at the fast-expanding airport area of Leipzig, which is where much of the new employment is centred for the city. The property condition is A1, an increase in the yield is easy to achieve once out of bank management and a very high maintenance fund for the property has been built up and will be inherited. With finance at 2.8% for 5 year fix, and around 60-70% loan to value achievable, this unit represents both an excellent cash flow property, easy to hold with on-site management, and great prospects to offload at a much higher price per sqm as individual units [as the rest of the development is held]. Be quick on this one now... The units are mostly between 40-70 sqm in size which gives appeals to the widest sector of the residential rental market. Units are presented to a good standard, with laminate flooring and balconies serving every apartment in a very green area. This is a recently-constructed building in an area around 10km north of Leipzig centre, nearby the expanding airport, the autobahn and numerous employers including the Porsche plant. The package consists of 44 residential units, 10 commercial units and 30 secure parking places. Please Contact Us for more information View Property Details

The Rear View Mirror and the Crystal Ball – A Review Of The first 5 Years of ProVenture and the Next 5

noreply@blogger.com (Gareth) — Thu, 9 Aug 2012 18:59:00 +0100

The Rear View Mirror and the Crystal Ball – A Review Of The first 5 Years of ProVenture and the Next 5

It is about this time of the rear that we look to each of our markets and take stock, make some predictions on the markets and as a result re-position what we are doing in the ProVenture team and where we are doing it.

This year has a bit of added significance as it is our 5^th year of operation, which seems hard to believe, as it still feels like we are just starting out and we still are full of the “joys of spring”. But a few new grey hairs, and a new pair of golfing slacks proudly hanging in my dresser tell us that time has not stood still. Anyhow, I thought I would use this article to take stock of operations, and where we are heading. Hopefully this will be useful to investors, both those who have already worked with us, or those looking to take some positions in the near future. So here goes, for a trip down memory lane and to perhaps dispel a few myths, like the one that German property just goes up slow and steady each year....

August 2006

This is where it all started for us. I was just leaving the military after a long and totally undistinguished career, and at a bit of a cross roads. Sure, we were lucky in that we had built up a medium size portfolio in UK, but the buying opportunity had long passed in UK. What was I to do now? You felt a wind of change coming, but none of us could have predicted the full storm of the Global Financial Crisis [GFC] about to turn the developed world upside-down. I remember visiting my family who live in Orlando, USA in 2006 and the dramatic final throws of the credit binge were clear to see and acted like the proverbial canary down the mines to me. It was with some luck, that I looked to the extremely under-valued property market in Germany in 2006 and started to look for investments, taking all our money we could out of UK to do it. I could not believe what we found in 2006 in terms of prices and yields. It seemed to me, when compared to the rest of the world that the sales prices were missing a zero at the end, and that no-one had invited the poor-old Germans to the 10 year credit party we had just enjoyed. Some friends and colleagues followed, and ProVenture [actually first called Mount Pleasant Properties, after my first family house] was born. We spent 2006 researching the market of Berlin, before commencing acquisitions in 2007 for ourselves and our friends and soon clients.

2007

This was a year of great fun and excitement. Finance was still free and easy, and could be positioned not in the over-valued markets of UK, USA etc but in Germany. Right at the end of the party you might say, like the guest who stays sober and starts taking some bottles from the kitchen for the next party down the road. It was time to

go shopping for many, and a year which was to herald disaster for many property investors who did not have their eyes open at stayed at the old party of UK, USA etc, so to speak. For ProVenture, we looked to the Berlin B and C grade locations for yield and surprising value. Although our approach was fairly “limited” at the time [I was often swayed towards an investment if the cars parked outside cost more than the apartment for example!] we still had some success. Back then, the play was for single units and developments, and prices were around 20.000 -30.000 Eur for an apartment of 50 sqm with a balcony in locations like Friedrichshain, Kreuzberg, Charlottenberg, Schoeneberg. Even cheaper in the very unloved Neukoelln and Wedding, where yields were 10-14% net, no-one would touch them by the seem. As investors, we started to fill up and we helped other folk do the same.

Above an example of 2007 investments at Herrnhuter Weg 15, Neukoelln. 40 sqm apartments were selling for 600 Eur per sqm at 13.5% yield. Today, units in this same building are selling for 1600 Eur per sqm, a 260% increase in 5 years

2008

By the end of 2007, it seemed to us that prices in the capital were starting to rise as well as rents, and that other markets should be explored. After visiting most of the East of Germany, we settled in the city of Leipzig and started 4 years of some of the best fun in investment and consultancy that I have had. The team started to grow as did our client base. Going from helping friends and colleagues, we started hosting 2-3 client trips per month, and selling property in A, B and C locations of the city. If we were astonished by the value we enjoyed in Berlin in 2006-07, we were flabbergasted by Leipzig and were for some years. Our clients started to buy rapidly in the city, with prices as low as 250 Eur per sqm for a rented property in C grade location [18% yield was not untypical] to 800 Eur per sqm / 8% yield in A grade locations. Finance was actually getting easy in Germany to 80% loan to value across all grades of property, these were good times whilst the GFC ravaged other markets.

Above pictured is our first apartment house marketed in Leipzig in 2008. It was in great shape and in the “up and coming” district of Schluessig prices at 509 Eur per sqm / 11.5% yield. A great buy, the area has now “up and came”, now worth in excess of 1200 Eur per sqm, or 1800 Eur per sqm sold as single apartments [around a 300% increase in the 4 years].

2009

We were having fun as investors in the city of Leipzig, and the general lack on confidence [apart from the banks, there were very confident] lead to some continued good work for us. After our initial focus had been steering towards the high yield C locations, but now our work moved into the more B and actually A grade units. This year heralded peak activity for us in Leipzig, 10-12 client visits per month become the norm, as the market was still kind as were the banks.

A beautiful unit in the Music Quarter of Leipzig, offered at 850 Eur per sqm in 2009, now estimated value of in excess of 1500 Eur per sqm.

2010

This year, investors from around the world seemed to be coming out from their shelters from the GFC, and Germany was were they were heading. Compared to the losses felt in other markets, Germany was posting gains – most odd! And the economy was at its most powerful since re-unification. So demand took off this year in our experience, and the supply to match this demand started to dwindle. That's not to say we had some good luck and deals were done. We still managed to help investors to purchase 35 apartment houses this year, but work was getting harder in Leipzig, finance was getting a little harder to achieve and and we had to think about new areas to look for yield.

An example of a Leipzig unit, chased for clients in the Sudvorstadt. Priced at 750 Eur per sqm, sold to German clients in 48 hours...

2011

The depression of attending auctions which well full to bursting in Leipzig set in, and watching values shooting up, we knew the game was nearly up and we needed to look to new markets. This seemed fair enough, as we have been in the city since late 2007 and yield markets do not last forever. The first market we opened up this year was Bremerhaven, the coastal city just north of Bremen. A full city guide is here, which gives ideas to the city and value and why we are here:

http://www.german-property-for-sale.com/news/bremerhaven-market-analysis.asp

We found the market very kind in terms of yield, and the rental demand was and still is off the scale when compared to Leipzig which can be still be a bit patchy. Equally surprising was the local banks attitude to the new wave of international clients which we introduced and where as typical loan to value rates had fallen to 60% in Leipzig, 80% finance was possible here. Time to start up the machine again then....

An early example of an apartment house in the fishing district of Bremerhaven-Lehe, priced at 340 Eur per sqm / 12 % yield

As well as Bremerhaven, the team in the East looked to opening the new market of Chemnitz. Here we stuck to the prime parts of the city, and therefore getting back to near 80% finance for clients usually coming down from Leipzig.

2012

And so to the present day. We are currently working out of our Leipzig office still, and working on the last deals in the city and also more and more deals in the nearby cities of Chemnitz and Magdeburg. In the West of the country, we are getting busier in the small city of Bremerhaven, the city we sold most property in the last 12 months, and also in some select cities in the state of North Rhein Westphalia, nearby Dusseldorf. Yields an finance levels, when days are good, are still near 2008-09 levels we enjoyed in Leipzig, with the added bonus of much lower rates now [2.6% for 5 year / 3% for 10 year fix mortgaging]. We expect these areas to be the last we will be able to work in within Germany, as the economy catches up with the rest of the developed world in terms of asset prices but are still looking forward to at least 2 more years in Germany, and hope you can join us too!

A fully rented apartment house in a pleasant part of the city of Wuppertal with 9 apartments and over 10% yield, priced at 369.000 Euro. Who said high and sustainable yields were no longer possible in Germany??

Looking forward for Next 5 Years in Each Market

Berlin

We advised our clients in 2011 firmly that consideration to disposal of their investments could be considered. All, apart from owners of holiday apartments, have done just that and booked between a 50-100% [or more] increase as compared to their purchase price typically. Folks that bought in more up and coming B locations like Friedrichshain in 2007 did best, those in C locations like Rheinickendorf not so well.

Is there anything investment case left for Berlin today? Well I guess any location has some argument to invest in and Berlin must be no different. We predict that the market will still perform well over the next 5 years compared to other areas in Europe, but growth will be dwarfed by some other markets as much growth potential is already taken up. Berlin still is a relatively poor city, not just within Germany but compared to other cities in Europe and has some way to go to become the true economic capital of the country. But a fun place to invest no doubt.

Leipzig

We have been advising our early investors in 2007-08 that they should look now to their holdings and consider their positions. Those investors in A or B locations have done very well, and we have now help market the sale of the first 7 apartment houses for clients who bought 4-5 years ago. Capital appreciation again has depended on how locations have developed over this time, the city is still developing fast. Sales in the west, in Plagwitz have seen around 50-60% growth, and sales in the south a bit higher. Our current advice is to take advantage of the generally upward rate of rents and get current holdings renting to potential. After a long decade of stagnant rents [see below] there is potential for rents to continue to climb for the next few years at well above inflation rates.

In terms of new acquisitions in the city, some value may still crop up in C locations which could be worthy of following, as could complete apartment buildings in A to B+ locations which could be bought and divided for sale as single apartments to owner-occupiers or smaller investors, for an easily realisable gain. That

said, it seems the mainstream yield sales market is now truly behind us in this city.

Chemnitz and Magdeburg

Our focus in these cities so far has been to the prime locations, but as time goes on and population trends improve then B grade locations may well become viable in this next 5 year period. We would advise clients to look for the prime locations in these cities, and purchase at yields of around 7-9% depending on the quality of the property. With finance rates currently so low, this will give a good cashflow even on an 80% finance which is rare for such high quality property. Additionally, we would strongly suggest that buyers of single apartments should look to these cities, there is still good value in this sector.

Bremerhaven

The market is not huge in this city, and we risk swamping the city with investors and pushing up prices ourselves! That would be a bit of an own goal. What drew us to this market is the very high tenant demand generally across the city. Better than anywhere else we have operated perhaps, and this shows no signs of weakness, quite the opposite, with huge inward invest investment to the city. Our recommendation is currently to look for property in the centre or Gesteemunde, or Lehe East at 8% yield or above. These areas can be considered prime and banks favour lending here. Outwith this the centre of Lehe can offer a good deal of period stock, and around 9-12% yield is still attainable. Although we feel price increases here already, perhaps 20% up on when we entered the market 18 months ago, the market still has a good way to go and is just starting to develop really.

Wuppertal and North Rhein Westphalia

The markets in their earliest phase for us now, and with the highest yield generally. This should mean we will have at least 2 years to operate in the cities in this location. At present, we are recommending clients look to the higher quality parts of the cities we work within, taking yields of say 8-10%. For high yield hunters, 10-12% yield is still possible here, and can deliver good results if purchased with good care in due diligence. I am guessing this will become our busiest area of operation in Germany in a very short time, as James sells Bremerhaven out!

New Markets

We do like to look “over the hill” for new potential market areas, on from when German prices in the last markets of Bremerhaven and North Rhein Westphalia increase significantly as the other markets have done. I would be very surprised if our first new market of operation would be in UK, looking within major cities outside London for value within prime residential and commercial sectors. Big cities like Leeds, Sheffield and Edinburgh are all being actively researched by our team as we speak. In terms of other European markets, we will really take notice when investor confidence hits a real low and some banks start to lend once more in various countries. Certainly confidence looks properly low today in Greece and Spain for example but banks are no way near back to lending in usual terms. I would hazard a guess that one of the luckier members of the ProVenture team will be working in the Spanish core city market, not perhaps 2-3 years off that at the moment.

So, as usual, I bid you good luck in your investment life and enjoy the ride.

Please do get in touch if you wish to share experiences and ideas on investment, as well as chat over any areas or property we feel are worthy of a look right now.

Next Stop Germany...Property Prices Going Up...

noreply@blogger.com (Unknown) — Mon, 2 Jul 2012 19:55:00 +0100

Offered prices for new German apartments were rising at an annual rate of 8.5% in June, according to the IMX index produced by using stats from the biggest property portals in Germany. Prices rose in May alone by 0.7%, and the rate of increase was seen to be up through the last 12 months.
Rises were similar in existing home prices - up 6.3% since May 2011 and by 0.6% compared to April 2012. IMX said the price driver for all German residential property remains very favourable mortgage rates and the turbulence in financial markets. Rents have also risen, and in nationwide aggregate were 1.8% higher in May over the prior 12 months and 0.2% up on the month alone.

Looking over the period of the global financial crisis so far, German property has weathered well. From the graph above, it is noted that new build units which are often bought by international investors have shown an increase of nearly 25% across Germany. Interestingly, existing apartment blocks which are the mainstay of ProVenture offers are only recently feeling price pressure. Whilst there a wide variations across Germany, this gives a favourable view as to pricing in the coming years, as supported by a recent article by Credit Suisse.

Credit Suisse report that the mini-boom is to continue in residential sector for next 2-3 years, supported by 3 factors:

1 High levels of continued bank lending

2 Still historic low prices

3 Strong domestic labour market and EU immigration, in part driven by the Euro crisis.

This view was backed-up by LBS, Germany's largest building society and one of its largest mortgage lenders German house prices are set to rise this year, with low supply and rising demand driven by extremely favourable interest rates. In a survey, LBS, part of the savings bank network, found that demand for German housing is gaining in strength and breadth. “With declining supply, prices are inevitably climbing further, though still at a moderate pace,” said Director Hartwig Hamm. Only new apartments, an asset class particularly interesting for foreign investors, have seen 10% price growth in some locations over the last 10 years. The credit agency Standard and Poor reinforces this view. The international rating agency predicts that German home prices will rise for another two or three years, even as the euro cirisis engulfs neighboring countries. The agency again points to lower unemployment, sustained low interest rates and the already low price to income ratios as reasons for its optimism.

New build construction is starting to respond to this demand. Some 183,000 new apartments were completed in Germany last year, up 14.6% on 2010, so that construction of this kind of residential accommodation has almost fully recovered from the most recent bottom of its cycle in 2009, says the Federal Statistical Office Destatis.
Most growth last year came in apartment building construction, with 15.5% more units completed than in the previous year. Completions in single family homes rose by 14.3%, those in semi-detached houses by 10.5%.

All indicators in terms of pricing and demand are currently up, and getting stronger over the past 18 months in particular.

To find out more about investing in the German Property Market, please get in touch with us at ProVenture Property, we would love to hear from you. You can get in contact with German property specialists here.

Effect of the Eurozone Issues on the German Property Market

noreply@blogger.com (Gareth) — Tue, 5 Jun 2012 17:45:00 +0100

The Effect of the Eurozone Issues on the German Property Market – Part II

Introduction

With the daily updates on the newswires regarding the doom and gloom of the Eurozone, and the credit worthiness of the peripheral member states, it is very easy to forget how long this crisis has been limping on for. Really, the collapse of Lehman Brothers in September of 2008 was the start of all this, but credit warnings and bank failures were happening around the world from 2007. We've been in this now for 5 years, and still searching for a way out in Europe.

Whilst the USA in trademark style has got on with the job of wiping off the bad loans from their books [and printing a lot of money as the same time...] the Eurozone has really been in denial for many years you could argue. OK, the member states are more disparate in their economies and the cycle than say the states of America, but an acceptance of a problem and solutions to those problems have been very slow in coming due to the various vested interests. It seems now that as lending and national banks need to re-finance their loans taken on in the dubious times of the credit binge of the noughties, the boil is finally having to be lanced and we could be in for some imminent “solutions” such as a re-shaping of the Eurozone or a tighter fiscal and political union between the Eurozone member states. Things are moving fast now, and perhaps as you read this then a solution has already been found. Well, that would be good news, but I expect more muddling on will occur for some time yet until the markets have enough of it all.

In this article, we will look at some of the various scenarios which could play out in the coming months, and how these could affect investment in German real estate.

Review of Last Forecast

It was exactly 12 months since we wrote the last article on the subject of the Euro crisis, and I reference that article here:

http://www.german-property-for-sale.com/news/effect-of-euro-policies-on-germany.asp

Our key points in that article in June 2011 were:

Inflation - Inflation is a likely outcome in Germany in the coming years, to balance competitiveness and pricing across the Eurozone. Perhaps 3-4% will be the new norm.

Property Prices - prices are likely to increase in the short to medium term, perhaps becoming “golden age” for property investment.

Interest Rates - Germany needs higher base interest rates, perhaps 3-4%, but will not get them.

So, how accurate were our predictions 12 months ago, against those points?...Read On...

Inflation - OK, we called this one completely wrong or at least made an early prediction [a good statement which I have heard economists to use]. Indeed, May 11 inflation was 2.3% and May 12 it is 1.9%. Inflation dropped as lower fuel bills cut in. Some significant pressures on inflation, particularly in Germany, remain but the forecast increase to 4% or so did not occur.

Property Prices – here, certainly in the markets we operate within, we under-estimated the price growth in the last 12 months. Prices in Berlin have flown up in this period, asking prices are being increased rapidly and being met. Deals in the areas we highlighted last year would perhaps be listed around 20-25% higher today. In Leipzig and our other markets such as Chemnitz and Bremerhaven we have seen similar price rises of around the 15-25% mark, particularly in A to B+ grade locations.

Interest Rates – we were right here, but did not see that rates in Germany would actually come down by such a margin as they did in this period. Due to the safe haven perception of German 10 year bonds [Bunds] finance rates for clients for 10 year fixes has dropped from around 4.5% to 3.3% in June 12. This drop has given an increased kick to the German market, as if it needed it.

So, we did “okay” I would say but completely missed that the Eurozone any other countries would be piling into the German bunds and German property to the extent that has occurred. Sales of German property in 2012 Q1 has tripled compared to 2011 Q1. So what's around the corner?

Forecast for Coming 12 months

This is an impossible task to even guess at, things are moving so swiftly as we speak. But we offer 3 different scenarios which hopefully cover the complete spectrum of outcomes [ie there are other outcomes inbetween so to say]. We will measure each of these scenarios against the 3 indexes here, and make some predictions.

Scenario 1 – Eurozone muddles through, central banks are supported and collective actions such as Eurobonds issued

Inflation The pressure on Eurozone inflation and Germany in particular grows as the Euro weakens [making imports more expensive] and wage settlements in Germany start to go above 4% which is already occuring. Add to that the sharp increases in rents being seen across the country, which may say are necessary to re-balance the German economy and make it less-competitve in relation to the weaker states in the Eurozone. Inflation should run higher in Germany than other states. Prediction – 4% inflation in Germany in June 2013.

Property Prices Prices in Germany continue to climb, at least in line with rental inflation, but higher in cities where yields are seen as high, compared to finance rates. We would expect a similar rise to that experienced this year, with the price growth starting to hit the more average “B grade” locations in the cities where we operate. http://reut.rs/KCbHIh Prediction – property prices rise by 10-20% in all our locations by June 2013.

Interest Rates Under this scenario, maybe Germany gets the higher interest it needs. At present, 10 year Bunds are around 1.35%, an historic low and we see this has halved just in the last 12 months [hence the lower mortgage rates as indicated above}

Under this scenario, some measure of fiscal integration will need to occur, in the most extreme case the issuance of Eurobonds, which the Germans fiercely oppose. It is opposed for many reasons, one of which is that the Eurobond rate would be the markets collected thoughts on the risk posed by all Euro member states. With other Eurozone countries with 10 year government bonds ranging from around 2% [Netherlands] to around 30% [Greece] you can expect a combined Eurobond to certainly be above the current German bund rate, and perhaps as high as 3-4%. Prediction - This would raise mortgage rates to 5% or so for 10 year fixes by June 2013.

Scenario 2 – Eurozone is re-shaped and weaker economies elect to leave “temporarily”

Inflation Under this scenario, after the transition of some member states, then the Eurozone should gain strength and the Euro appreciate against other currencies. The big unknown is what the “transition” looks like and what damage is caused. Inflation should be kept under control, but run higher a little in Germany than other states due to wage settlements as in scenario 1. Prediction – 3% inflation by June 2013.

Property Prices Prices in Germany continue to climb, albeit at a slower rate whilst the transition occurs. Post-transition, the Euro will appreciate and this will list the asset price against other currencies together with an increase in prices in line with rental increases again. Prediction – 5-15% rises in our areas of operation, with an increase in the Euro on top.

Interest Rates If at all possible, you see German bunds falling even lower perhaps under this scenario. The strenthened core of the Eurozone will add appetite from bond investors with few other options in the market. Prediction - Perhaps 10 year mortgages fall below 3%....

Scenario 3 – The Eurozone breaks up totally

Here we are back to the Deutsche Mark {and Gilder, Lira, Drachma, Peseta etc....}. Perhaps an unlikely scenario with all the political capital tied up with the continued progress of the Eurozone but here's some ideas from us.

Inflation Inflation will run away a little, but the Bundesbank will exert tight control. Prediction – 2.5% inflation by June 2013.

Property Prices Prices in Germany continue to climb in line with rental inflation, with some cities under or over performing due to micro economies. The main point here would be the appreciation of the D-Mark against other currencies which could be in the region of 30%. Prediction – 2-5% rises in our areas of operation, with an increase in the value of the D Mark on top.

Interest Rates As per scenario 2, perhaps even more of an appetite for the Bund. Prediction - Perhaps 10 year mortgages fall below 3%....

Conclusion

Well, it is all guesswork at the moment and very difficult to call how the Eurozone starts to mend itself and the individual states that are indebted within it. What we can say with some certainty is that an appetite for German property, an unloved asset class for the duration of the credit binge from 1997-2007, has many supports and can easily continue under every scenario that you can consider apart from a financial Armageddon which would take down global asset prices just as heavily. Indeed, this is the conclusion of the Deutsche Bank research who see only upside for the next 3 years.

http://bit.ly/xBtet4

I hope this article has proved to be of interest as we face the cross-roads for the single currency and how this will affect German investments which you have made or are considering making. I have it in my diary to return to this topic in June 2013, and see how we faired with our forecasts!

So get in touch with the ProVenture team if you want to comment or chat on these ideas, or discuss investment opportunities in Germany today.

Good luck in the current market, and happy investments.

Investment Focus – The Rhine-Ruhr Area of Germany

noreply@blogger.com (Gareth) — Wed, 22 Feb 2012 20:09:00 GMT

Investment Focus – The Rhine-Ruhr Area of Germany

One in 3 residents in the European union live with 500km of this region, this is the heart and life blood to the EU.

Broken down further, here we see a table of the independent cities by population, and density which is uniformly high across the region.

Background

Road transport

A 40 in Essen at night

Public transport

Air transport

City Focus

Focus on Herne

The factors which drive the city ahead are unemployment falling [5% over the last 5 years], an increase in disposable income by 12% and a 22% increase in GDP per capita over the same period.

Typical Property in Herne

In terms of typical rent levels, an average across the city of 4,87 Eur per sqm is paid with the following breakdown according to size:

Compared to income, rents are very affordable in the area. Expansion in rents should be expected if the population upswing occurs and also as the cost of living index increases over time.

Focus on Gelsenkirchen

To the west of Herne is the city of Gelsenkirchen, population bigger now at 260,000 apporx but with much the same character as Herne is terms of local economy and infrastructure.

Rental Scene

Rental levels are much as Herne today, with an average rent in the city of 4,76 Eur per sqm, and across the apartment sizes:

In terms of rental development over the last 12 months, the city shows a general increase of around 5%, and rent still are very affordable

Property Example

Conclusion

Chemnitz – View from the Streets So Far

noreply@blogger.com (Gareth) — Tue, 4 Oct 2011 20:28:00 +0100

Introduction

At ProVenture Property we are always seeking new markets to offer to our clients. A good deal of our investors seek yield, and yield markets do not stay the same forever, we need to continually search property markets around Europe to continue to deliver the service that clients expect. Our most recent foray in 2011 has been to enter the market in Chemnitz, a major city in the state of Saxony, Germany. As we have been working there for around 6 months now, we offer this report “from the streets” and our findings thus far.

Background to the Market

Should you have missed the article we produced on the investment case for Chemnitz, and why we entered the market - you can read our article on investing in Chemnitz property for sale here.

In the article we made the case for a fairly strong economic position for the city, falling unemployment and in certain parts of the city a strong increase in population and tenant demand. We also pointed out the backdrop of falling population across the city as a whole, although stabilised now, which has perhaps fed into the lower investor confidence / higher yields possible there today.

Looking across the city at rent levels, we see a surprisingly flat picture, with only a few districts not falling in the 4.1 to 5.5 Eur per sqm bracket. Whilst the lower level of this range is supported by social housing being paid around the 4 Eur per sqm level, income levels and demand in the more affluent parts of the city would in usual circumstances support a wider range of rents, with perhaps 7 Eur being the price paid in more of the city in prime property.

This flat picture in respect to rents can be seen as an anomoly. As the city develops, a wider range of rents should be expected, like in most cities across the world. This points to some positioning at the current time towards more prime property and the latent increase in rents, commensurate with demand and the purchasing power of tenants in these areas.

Indeed, looking to how rents have developed between 2009-10, we see a general upward picture from the patchwork below across the city with some areas enjoying rental increase in this period of 10-20%, whilst much of the rent of the city is flat or up or down less than 10%. So pressure on rents in some areas is already being felt it can be said.

In terms of purchase prices, it is without question still cheap in this city. The graph below shows that, apart from some small areas [characterized by higher proportion of owner-occupation], property can be had pretty much anywhere for under 1000 Eur per sqm. This figure relates to single apartment sales, multi family apartment houses can often start as low as 350 Eur per sqm for a refurbished and rented property.

This picture of flatish rents, low prices, and higher yields / lower investor confidence is very much a hallmark of the markets ProVenture have entered as investors these past 20 years.

Stop Being Boring Mat

But, I said this was an article “from the streets” and we are in danger of another journey into yield calculations and city statistics with Mat here. Let's share some thoughts from some of the streets we have plodded around so far...

Kassberg

Well, its very nice to walk around here without question. Being the largest area of Art Noveau buildings in Europe, there is a lot to gawp at for those who like gawping at lovely property. The architecture in this district really shows the history here, and it shows that consistently for 100 years and more than the wealthiest residents in the city lived here, and still do. The streets are typically tree-lined with ornate lampposts [why did I notice that??] and coffee shops adorn practically every corner. Indeed, I have been in nearly every coffee shop now, as our friendly banker Markus who is usually with me does like his baked goods and finds a 200m interval between feeds about right for him. He likes Kassberg.

Property here rarely comes to the market, particularly for complete apartment houses. Many apartments are owner-occupied or owned in a fractional arrangement by smaller investors. Occupation is very good here, and rental levels range between 4.8-7 Eur per sqm depending on micro-location and apartment size. In terms of yield for an apartment house, around 8-9% net should be expected, priced around 650-750 Euro per sqm. We have listed 3 units in this area so far, with one on the borders of the area at a slightly higher listing of 10% yield. All units will get the full 80% finance, a sign of bank confidence in this lovely little district. The area will most appeal to longer-view investors who wish to take a smaller initial cash flow from the property but benefit most from rental increases and price rises across the city.

Anexample property in Kassberg for 480.000 Eur in fine condition with 9apartments

Sonneberg

Located just to the east of the main train station is the large district of Sonneberg [translates to Sun Mountain], and an area of great interest to high yield investors. The area has its roots in providing accommodation for working class citizens and this

The area was opened up by the rising housing demand in the wake of industrialization and is characterized by long streets and a dense square buildings. Many houses are listed buildings.

Without much of the charm of areas like the Kassberg, this district has an edgier feel with some attractive streets and nice bars sitting cheek-by-jowl with unrenovated property and 100% social housing blocks. Since 2005, significant government-backed investment has occurred, and some signs of improvement can be seen at street level. The area houses the youngest population in the city, with larger families and the highest incidence of immigrants, and artists working in small workshops and studios.
Apartment houses are in plentiful supply here. For note of the higher yield hunters are the number of recently refurbished property, perhaps tenanted to social tenants to a good level, and being released by banks. These banks have foreclosed on owners who over spent on renovations on projects that did not pay their way. But at a highly reduced price, the investments can work fine with yields between 11-15% being common.
We have had some memorable viewings in this area. None more so than a building, with only one vacant unit and so things looked good. We were able to access the vacant apartment, but really wished we hadn't. The stench of urine that greeted us on opening the door, prevented our brave Deutsche Banker from entering, making some excuse about wanting to make sure there were some local bakeries to the property [this makes a difference to the Loan to value apparently]. So, in I went alone. It was no mystery once inside the hobby of the previous occupants. If in any doubt, they had helpfully spray-canned “meth room” on the door to the lounge and “weed room” on the bedroom door. How ordered the Germans are, zoning off areas strictly for certain hobbies, even if they are off their heads and covered in urine at the time. So, it can be “edgy” here, but as a high yield area to invest, I have not seen such sustainable high yields which can be financed for quite a while.

An Example property, 2 adjoining buildings with 39units and 14% yield, priced at 670.000 Eur

Zentrum

Within the centre of the City, property is in the hands of housing associations, their market share here more than 80 percent. Built in GDR times, high storey buildings are in demand because the apartments were renovated after re-unification and rents are low from 4 to 4.2 euros per square meter being common. Later this year, some signs of new build are occurring with the first town houses to be completed near the municipal swimming pool, the price for this should be around 200,000 euros per house. So some development, but not really an area for yield investors.

But the really interesting part of the city centre, and a “must-see” for all property tourists is the area named the “Bruhl”, and its dilapidated shopping precinct ambitiously called “Bruhl Boulevard”. Sunset Boulevard it is not.

Bruhl Boulevard

I am not sure when the photograph above was taken, it comes from a website promoting the area. The seeming 20 people or so pictured represented the full traffic I saw whilst there for 2 hours. So the above really is a crowded scene, perhaps with “extras” hired in from the new centre with the promise of a free long sausage in a short, hard bun [a delicacy as travellers to East Germany will know].

A more accurate picture is below, showing the many un-refurbished and unused property.

This area, although central and of historic significance, has been forgotten for 20 years by town planners. Indeed, the only shop we could find on the 500m or so stretch of the “Boulevard” was one pictured below.

Adding nicely to the randomness of the area, this sole retail outlet brave enough to open down here sold electric tricycles, built in Denmark and rented out for 9 Eur per hour. I would have liked to be at that business planning meeting when they decided upon this idea / location. Spliffs must have been involved. [ As you see from the picture, I had to jump in to a trike see what it was like, and will be back for a test drive next week]. Just when you thought things could not get any more abstract, the owner of the shop then announced that the whole of the Bruhl Street, lets say 120 houses, was actually for sale and we looked like people who would like to buy it [we had suits on, mine purchased from a supermarket and Markus the banker's suit under strain of the most recent bakery]. I am not sure if I was flattered or not at this point.

But the city has employed a team of architects this year with a remit to develop the area of Bruhl into a lively and youthful part of town, with development of bars, restaurants and facilities to match the new student campus area which will be built nearby. You know when you come back here in 5 years, you will have regretted not taking up the offer of buying the whole street. Very interesting place!

But for investment today, areas of the centre which border the Kassberg for example shows very good signs of investment potential, such as the next property.

An 8-apartment residential blockfor 300.000 Eur with 10% yield now, potential of 11.5%

Summary

We are still to really get to grips with some of the other interesting parts of town, Schloss Chemnitz {Castle Area} being one one them, but we are building a good impression of the city.

We are having real fun on the streets in Chemnitz at the moment, and find ourselves with space in the market to deliver high yield properties with good sustainability and some of the finest period housing in Europe [Kassberg] at still very low prices. With high levels of finance in place, the market should really have some appeal to the range of investors in Germany.

As ever, please don't hesitate to get in touch with us to discuss any aspect of investing in property in Germany, or to find out more about property for sale in Chemnitz.

Our View on Property Prices in Leipzig in 2016

noreply@blogger.com (Gareth) — Thu, 16 Jun 2011 19:39:00 +0100

What will the Property Prices be in Leipzig in 5 Years? We get out the Crystal Ball..

We have written recently of historical house prices in our key markets in Germany, made reference to some of the markets that yield investors are looking at currently and discussed matters of the Euro and the likely effect on values in Germany. In this short article, we will look at the key drivers to property price appreciation and their impact on our key market of Leipzig in Germany.

Some of the key factors which will effect capital values in the next 5 years in the market can be listed as follows:

1 Investor confidence
2 Investor access to finance and finance rates
3 Rental level development
4 Owner-occupation levels
5 Recent capital value trends
6 Affordability

1 – Investor Confidence

One of the hardest factors to pin down and time, but perhaps the biggest factor when it comes to the driving of capital values upwards or downwards. One of the key determinants of confidence within a market is the likely future demand placed for property, and the prime driver for this is a city's population level. Within Leipzig, the population famously fell soon after the wall came down in 1989, but has recovered to a great extend over the past few years. A table of population in Leipzig is given below:

Year	Population
1990	511079
1991	503191
1992	496647
1993	490851
1994	481121
1995	470778
1996	457173
1997	446491
1998	437101
1999	489532
2000	493208
2001	493052
2002	494795
2003	497531
2004	498491
2005	502651
2006	506578
2007	510512
2008	515469
2009	518862
2010	522883

The city has seen a return to growth from 2001, and the rate of increase over the past decade has been one of the highest in Germany. Average estimates are now for 2025 at 538,000 inhabitants, with a high-end estimate of 565,000 by that time. The table below shows the corresponding fall in vacant units in Leipzig, having over the last decade. Investor confidence comes from every one of the following key drivers, but with a strong population growth story in Leipzig, it augers well in terms of under-pinning growth in the coming years.

Right now, an investor feels rightly rewarded with a net yield of between 7-11% in the Leipzig market. With interest rates for 5-10 year fixes at around 4%, there is still room for an increase in confidence pushing yields further down. Yields in a stable market would equate to around 2% over lending-rate, so around 6%. Should yields drop due to this increased buyer confidence, then prices have the capacity to rise by around 40%, should finance remain low.

2 - Investor access to finance and finance rates

Finance is readily available for both international investors and domestic investors, the latter enjoying very high levels of liquidity up to 100% of the property value.
Whilst fixed rates loans are marginally up from their lows of 2009, they are still at near historic low levels for the Euro.

The Table above shows 5 year money for example at an interbank rate of around 3% meaning finance is available to investors for this duration at around 4 to 4.3%. Whilst finance rates may well edge upwards in the coming years, the curve on the above graph, the so-called yield curve, shows interest rate expectations are not showing significant climbs and still below long term norms. In terms of liquidity, bank lending has proved robust through the most significant bank crises for generations, and shows no signs of abating. Current lending levels to foreign investors are around 60-80%, depending on the project and the investor. These levels have remained reasonably intact through the financial crisis, and should remain for investments where rents cover finance payments by at least 125%, so called “rental coverage”. Currently, rental coverage is often 200% or more, so there seems no immediate threat to tightening financial conditions.

3 - Rental level development

Increasing rent levels are the typical trigger for capital appreciation in the more mature markets in Germany. As rents creep up 5% or so per year, so the capital value increases by the same amount, all other things being equal. The current rent levels in Leipzig are very low and have remained so for the last 10 years or so, whilst excess capacity has been worked through with the increase in population or through demolition of unrefurbished stock. The dramatic falls in vacancy levels of apartments is shown below:

This graph shows vacant units falling from a high in 2000 of 69.000 to a level of 35.000 in 2009 and it has continued to fall to 2011.

Rental levels have remained fairly static over this period as tenants have enjoyed competitive pressure on landlords, as the graph below shows:

This graph shows the price per sqm that can be charged for a typical 70 sqm apartment, the blue line showing the price for older period buildings which are typical for our investors. The rate of rent has barely moved in a decade. There is real pressure on this situation, as the German economy improves and net income for Leipzigers increases. A return to a link with rpi for rents shold be expected at the very least. But the big impact of late was the government decision to increase the rate of rent paid for social tenants [those in receipt of income support] by 10% overnight to a level of 4,22 Eur per sqm. This will have a ripple through effect on the whole market and rent will develop across the board, perhaps higher once the latent rental increases of the last decade are increasingly realised.

The effect on capital values will be that sellers will increase prices in line with rents, this being how property is valued by surveyors and banks. A likely increase in capital values of at least 10% due to rent increases over the next 5 years should be experienced.

4 - Owner-occupation levels

Finally, and perhaps of greatest interest, is a fairly unique feature of this market. In 1989, all property was held by the state and before the wall fell every inhabitant of the city was effectively a council tenant. Since that time, owner-occupation has risen steadily to around 15% today in the city of Leipzig. Some may wonder why this has not risen quicker, particularly with the low capital values of recent years. An answer to this lies in the appetite and culture of those with sufficient funds to buy their own home in the last 20 years. Typically, it is those aged around 25 years old or more that aspire to home ownership. It has taken some time for the lack of a housebuying culture to work through the older generation and arrive in a new generation with funds to buy. For sure, many of today's 25-35 year olds aspire to own their own place, much in the same proportion to the rest of Germany where average owner occupation is just below 50%. Today, it is typical for out of town suburbs with new build single family houses or the very best areas of town in apartment houses to support this growing sector. The real point to note is the typical much higher price paid by an owner-occupier to an investor of a complete apartment house. The property is not purchased on a yield-return basis, more on the ability to pay and service the mortgage through income. So, areas in Leipzig where owners occupiers are buying their own apartments are typically paying from 1.200 Eur as a very minimum to 3.000 Eur per sqm or more. This is between 2-3 times investors buying apartment houses alongside them are paying. Quite an odd situation!! The graph below shows pricing history in Leipzig over the last decade for single apartments:

So, as owner-occupation increases to a more mature level towards 40%, so the average to good areas of the city will see viability for investors to divide their apartment houses into individual units and dispose of them, in a good refurbished state, to owner occupiers at a very significant uplift to the original price paid. In some areas, this may take 3-10 years to be a viable option, in other areas such as Gohlis South, Sudvorstadt and Schleussig this is an option to do right now. With current average prices for a multi-family house at around 700 Eur per sqm, the ability to derive capital growth from dividing and selling, where the area supports, is enormous. Right now, this strategy could deliver an uplift in capital value as compared to the purchase price of an apartment house by at least 50%, and often more in the best areas of the city.

5 - Recent capital value trends

Looking at the last decade for pricing of multi-family property, we see a sharp decline and stabilised situation of late:

The blue line shows the average price in sqm of a multifamily house in Leipzig, going from around 1.300 Eur per sqm in 1999 to just over 600 Eur per sqm in 2009. The yellow bars indicate transaction levels, with higher numbers running up to the global financial crisis, but still historic high levels in 2009 which have continued to rise in 2010. Whilst it is foolhardy to claim that capital levels will always return to a a level previously attained, the increased purchasing power a decade on, together with core inflation should drive pressure on multi-family prices in the coming 5 years, seeing perhaps a return to the 900-1100 Eur per sqm level, or around a 30% increase on today's prices.

6 – Affordability

Whilst claims of future increases as we have made are all very well, but the key determinant must be affordability for owner-occupiers to service the debt positions. The collapse in the link with affordability in markets such as USA and UK in 2003-07, and the continued bank lending, was a major factor in the crisis which followed. The chart overleaf is from a Deutsche bank Report in April 2011.

The chart shows that affordability of German property as a whole is actually at its best in recent history. Low finance conditions, and the fact that Germany did not participate in the global property bubble [together with an increase in disposable income] has made German property now the cheapest it has ever been.

By another measure of price-rent ratio, we can see how Germany fares with UK and USA in terms of affordability:

Conclusion

Well, we do not often make claims for future capital prices at ProVenture, but hopefully we had given some kind of idea on the key drivers to prices over the next 5 years. Should the German economy continue to recover as it has done in the last 2 years, the drivers stated will all be well-supported and growth should eminate from all the points listed. So, you want to pin me to the wall I guess and ask me how much property will go up, don't you? Well, to feed our chat in 2016, I will make the following predictions:

C-Grade Property – Location Where Tenants are Predominantly in receipt of “Social” rate

Here, I would expect a 10% increase to be priced in during 2011-2012 due purely to the change in social rent levels. I would expect the increase in population to drive demand for rental in these areas and vacancy to continue to fall. I would therefore expect the pricing due to lower vacancy and more sustained yield increasing by a further 10%. Finally, especially in areas which are on the “fringes” on B locations, I would expect investor confidence to increase such that the yield today of say 11% on purchase dropped to around 9%. All of these factors should combine to around a 40% increase in capital values in these types of areas.

B-Grade Property – A lower Proportion, if any Social Tenants and an “Average” Rental Structure

I would expect the factors above to impact on this sector, with yields today of 9-10% falling to 7-8%. Rental increases could outpace the C-located property after 2-3 years, as rental developments become the norm and supply is outstripped by demand. So overall, I would expect a 50% increase in capital values in these areas.

A-Grade Property – Where a Higher Proportion of Owner-Occupiers Live Now or Are Moving In

In addition to the factors above, I would expect multi-family apartment house buyers to increasingly take advantage of dividing the property into single apartments for onward sale to owner-occupiers or smaller investors. In some parts of the city, this could result in a dramatic uplift in value as the affordability for owner-occupiers is at a historical low, and capacity for prices to return to 1999 levels is very great. But I will err on the side of caution and suggest that investors in these areas will be able to enjoy a 50% uplift in their price if they divide their units on sale. So, combined, investors could achieve up to 100% increase in capital in these locations.

These are the types of increases our investors from 2007-08 have experienced so far, perhaps 40% on average, without many of the upward pressures on values that exist today [they just bought well].

Well, it is an interesting topic to take up over a beer with investors when we meet as the next 5 years unfolds. Wishing you all luck in this period!

Please do get in touch with the team at ProVenture should you wish to discuss the issues in this article a little further.

View Property for Sale in Leipzig with ProVenture Property

Investment property in Bremerhaven, Germany

noreply@blogger.com (Gareth) — Sun, 29 May 2011 15:08:00 +0100

The small multi family house in Bremerhaven, Germany contains 4 apartments in a renovated old building which has a full basement and a renovated attic. A new roof was completed in 2008 . The front and rear façades are plastered and painted with new double glazed plastic windows installed in 2005. The property is heated by gas heating, hot water supply is decentralized with boilers in each of the apartments. All apartments have bathrooms fitted with showers, with three of four bathrooms have been updated about 2006/2007. All apartment s are 3 rooms, and all of which have an attractive layout and floor plan.

A fantastic property investment, available at 100,000€ - at this price, a yield of 11.4% makes this a German property investment well worth investigating.

In addition to the cash flow generated by this fully let building - Condominium prices have already increased an average of 26% across the city since 2009, and with all the fundamentals in place for continued development of the city - we expect a good level of capital growth.

Bremerhaven - A high yielding market in Germany

noreply@blogger.com (Gareth) — Sun, 29 May 2011 14:40:00 +0100

Exploring Yield Markets – The Case for Bremerhaven, Germany

Our job at ProVenture is to find unbeatable property yield markets for our investors, who come from across the world and have often have a global view on making investments which deliver great returns. It is an interesting task, especially in this period of financial uncertainty and rapid asset price movements. We stick mainly to seeking within developed markets, with history of prices and stability of legal process. Our work has taken us over the last 5 years mainly to Germany, as its economy powers forwards out of the global financial crisis as one of the leaders in manufacturing and export of high-end goods. That is not to say we are myopic in our search, we continue to seek markets around Europe and also in the USA, the latter bringing some interesting opportunity of late for cash-driven investments. Perhaps you have caught our property investment articles on this subject?

But we are, now and for the coming years, continually being drawn back to Germany. The high-proportion of tenants has resulted in some great and stable monthly returns for our investors, and many have enjoyed very good capital growth of the last few years. Germany famously did not domestically participate in the credit binge of the last decade and property prices have remained very favourable for investors to buy into, backed by high levels of finance at historically low rates. Our work in Leipzig for example has resulted in the sales to around 50 investors, from small studios to large property property portfolios with all of our earlier investors in the market [say around 2007-08] now sitting on gains of around 20-40%. A very good result, compared to other developed markets in this period of general decline. And lets remember the average yield on purchase price for our investors has been between 10-11% during this period, producing a useful income whether the investments were made in cash or backed by finance during the period of hold.

But we cannot rest on our laurels so to speak, and have to answer the question so many investors ask us “Where is the next place to buy”. In this paper, we will research one such new market, still in Germany, the city of Bremen and its harbour city of Bremerhaven as potential places to invest in the coming years. Lets look at Bremerhaven first.

Overview and Geography

View Larger Map

Bremerhaven is Germany's second biggest port, Hamburg being the biggest, and lies to the north west of the country around 100km east of the Dutch border. The city is located in the state of Bremen, being around 50km north of the city of Bremen, a train ride of around 30 minutes. Passengers by air would usually use the city airport of Bremen, served 2 times per day to London, daily to Edinburgh and numerous flight across Scandinavia, Spain and Italy. Bremerhaven therefore enjoys easy access for investors across Europe, with schedules often allowing for a day inspection trip, without the need for overnight stays, useful whilst researching the market and keeping on top of investments once made.

The City, History and Economy

The town of Bremerhaven was founded in 1827, although there were already settlements, such as Lehe, as early as the 12th century. Bremerhaven was formerly known as one the most important harbours of emigration in Europe to the New World. Located about 50 km north of Bremen along the river Weser, Bremerhaven’s ports and container terminals are deep enough to accommodate large sea-going vessels, a crucial pre-condition for a modern shipping sector. Politically, Bremen and Bremerhaven together form the German federal city-state of ‘Freie Hansestadt Bremen.’ As a key base of the German Navy, most of the city was destroyed in World War II. After being a post-war enclave of the United States within the British zone of northern Germany, the city became part of the Federal State of Bremen in 1947 and received its name Bremerhaven4. Today, Bremerhaven is therefore part of the city-state of Bremen, practically being a state of two cities, while also a city in its own right. This is complicated to the extent that the city of Bremen has owned the “overseas port” within Bremerhaven since 1927. In the 1970s the import and export of car, fruit and containers increased enormously. Due to the global shipbuilding crisis in the 1980s many shipyards and docks closes down. Nevertheless, there was a positive development in the fish processing industry which sustained its position till now.

The separate fishing port is now a major food industry centre and the continent’s largest production location for frozen foods. In addition of late, six wind industry hardware suppliers, as well as two wind industry R&D organizations, have already decided to establish and/or expand their operations in Bremerhaven.

The state of Bremen benefited from assistance from European structural funds in the 2007-2013 funding period. About 142 million Euros have been allocated from the European Regional Development Fund (ERDF) for the two cities of Bremen and Bremerhaven under the “Bremen ERDF Operational Programme 2007 – 2013”. The city has the goal of being one of the top 10 technology centres by 2020 in Germany, and funding has been targetted towards this goal.

Some examples of the planned projects for Bremerhaven:

- Promotion of the Fraunhofer Institute for Wind Energy and Energy System Technology IWES in Bremerhaven

- Future in Work (ZiB) – Careers co-ordination and advice office for women

- Support for the Institute for Marine Resources (imare) – pilot phase

- Offshore wind power development project in Bremerhaven

- Offshore wind power development project in Bremerhaven: 2nd construction phase

- Promotion of the science themes period

- Promoting the "Wissenswelten" (knowledge worlds) campaign

More information: Boomtown Bremerhaven, the offshore wind industry success story

Leisure and Tourism

Benefiting from huge investment from the European and national grants, the city and harbour area in particular have transformed themselves over recent years. The creation of a new museum, shopping complex and climate house tourist centre have brought an influx of visitors to the city.

Last year, the city's hotels registered some 300,000 guests while 1.5 million day-visitors also came. It is scarcely possible to take in all the city's tourism highlights in just a single day. You need more than three hours alone just to calmly enjoy the "Klimahaus Bremerhaven 8 Grad Ost" (climate house 8 degrees east).

Population and Prospects

Bremerhaven is a community of 114,177 inhabitants (2010). Since 1968 when Bremerhaven’s population of 148,931 inhabitants reached its peak, there has been a gradual decline in population. Declines in population have lately been a lot lower than earlier forecasts would suggest and the recent change in law to allow residents from across the EU accession countries to live and work freely across Germany may have a big effect on a city that already has a higher than average migrant population servicing the naval and fishing industry.

The table above makes this point, with Bremerhaven being cited as one of the cities in Germany with the biggest positive swing in population expectations between 2003 as compared to 2009. Based on the apparent population upswing in Bremerhaven, Deutsche Bank specifically includes the city as one of the "hidden jewels" where the yields are now higher than the strong economic and population statistics should be in terms of reward. Looking at recent prices histories for recorded sales, Bremerhaven has topped the table since 2009 in terms of capital increases, coming off a very low level. The table below is taken from the Immowelt.de portal.

Since its constitution, Bremerhaven’s economy has always been linked to its port activities. The city’s port is the sixteenth-largest container port in the world and the fourth-largest in Europe with 5.5 million twenty-foot equivalent units (TEU) of cargo handled in 2008. However, trade and exports depend heavily on external factors, most notably on the global economy. With the economic downturn, the port authority recorded a 20 % decrease (to 4.4 million TEU) in container handling in 2009 compared to the previous year. Car exports in particular fell sharply by 40.8 % comparable to the level of 2006. Due to the German government’s economic stimulus package and the slowly recovering global economy, experts predict a significant positive turnaround for the port 2010.

From 2003 to 2008 the number of full time employees increased from 43,090 to 45,924, outpacing growth in jobs as compared to the picture across Germany. During the same period, the unemployment rate rose from 18 % in 2003 to 23.7 % in 2005 and then declined to 16.7 % in 2008. Today, the number of unemployed stands at 17%, still high by country norms.

In the last 2 years, the improving economic situation in the Bremerhaven economy has translated to the beginnings of a recovery in the property sector. From the table below, complied for Deutsche Bank, Bremerhaven lists at or near the top for value growth in the various sectors of housing in the market.

Whilst still at comparative very low levels to the rest of Germany, the increase in prices together with the improving economic backdrop provide a good reason to look to the market in more detail.

Areas of the City

Rentals are fairly falt across the city, with rents in the range 3,5 Eur to 5 Eur per sqm being typical. Social housing represents a large sector of the tenant market.

The biggest residential districts of the city are Lehe, Geestemünde and Wulsdorf.

Lehe

The district of Lehe is located north of the centre of Bremerhaven, however still central enough that the city is within easy reach with a short walk or bus ride on the city's extensive bus network. Lehe has two distinct halves - you can still see and feel the charm of a working district with more modern and contemporary architecture in the top half of the quarter, in the lower half has quiet tree lined side streets with predominately renovated buildings from the turn of the 19th century. The average rent in this part of the district is about 0.50 Eur/sqm higher than the upper end of the quarter. This is the largest district for yield multi-family houses typical of our product at ProVenture.

Lehe is mainly made up of period stock, from around 1900, and is attractive in look and feel. Most properties of this era are 3-4 levels high with between 3-8 apartments in each. Balconies are favoured by tenants, and found in around 35% of the stock in this area. Property prices are still very favourable in this location, both for apartment houses and single apartments, with around 400-500 Eur per sqm often being needed which makes the market one of the cheapest in Germany, and the cheapest in the old West.

The historic centre of the district Lehe is the Ernst-Reuter-Platz, with a very grand looking church and the district court forming the centrepiece. Hafenstrasse runs north-south through the centre of the district, and due to its extensive shops, restaurants, schools and local amenities, gives an overall community feel – like a city within a city.

Property Example:

PV507 Building in heart of Lehe, Bremerhaven

199,000€ | Bremerhaven

Potential Yield: 11.05%

Type: Residential

Approx. Size: 429 sqm

A solid brick-built, quaint building in the heart of the district of Lehe, close to the city centre. The three-story apartment building contains 7 apartments, with converted basement and attic. A full refurbishment was carried out in 1984 and again in 1994. The house and grounds are maintained regularly and kept in a very neat condition. The building is heated with gas central heating.

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Geestemünde

The district Geestemünde is located in the district south of Bremerhaven at the mouth of the Weser Geeste. This very central location is an great advantage to the district, with Bremerhaven's pedestrian shopping zone a 15-20 min walk, and 5 mins by car. Geestemünde has approximately 33,000 inhabitants of the largest populated area of Bremerhaven. The landmark of the district is the water tower built in 1891 at the Konrad-Adenauer-Platz, which twice weekly hosts a large farmer's market, adding to the overall community atmosphere. Due to its proximity to the port area, this district suffered badly during World War II, and as a result, ,much of the housing stock is post 1950's build or re-built period buildings. In Geestemünde there is a good and large selection of retail shops, with kindergartens and four primary schools making this district popular with families. Rents are in the range of 4.1-5.5 Eur/sqm – with new rents starting towards the top of the bracket. The Central Station is located in Geestemünde and there are frequent connections to Hamburg and Bremen, where many of the inhabitants of this district work.

Property Example:

PV524-High yielding property in Bremerhaven

285,000€ | Bremerhaven

Potential Yield: 11.19%

Type: Residential

Approx. Size: 635 sqm

This extremely attractive period property was initially built around 1900, but was re-built after, like much of Bremerhaven, it was damaged in World War II. Despite that, the building still possess most of its original external features of impressive façade and window detail. Situated in the district of Geestemünde 1.5km to the south if the city centre, the property consists of 10 units in the main building with a small single family dwelling to the rear. All apartments have either a terrace or balcony over looking a well landscaped and maintained garden.

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Wulsdorf

In the south of the city lies the district Wulsdorf, here the district has preserved its original rural character and now looks a bit like a small town. The growing infrastructure offers all the convenience goods within the district, removing the need to make the short trip into Bremerhaven centre. In the old 'village' of Wulsdorf is the oldest building in the district, the St. Dionysius Church from the 12th Century. The appearance in the old town is the old and typical village characterized by buildings, thatched cottages and craft stores. This social feel is of great importance to the residents, who feel like they are from Wulsdorf rather than Bremerhaven. Tenants living in this area tend to remain in situ for lengthy periods than in other areas of the city, and like in Geestemünde, ther is a train station with a fast connection to Bremen, where many of the inhabitants work. Seen as more of a high-class district, purchase prices here are higher than other areas of the city, impacting on the overall yield picture.

Next month we bring you the lowdown on the city of Bremen itself, a city of 550,000 inhabitants and a different offer for yield investors to nearby Bremerhaven.

View our stock in Bremerhaven

High Yield Property Investments | ProVenture Property

38 New Investments

Interview with a German Property Finance Expert

Hi Martin, many thanks for agreeing to do this interview. To start us off, can you please give us a quick introduction to yourself and your history.

Since ProVenture Property have operating in Germany, we have noticed willingness to lend has decreased. Can you please provide a bit of background on how you have seen banks' willingness to lend change in the last few years.

How does the financing process in Germany function in general for foreign investors?

How many and what banks are involved in an enquiry?

Some of our clients are unsure whether to purchase a property under a company vehicle or as a private individual. Can you please give a short outline to the pros and cons of buying through each.

What is the minimum loan possible?

What properties can be financed?

What are the current fixed rates for 5 and 10 years?

The big question we get asked by most of our clients is, what LTVs are currently available?

What criteria do banks look for, both for the property and also the individual, to get the highest LTV possible?

Are there any cities in which the banks prefer to lend?

Redemption (early repayment) fees can be very high for clients looking to sell at the moment since interest rates have dropped since they purchased. what would the early repayment fees are charged by banks if interest rates increase between purchases now and the point of sale?

Finally, if someone wants to speed up the finance application process, what documentation/evidence can they collect together before submitting an offer on a property?

Anything else our investors should know?

Thank you Martin, that was very insightful.

If you would like to find out more about investing in German property, from Berlin to Bremerhaven and beyond or to discuss finding finance then - please don't hesitate to contact me, James at ProVenture Property.

Snapshot of the German Economy and the Property Market - March 2013

Property Sector

German Property Management

Background

Communication

Things to Look for – Apartment Houses

Tenant Arrears

Conclusion

Positioning In the German Property Market in 2013

Indicators for Growth in Coming 5 Years

Indicators for above trend growth in next 5 years

ProVenture Property - 18 months on in Bremerhaven

PV561 Great yield MFH in Bremerhaven

PV560 Newly Refurbished MFH Bremerhaven

PV555 - New Refurbishment MFH, Bremerhaven

Leipzig in 2013 – A boom city in Europe?

Stability Ahead – According to Leading German Insurer

The Property Market Cycle - Where are we?

New Year's Resolution – Get on the Cycle

Investment Focus - The Rhine-Ruhr Area of Germany

Investment Focus – The Rhine-Ruhr Area of Germany

Background

Road transport

City Focus

Focus on Herne

Focus on Gelsenkirchen

Conclusion

German Property Market - 2013 Predictions

Review of 2012 and Outlook for Next Year

German Property Tax Matters - Interview with a Tax Expert

German Tax Interview

In December 2012, Mat catches up with Frau Luise Sange and chats over some common points which new investors in Germany often need to find out:

You can read more about German Tax from a property investors' perspective here

Selling your Investment well | Timing the Sale, as Well as the Purchase

German Property Market Lively – But is it a Good Time to Enter?

Rental Developments in Bremerhaven, Germany

Background in Bremerhaven

Latest Developments in Bremerhaven

Recent Developments at a District Level

Further Bremerhaven Suburb Analysis

Geestemünde

Lehe

Leherheide

Centre

Wulsdorf

Conclusions on the rental market in Bremerhaven

Germany and the Eurozone – The Last House Standing?

Making sense of the Eurozone and the German property market

Backdrop to Demand

Germany Within Europe

German House Prices Affordability

German House Prices in Detail

Our Conclusions

It's not every day that we get a property deal in Germany like this one...

Special Property Update

Rare 12%+ Yield Investment in Leipzig

PV165 - New Construction

Be quick on this one now...

Please Contact Us for more information

The Rear View Mirror and the Crystal Ball – A Review Of The first 5 Years of ProVenture and the Next 5

The Rear View Mirror and the Crystal Ball – A Review Of The first 5 Years of ProVenture and the Next 5