German property über alles

Is your home your castle or just the place where you live? The British are well known for being a nation of beloved homeowners, but that aspiration rarely comes without chalking up a spot of personal debt in the process.

Embarking on a hefty mortgage for the best part of a person’s working life is likely to cause most people a sleepless night or two. Germans tend to be significantly less focused on the home-ownership goal and are much happier to rent.

According to our research, Germany has an owner-occupation rate of just 44 per cent – the lowest ratio in Europe, after Switzerland. The German residential sector is heavily regulated, meaning that rents are more affordable in comparison to other European countries; in general, housing costs, including heating, represent only 20 per cent to 23 per cent of net household income. Demand is high for rental properties and this is providing good opportunities for investors. Here are a few reasons why we like this sector.

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In comparison to other countries, German house prices have shown the lowest levels of growth and volatility over the last 20 years. Although there has been sharp growth in the past three years, this follows a long period where prices were extremely stable. German house prices are currently only 6 per cent higher than they were in 1994, in comparison to the UK where they are three times higher. As a result, good investment opportunities are still relatively easy to find.

Germany has a mature population and it continues to grow. Population growth has accelerated in recent years – with net migration of 400,000 people in 2013 alone – as strong economic growth has encouraged immigration from other parts of Europe. At the same time, the German population is becoming increasingly urbanised, with the major cities growing much faster than the national average. Berlin, for example, has had positive net migration of 200,000 people (100,000 households) since 2005, while only 40,000 new homes have been built over that period.

German households have benefited from the country’s strong economic position: unemployment was just 6.3 per cent in October 2014 and the workforce is at an all-time high. Net salaries have been growing as a result. Attitudes towards debt, meanwhile, remain very conservative. German households have some of the lowest debt levels in Europe at just 160 per cent of gross domestic product – the UK is 204 per cent, the Netherlands is 252 per cent and Sweden is 295 per cent. And while Germans are not keen on taking on big mortgages, they also have much more limited access to finance. The prevalence of loans available to low-income families or high loan-to-value mortgages remains limited, and buy-to-let levels are negligible in comparison to the UK, for example. We believe that these limitations have helped prevent the strong speculative appreciation in prices that we have seen in other countries.

The level of residential development on a per capita basis in Germany has been among the lowest in Europe for the past decade. The German government estimates that an additional 250,000 residential units are required each year from 2010 to 2015, but since the mid-2000s this target has not been met. From 2009 to 2013, only 167,000 new homes were built each year, on average.