The Boom Continues Unchecked

Sales prices for free-standing homes and condominiums in Berlin keep going up and up – and have people wondering how long this will continue. Quoted prices for condominiums in this town have risen by 37.5 percent since 2009. Rent rates, too, are rising faster here than anywhere else. The estate agency of Jones Lang LaSalle writes in its report on the Berlin housing market: “During the first semester of 2012, rents achieved a median of 7.40 Euros per square metre, which implies a year-on-year increase of around 13 percent. This means that the German capital is seeing by far the steepest rent hikes among the cities analysed.” The report adds that despite the recent surge there is no end in sight for the rent increases in Berlin.
In fact, the number of private households in Berlin has risen by 3.4 percent since 2006 alone. Today, the German capital is now home to more than 3.5 million people. In 2011, the migration balance equalled 40,000 residents, but only 3,517 new apartments were built. Just 2,000 flats out of this total, by the way, were created in apartment blocks.
While residential project developments are underway all over Berlin, the total volume represents but a fraction of the actual demand. The reason for this is quite obvious: In most boroughs, the rent rates are still too low to make housing construction a paying proposition. Generous government subsidies of the sort seen when the city was divided and right after it was reunified are no longer available in Berlin. The only way for the market to adjust itself, however, is through continued rental growth.
This is obviously not good news for tenants. Politicians profess a spurious outrage over rising rents, even though they deserve some of the blame. The “energy policy shift” that has been mandated much in the manner of planned state economics, and that is intended to reshape the German economy in “sustainable” ways, will send energy prices skyrocketing. While net rents in Berlin have gone up by 8.9 percent since 2005, according to the price database of the BBU Association of Housing Entrepreneurs in Berlin and Brandenburg, energy costs have risen by nearly 50% during that same time. As it is, service charges account for one third of the rent. The average heating-included rent of 7.44 Euros per square metre breaks down into five Euros for the net rent and the rest for service charges. Tenants, however, rarely differentiate between the various components – all they care about is the rent total.
So will net rents keep soaring? The persistently low volume of completions and the incoming migration in Berlin as well as the growth of Berlin’s economy would seem to suggest as much. During H1 2012, Berlin’s economy grew faster than any other German state. While Germany’s gross domestic product rose by 1.1 percent, Berlin’s growth rate was 1.8 percent, actually outpacing the Germany’s traditional growth leader, Baden-Württemberg. There are plenty of indications that the momentum on Berlin’s residential real estate market has yet to peak.