Real estate markets across Germany’s main cities are starting to look increasingly attractive to international property investors, especially those in southern Europe, China, the USA and the Middle East, according to a fresh report. 

An expanding population in major cities is adding to the existing supply-demand imbalance, placing upward pressure on property values and rental prices; an attractive position for property investors. 

The report from Knight Frank points out that in Berlin, for instance, the city’s population rose by 40,000 in 2015 and household numbers are estimated to rise by 74,000 between 2015 and 2020, and yet new housebuilding is lagging behind. 

Just over half – 10,722 – of the 20,000 new homes that experts estimate are needed in Berlin each year were delivered in 2015, the latest figures show, with very few signs that this level of new housing delivery will increase significantly despite pent-up demand. 

The study also reinforces the fact that home ownership levels in German cities remains very low compared to the European average, with just 15% of homes classified as owner occupied, as many Germans traditionally prefer to rent their primary residence, which is something that naturally appeals to buy-to-let investors, especially in Berlin where demand from renters is greatest. 

Several safeguards have been put in place to help ensure that the housing market in Germany remains largely immune to the boom and bust scenario seen in the late 1990s. 

“Mortgage lending is now highly regulated. Capital gains tax is charged on all properties sold within two years of purchase, or in the case of buy-to-let homes, ten years, to discourage speculation,” said Kate Everett-Allen, head of international residential research at Knight Frank.

A new rent cap has been introduced in Berlin which means that the rent specified in a new tenant contract cannot exceed the local average by more than 10%, but this has been broadly welcomed by buy-to-let landlords as it ensures stability in the market. 

“Landlords and investors instead see the measures as pillars of support which help bolster market confidence and minimise risk,” Everett-Allen added.