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The Berlin Boom is Yet to Come

Recent weeks have seen a resurgence of press items discussing “initial signs of overheating” and “price plateaus” in Germany’s real estate market. Word has it, especially in regard to Berlin, that anyone still out to buy should be careful now – that further price hikes are hardly to be expected anymore. The converse argument would seem to suggest that property prices in Berlin are high, or indeed too high. But that is not actually true. Berlin remains now, as then, one of the most affordable national capitals in the world, and even within Germany one of the more low-priced metropolises. Indeed, there are several reasons to assume that the true Berlin boom is yet to come.

Costs of Living Remaining Affordable

The costs of living in Berlin continue to be rather low compared to other countries. One ranking of the world’s most expensive cities has Berlin in number 48, another lists the city in place 120. It is no doubt true that such a level of affordability in a city of Berlin’s format is bound to attract new residents. And so Berlin does attract young people, creative minds, start-up entrepreneurs and tourists. The city also attracts young professionals and families – as well as investors.

Need for Housing Continues to Go Unmet

The massive inflow of people in Berlin – the city is growing at a pace of nearly 50,000 residents per year – has obvious consequences for the performance of property prices. And this is all the more true because the number of flats completed in Berlin is not nearly enough. An analysis done by the IW German Economic Institute in Cologne puts the demand for housing construction in Berlin at 32,000 new flats per year. In 2016, however, only 13,000 flats were completed. It stands to reason that prices will push up whenever current demand goes unmet and if demand keeps growing at the same time. There is simply no call to speak of a bubble in such a case.

Articles that do so nonetheless have a tendency to point at the price trends in Berlin as well. And to be sure, Berlin ranks thirteenth in the Wealth Report of Knight Frank which rates price growth worldwide. But, for starters, this applies exclusively to the luxury segment and by no means to condominiums in the low-price and mid-market segments. And secondly, price trends must not be confused with absolute prices. You need to remember that Berlin started at the very bottom of the list. Just ten years ago, in 2007, the average square-metre price in the German capital was barely 1,700 euros. In short, there is plenty of development potential left.