July 27 (Bloomberg) -- Hendrik Hesselmann says he tells customers he can’t promise spectacular returns from buying homes through his Hamburg-based real-estate broker. That hasn’t stopped the company from having its best year in six decades.
“We have a lot of very rich customers who say they want to be on the safe side, that banks and markets are too dangerous,” said Hesselmann, a manager at Karla Fricke, which offers properties at Hamburg’s Alster Lake and in HafenCity, Europe’s largest inner-city development. “If they buy an apartment or house, they know nothing strange will happen.”
Investment in Germany’s housing market is rising as Europe’s debt crisis makes assets such as stocks more unpredictable. Private individuals increased their spending on German homes by 12 percent to 7.5 billion euros ($11 billion) last year, after a gain of 24 percent in 2009, said Jacob Volckerts, head of investment advisory services at CB Richard Ellis’s German division. That may climb 10 percent to 8.2 billion euros this year, he said.
While investment is growing, Fricke is right about the returns: they are slow and steady. Average apartment values in Germany have gained 1.9 percent this year, according to the Hypoport Index. They have risen 7.4 percent since falling to the lowest in at least four years in March 2009, the index shows.
“An important factor is safety,” Volckerts said. “People have lost money on the stock market and even now there is uncertainty and risk. The philosophy is: ‘I know my local market and my town.’”
Low interest rates and shrinking down payments helped drive increased home ownership and soaring prices in markets from England to Dubai in the years before the global financial crisis caused values to tumble.
Steady in Crisis
In Germany, apartment prices fell by about 5 percent in the four years before the credit crisis hurt global markets. In the fourth quarter of 2008, the period after Lehman Brothers Holdings Inc. failed, residential values in Germany fell just 0.7 percent from a year earlier, compared with a decline of about 15 percent in the U.K., 12 percent in the U.S. and 9.1 percent in Ireland, according to the Knight Frank Global House Price Index.
House prices in Germany have been relatively stable in the last 25 years when adjusted for inflation, even through the country’s reunification, according to a research report by Erasmus University in Rotterdam. That’s partly due to rent controls that make buying less attractive, plentiful supply and financing that relies more on personal savings and building societies than bank loans, the report said.
Germany’s home-ownership rate of 43 percent lags behind the European Union average of 65 percent, according to Gagfah SA, an investment company with 155,000 apartments in the country. That may rise to 47 percent by 2020, Gagfah said.
“While other countries in Europe and around the world have seen strong value appreciations followed by severe declines of property values, real-estate prices in Germany have proved to be stable even during the financial crisis, in line with their sideways development in earlier years,” Gagfah said in its 2010 annual report.
Munich, Germany’s third-largest city, has the highest average home price in the country at 679,000 euros, according to a survey in May by Focus magazine and research firm Empirica. That compares with 543,000 euros in Frankfurt and 436,000 euros in Hamburg.
“The effects of the economic crisis on the German housing market were barely noticeable,” property-market researcher Bulwien Gesa AG said in June. “Both institutional and private investors have rediscovered residential properties, partly because of their lower risk as investment opportunities.”
Stocks Lose Luster
Investors are shunning all but the least volatile securities as EU leaders struggle to stem the region’s debt crisis. On July 12, Ireland became the third country using the euro after Portugal and Greece to have its credit rating lowered to below investment grade by Moody’s Investors Service.
Euro-area leaders agreed on July 21 to provide Greece with an additional 159 billion euros in new aid. They also empowered their 440-billion-euro rescue fund to buy debt across economically distressed euro nations.
The Stoxx Europe 600 Index has fallen 2.1 percent this year, after a 46 percent drop in 2008. Commerzbank AG, Germany’s second-largest bank, has declined 40 percent in the past six months. Deutsche Bank AG, the No. 1 lender, has lost 11 percent.
Property price increases will vary widely from city to city in the coming years. While values of newly built homes may rise 4.2 percent nationally by 2015, the gain will be 7.2 percent in Hamburg and 6.2 percent in Berlin, according to Bulwien Gesa.
West Is Best
Berlin, Cologne, Dusseldorf, Frankfurt, Hamburg, Munich and Stuttgart are the most expensive and developed cities in Germany, according to Bulwien Gesa. Cities with the lowest price growth and weak development prospects are mainly located in eastern and northern Germany and include Wilhelmshaven, Greifswald and Dessau.
Dessau, in the eastern state of Saxony-Anhalt, is at the bottom of a list of German cities in terms of house prices, with an 11 percent drop in the last five years. That compares with a 15 percent increase in Munich and 13 percent gain in Hamburg.
“Last year was our best year ever,” said Hesselmann of Karla Fricke, which has been selling property in Hamburg for about 60 years. “So far this year, sales are up 50 percent. It’s going to be a fantastic year.”
--Editors: Ross Larsen, Angela Cullen.
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