Location, infrastructure, yield, value development
03.
August 2022
Before you decide to buy real estate as an investment, it is important to inform yourself and keep certain factors in mind. The most important of these include the development of property values, the location and infrastructure, and the expected return. We' ll explain to you what needs to be taken into account.
Location
Location plays a decisive role in the value of a property. For example, if an apartment is located in an area with low demand, the value will be significantly lower than in popular metropolitan areas. Both the location within Germany and the location within the region, known as the macro-location, and within the city, referred to as the micro-location, must be taken into account. The prosperity of the region also has a significant influence on the value. Properties in more expensive and wealthier regions are usually also particularly stable in value. In the immediate vicinity of a property, bars, restaurants and supermarkets, cultural and educational institutions all have an impact on value. In addition, the distances to local and long-distance traffic should be close. First-time buyers in particular should pay attention to whether there is potential for rent and value appreciation at the location. This is affected not only by the location but also by the infrastructure.
If you are specifically interested in purchasing an apartment in Berlin, there are a few more things to consider. First and foremost, you should pay attention to whether the area in which the apartment is located is designated as a social environment protection area (in german: Milieuschutzgebiet). In these areas, the existing cityscape is to be preserved - conversion, modernization and transformation measures can only be implemented there under certain conditions. There are more than 70 designated protection areas in Berlin, mainly in the districts of Mitte, Friedrichshain-Kreuzberg, Tempelhof-Schöneberg, Neukölln and Pankow. If a property is located within such an area, there is nothing necessarily wrong with that. However, you should be aware of the restrictions.
Infrastructure
Along with the location of a property, infrastructure has the greatest influence on its value and value appreciation. If the location is in high demand, there are good connections to public transportation and the highway, fancy bars and restaurants located nearby, and sports and recreational opportunities are offered, stable value can be expected for such a property. Of course, this goes hand in hand with constant or even rising rents - in case you want to rent out a property. The number of available workplaces in the area also plays a role, of course. Even if they are not right on your doorstep, a popular commuter city can also offer attractive real estate prices.
Yield
Investing in real estate as a long-term stable capital investment not only ensures that one's own assets are secure, but also makes a decisive contribution to asset accumulation. Due to the permanently low interest rates, among other things, other forms of investment cannot keep up with the return on a property. This is particularly true if the property is rented out rather than occupied by the owner. The rental income is then added to the long-term increase in value. Owning your own real estate can also contribute enormously to financial freedom in retirement. As debt repayments increase, the financial scope becomes greater due to rent-free living when the property is owner-occupied or due to rental income when the property is rented out. According to calculations by the market research institute empirica, real estate buyers are on average five times wealthier than tenants when they retire.
Value development
A closer look at the increase in value of real estate over the past 30 years reveals that prices remained relatively constant until 2005. Since then, the price curve has shown a steep upward trend. A particularly sharp increase has been recorded since 2010. The Federal Statistical Office blames this on many different factors: prices are rising due to the growing population, high demand and short supply of real estate, and low interest rates, among other things. A concrete example: according to the Construction Price Index, prices for residential buildings rose by 29 percent between 2010 and 2020. The inflation rate increased by only 14 percent during the same period. Even the Corona pandemic and the war in Ukraine did not dampen this trend; the shortage actually intensified the price explosion in the construction industry. Real estate prices in Berlin may be stagnating for the moment, but in the long term, prices will continue to rise in the German capital, as indicated by the continuing glaring shortage of living space in this popular city. Owners can therefore still rely on the appreciation of their property. Although rocketing double-digit percentage increases per year may be a thing of the past, a stable upward trend can still be expected in the run-up. At the same time, the positive development in value is only one of many advantages of owning your own real estate. For example, homeowners live much more cost-effectively than tenants, as the current ACCENTRO Housing Cost Report 2022 shows.
How much return can be generated with a property depends on many factors. If you are interested, please feel free to contact us - as a reliable and experienced partner, we at ACCENTRO will assist you throughout the entire purchasing process and find the property that suits your needs in the best way. Additionally, the suitability of real estate as an investment can be determined with the help of the PropRate platform.
