Before you decide to purchase a property as an investment, it’s important to do your research and keep certain factors in mind. Among the most important are property value trends, location, and infrastructure, as well as the expected return on investment. We’ll explain what you need to consider.
Location
Location plays a decisive role in the value of a property. For example, if a condominium is located in an area with low demand, its value will be significantly lower than in popular metropolitan areas. It is important to consider not only the location within Germany but also the location within the region (macro-location) and within the city (micro-location). The region’s level of prosperity also has a significant impact on value. Properties in more expensive and affluent regions tend to retain their value particularly well. In the immediate vicinity of a property, bars, restaurants, supermarkets, and cultural and educational institutions influence its value appreciation. Additionally, access to local and long-distance transportation should be convenient. First-time buyers, in particular, should assess whether the location offers potential for rental income and appreciation. This is influenced 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 additional things to consider. First and foremost, you should check whether the area where the apartment is located is designated as a “milieu protection zone.” In these areas, the existing urban character is to be preserved—renovation, modernization, and conversion projects can only be carried out there under certain conditions. There are more than 70 designated heritage preservation zones in Berlin, primarily in the districts of Mitte, Friedrichshain-Kreuzberg, Tempelhof-Schöneberg, Neukölln, and Pankow. If a property is located in such an area, that doesn’t necessarily have to be a bad thing. However, you should be aware of the restrictions.
Infrastructure
Along with a property’s location, infrastructure has the greatest impact on its value and appreciation. If the location is in high demand, has good access to public transportation and the highway, features trendy bars and restaurants nearby, and offers sports and recreational opportunities, then the property is likely to retain its value. Of course, if you plan to rent out the property, this goes hand in hand with stable or even rising rents. The number of local jobs also plays a role, of course. Even if these jobs aren’t right on your doorstep, a popular commuter town can still boast attractive real estate prices.
Return
As a long-term investment that retains its value, real estate not only ensures the security of one’s assets but also plays a crucial role in building wealth. Due in part to persistently low interest rates, other forms of investment cannot match the returns offered by real estate—especially when the property is rented rather than occupied by the owner. In addition to long-term appreciation, rental income is also generated.
Owning a home can also contribute enormously to financial freedom in retirement. As the mortgage is paid down, financial flexibility increases—whether through rent-free living when occupying the property yourself or through rental income when the property is rented out. According to calculations by the market research institute empirica, homebuyers are, on average, five times wealthier than renters upon retirement.
Performance
Looking at the appreciation of real estate from the past 30 years, it is striking that prices remained relatively stable until 2005. Since then, the price curve has been rising sharply. A particularly sharp increase has been observed since 2010. The Federal Statistical Office attributes this to many different factors: Prices are rising, among other things, due to population growth, high demand, a shortage of housing, and low interest rates. A concrete example: According to the construction price index, prices for residential buildings rose by 29 percent between 2010 and 2020. The inflation rate rose by only 14 percent during the same period. Even the COVID-19 pandemic and the war in Ukraine have not dampened this trend; in fact, the shortage has further fueled the price surge in the construction industry. While real estate prices in Berlin are stagnating for the moment, they will continue to rise in the long term even in the nation’s capital—a trend supported by the persistently acute shortage of housing in this popular city.
Homeowners can therefore still count on their property’s value to appreciate. While skyrocketing increases in the double-digit percentage range per year may be a thing of the past, a stable upward trend is still expected in the long term. And this positive appreciation is just one of many advantages of owning a home. For example, homeowners live at a significantly lower cost than renters, as shown in the latest ACCENTRO Housing Costs Report 2022.
The return on investment you can generate with a property depends on many factors. If you’re interested, please feel free to reach out to us—as a reliable and experienced partner, we at ACCENTRO will support you throughout the entire purchasing process and help you find the property that best suits your needs. By the way, you can determine a property’s suitability as an income-generating property or investment using the PropRate platform.
