Berlin real estate prices have been skyrocketing in the last few years. Is the bubble about to pop?
Remember 2008? The world’s economy took a nosedive, and Barack Obama was elected president of the US. It was also the year that Ellen and Janet bought their first flat, an un-renovated 70sqm duplex in a Prenzlauer Berg Altbau building for €250,000. The Australian couple just wanted a stable place to live in the city they’d come to love, but their timing was perfect: that year, prices for Berlin fl ats hit a historic low. While many European capitals had seen their housing prices double in the previous 10 years, Berlin’s had actually inched lower, reaching values equal to the good, old pre-reunification days.
Berlin’s real estate is red hot. In just five years, the value of for-sale flats in long-trendy Prenzlauer Berg has risen by 73 percent, while up-and-coming Wedding rose by 300 percent.”
Flash forward 10 years. Janet and Ellen have three young kids and are relocating to their native Brisbane. Working with a broker, they’ve just sold that condo for €550,000, more than twice the buying price. In a dramatic turnaround, Berlin real estate is red hot. In just five years, the value of for-sale flats, new and old, in long-trendy Prenzlauer Berg has risen by 73 percent, while up and coming Wedding rose by 300 percent. Average square-metre sales prices in 2017 ranged from around €2000 in Spandau to €3000 in Neukölln to €5300 in Mitte. Luxury units on Ku’damm are selling for a Berlin record of €18,200 per square metre.
Like most Berliners, I rent my apartment, so why should I care about condo prices? Because they drive up overall housing costs by competing for a limited resource: land. Once-plentiful empty lots are now scarce. In 10 years, according to broadcaster RBB, a plot of land in Prenzlauer Berg has increased in value from €460 per square metre to €5500.
In 2017 alone, the average selling price for a Berlin flat rose at an incredible rate of 20.5 percent, the world’s highest according to the property consultancy Knight Frank (London’s prices, by comparison, rose by a paltry two percent). The Guardian newspaper described Berlin as the world’s “frothiest property market”, a play on the oft-used metaphor of a price “bubble”: when overly enthusiastic buyers inflate prices to unrealistic levels.
Berlin knows the sound of a bursting real estate bubble all too well. It was 1995. A flood of German government cash had driven investors to buy and renovate buildings all over former-East Germany. The problem: residents were leaving in droves. So many newly-renovated flats sat empty that the Berlin Senate debated demolishing a cluster of Marzahn Plattenbau apartment blocks. Real estate prices hit rock bottom. For 20 years, that popped real estate bubble cast Berlin as a bad bet for investors. Even worse, it caused Berlin’s government to shut down its century-old programme of building affordable public housing.
The great wave
So Berlin was caught off guard by the tsunami of market forces now crashing over the city. The number one “natural” force is people: in 2008, Berlin was still a shrinking city, losing population. In those 10 years, we’ve grown from 3.4 to 3.7 million, with another 50,000 newcomers arriving every year. And more Berliners have good jobs – unemployment is dropping steadily, from a peak of 19 percent in 2005 to 8.2 percent this year. To keep up with demand, real estate agency Ziegert estimates that the city needs to build 20,000 new homes per year, twice the current rate.
There are also some “unnatural” forces driving up prices. Berlin’s Senate has been aggressively expanding the number of Milieuschutzgebiete, protected urban zones where rental flats aren’t allowed to be converted to condos. Another 13 such areas will be on the books by mid-2019, further limiting the for-sale supply.
But the biggest reason for the price rise is simple: greed. Berlin’s high gains have drawn investors from around the world buying flats on speculation. In 2009, 14 percent of sales were to foreigners; in 2015, it was 68 percent. To stanch this feeding frenzy, Mayor Michael Müller wants to allow only Germans or long-term residents to buy flats here.
Is Berlin’s condo market a bubble ready to burst? Germany’s conservative Bundesbank seems to think so, estimating for-sale flats in Berlin to be 35 percent over-valued. But others point out that Berlin’s average sales price of €3400 per square metre is still a bargain compared to Munich (€4000) and about one third of London prices. Reiner Rössler, Chairman of the Berlin Senate’s Property Valuation Committee, insists prices may level off but won’t drop. Still, when you add economic uncertainties like Brexit and escalating global trade wars to skyrocketing prices, Berliners could be in for a big, loud pop.