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Alpha Real Estate Investments
German Property Newsletter - April 2007
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Welcome to the April edition of our newsletter.
German property has recently been attracting global investors
pouring billions of euros into the market. A lion's share
of this investment is directed to the German capital. The
benefits investors see in the Berlin market are obvious.
Purchase prices little over one tenth of comparable properties
in London, and often lower that the construction costs, over
80% of the population living in rented accommodation, etc.
But there were times the Berlin market was very different...
So what has happened?
This month we take a closer look at the reasons for the
exceptional value currently seen in Berlin property and
why things are set for a change now.
And, in case you've missed our recent newsletter issues,
they are available for you here:
Berlin property, German property -

In this issue you will find:

1. Recovery Here to Stay
2. Berlin's Journey to Exceptional Affordability
3. Top Area, Rock-Bottom Prices - New Berlin Opportunity!
4. Tell Us What You Think!

===================== FEATURE EDITORIAL =================
1) Recovery Here to Stay
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Strong economy
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To start off, let's see what’s been happening in Europe's
largest economy in recent weeks.
The best news at the end of QI was undoubtedly the steep
drop in the unemployment rate, which had fallen to 9.8% in
March. Seasonally adjusted the jobless rate fell to 9.2%..
(Germany saw 869,000 fewer unemployed people over the past
year.)
This month a sigh of relief was heard from the halls of the
Reichstag that echoed through the boardrooms of German
business. Tax revenues were up, dramatically. 16.4% gain
y/o/y. But why the sigh of relief?
Well, the federal government is ecstatic for two reasons.
First, their finances are back in order with the revenue
increase more than enough to balance out the planned double
digit drop in corporation taxes. Secondly, the January VAT
hike has not caused any damage to Germany's long awaited
economic comeback that is now well underway.
More cause for optimism has been further growth in exports
(up by 5% in March), and in particular the favourable
breakdown of Germany's main trading partners.
While the world perpetually lives in fear of a US economic
slowdown dragging everyone else down, Germany is on a good
way to distance itself from a weak US economy. With the UK
receiving almost the same volume of German imports as the
US, and the old Eastern block far exceeding it in value and
quantity, the US now only generates one fifth of the demand
Germany gets from the EU. This means a significantly more
stable economy and that’s always good news for outside
investment.
With German economy going from strength to strength,
confidence grows that the economic recovery is here to stay.
This is of course fantastic news for investors in German
property.
Buoyant property market
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On the property front the continuous massive influx of
investment capital is undoubtedly the biggest vote of
confidence in Europe's largest economy.

April was another bumper month for institutional investments
into the German property market. Including Dutch and Danish
pension giants ABP and ATP announcing launch of a vehicle
aiming to invest in excess of 700 million euros into German
commercial property.
Not only were several major deals struck by the usual suspects
from Europe and the US, but investors down under have also
started to wake up to the market's unprecedented potential.
Australian property funds poured $6 billion into European
property with more funds going into Germany than all other
countries added together. That’s a staggering 350% jump from
the previous year.
Global real estate consultants Jones Lang LaSalle released
new annual data on the total commercial property transactions
in Germany. 2006/07 has come in at an all time high of over
50 billion euros.
Global funds dominated the German market, purchasing 40%
(by value) of all German commercial property traded. Other
significant investors included UK and Australian investors
for whom Germany was the main investment destination last
year, as well as US and Middle-Eastern investors.
* * *
With most companies' year ending at the beginning of this
month we have also had an array of revealing annual results
published. A snapshot of some of these is included below.
IVG Immobilien AG released profit figures for 2006/7. The
German property giant saw annual profit rise by 36% to 149.2
million euros.
Dawnay Day Treviria Plc, a London listed German retail property
company, rocked the markets with an operating profit of 120.9
million euros, causing its net asset value to rise by 15.8 %.
Orco property group (developer and investor in Germany and
Central Europe) has also posted a profit increase of 77%
and an effective doubling of its net asset value.
These stories are repeated again and again within the German
property sector. With investors seeing record breaking profits
and a strong expectation that this is only the beginning, Germany
is grabbing more international attention than ever before.
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2) Berlin's Journey to Exceptional Affordability
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Any of you used to investing in the stock market will know
that past performance is no guarantee of the future. But, as
historians would say, only through understanding what has
happened can we get a handle on what’s around the corner.
This has never been truer than when it comes to the recent
economic history of the magnificent German capital.
As you will recall at the end of the eighties the Berlin
wall quite abruptly came crashing down. It took a year for
reunification to be formally concluded and the start of a
new decade saw a fully reunited Germany. At this time the
values of properties in Berlin were, in many areas, double
the prices we're seeing today.
Berlin had gone through very turbulent nineties with several
different factors hitting the property market all at the
same time.
Economic decline
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The former West Berlin (originally an island of western
civilization) saw the little industry it had move out to
reduce overheads at the same time as the service industry
had taken a beating from the steep drop in military personnel
based in the city.
In the former East Berlin the giant state owned industries
collapsed as trade with the Eastern Bloc was cut off. (This
was compounded by western Europe’s companies not only being
more productive and efficient, but also delivering products
seen to be far superior.) As a result unemployment soared,
forcing economic migration to the country's west.
Massive development resulting in oversupply
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At this same time the German government embarked on a huge
building program to redevelop all of the city's no-man's land.
The expectations were for thousands of international and
national companies to transfer operations to the new German
capital: “If we build it the business will come”. There is
still a surplus of office space in central Berlin today -
a legacy of the huge miscalculations from over a decade ago.
Overdevelopment had not just affected the commercial property
market. Unprecedented numbers of homes were built after the
reunification as Berlin was predicted to significantly grow
in population. Germany was topping European construction rate
indexes in the early nineties - in strong contrast to today
when the country has the lowest construction rate on the
continent.
Berlin had seen a double hit on its property market as demand
(population numbers) fell dramatically at the same time as
supply (of new residential as well as commercial space) shot
up. In any business this means dramatic price drops. Property
is no different. Prices had fallen up to 60% throughout the
course of the nineties and up to 2005. Large numbers of
repossessions followed and property ownership has gained a
very poor image.
At that time tenants knew they were a rare commodity;
landlords dared not increase rents for fear of having empty
buildings. Throughout the nineties it had become cheaper to
rent than to own a property. It also looked to be significantly
less risky, which is why the majority of Berliners have opted
to rent rather than buy.
Tax speculation
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Another factor that helped to nail the coffin on the Berlin
market after the reunification was an unprecedented amount
of tax speculation spurred by the German government. In the
aim of increasing investment and rebuilding the former East
German states the government had introduced extremely
generous tax incentives allowing German taxpayers to offset
losses on investment property in the former East.
What followed was a massive amount of money pouring into
property with no base on investment fundamentals, with
German buyers paying top prices for underperforming real
estate. When the tax incentives were later abolished, a
strong price correction was inevitable.
A new era
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After 15 years of struggle, Berlin has now found its feet.
The city has seen huge investments into infrastructure,
transportation and gentrification from the federal government.
Top infrastructure coupled with low cost of living and low
running costs for business, as well as availability of skilled
workforce and a favourable location between the East and the
West, have over the last five years helped Berlin reinvent
herself as one of the most attractive business destinations
in Europe.
With employment on the up, tourism through the roof (Europe’s
third most visited city), migration to Berlin reaching all
time highs, and large numbers of international corporations
basing their German/European HQ’s in the German capital, we
have witnessed the situation reverse from the nineties.
Berlin today is seeing solid increasing demand while there
has been virtually no construction activity. And we know what
high increases in demand and no new supply are likely to do
to prices in the future, don’t we?
As people start to wake up to the change in prices and rents
(already underway) many expect to see a gradual shift back
to a stronger ownership culture (average ownership rate in
Germany is 43%, in Berlin only 15%).
For the investors who are quick on their feet and get in
early the returns could be potentially huge.
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3) Top Area, Rock-Bottom Prices - New Berlin Opportunity!
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With Berlin offering some of the lowest property prices in
Europe, now is the time to take advantage of this extraordinary
affordability.
This remarkable value coupled with a very strong rental
market and solid yields, as well as the strong recovery of
the German economy, create opportunities for investors that
cannot be found in any other European property market.
If you are looking to take your slice of the action, you
will be pleased to hear about our new central Berlin
investment opportunity.
Located in one of the city's most desirable areas, the ever
popular Prenzlauer Berg, 25 one and two bedroom apartments
are available in a wonderfully renovated listed building.
Prices start from just 45k GBP for spacious 1 beds and 64k
GBP for 2 bedroom apartments and all units are let at a
solid 5% yield.
What you have here is an opportunity to buy quality properties
in a top location at prices significantly lower than the
area's average and rental yield above that of Prenzlauer
Berg's comparables.
The deal is scheduled for release next week.
So, don't be left sitting on the sidelines while others get
all the returns. Email us at info@alphare.net to receive a
full information pack of the new Prenzlauer Berg opportunity.
Alternatively, if you are interested in other properties -
apartment blocks, mixed-use buildings or commercial properties -
please email us your requirements or visit Berlin property, German property -
for further details. We will be happy to assist you in taking
advantage of this exciting and lucrative market.
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4) Tell Us What You Think!
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We would love to hear what you think of this issue of our
newsletter. We hope you find the information useful and
wish you best success in your investment activities.
And of course, if you have any suggestions for upcoming
issues that you'd like to share with us, please send them!
Just e-mail us at: contact@alphare.net
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We are looking forward to seeing you next month. In the
meantime, if you have any questions or would like to
request further information, please contact us at
info@alphare.net or at +44 (0)207 851 3570.

Best of success,
Your Team at Alpha Real Estate Investments

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All rights reserved

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