Financing German Property - May 2007

totallyproperty · #1 11-07-2007, 01:15 PM

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Germany Newsletter
Financing German Property - May 2007
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In this issue you will find:
-- 1) Strong Economic Upturn Intact
-- 2) Financing German Property
-- 3) Bargain Prices, Top Locations, Strong Rentals - New Investment Opportunities!
-- 4) Tell Us What You Think!

Welcome to the May issue of our newsletter.

With German property more and more in focus of international investors, an issue often discussed (and frequently misunderstood) is that of availability of mortgage finance from the notoriously cautious German banks. To shed more light on this essential matter, today we bring you an overview of German mortgages available to overseas buyers.

And, in case you have missed our recent newsletter issues, you can find them here: http: //germany.alphare.net/newsletters.php

1) Strong Economic Upturn Intact
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Economic news

Germany, currently holding EU presidency, has been releasing some very solid official figures this month. Given there's no better backdrop to a strong property market than an equally strong economy, let's have a look at what we've seen from the engine of Europe in recent weeks.

There have been many skeptics to the great German economic recovery, whom the guys in the Reichstag have been more than happy to prove wrong again and again. The figures show that the current economic upturn remains intact, with growth driven both by lively investment and robust exports.

Predictions of slower 0.4% (month on month) growth in German manufacturing orders were smashed by the actual massive 2.4% jump, nearly 30% if sustained for a year (Economy Ministry). Such strong figures from Germany coupled with the country's plummeting unemployment (569,000 more Germans in work than this time last year) have prompted the European Commission to raise its 2007 forecast for growth in the EU.

Despite the largest VAT rate hike in the country's history in January 2007, German GDP was up by 0.5% in the first three months of the year, beating expectations. These figures are 3.3% higher than 2006 (De Statis, German Federal Statistical Office), which, remember, was one of the best years the German economy has seen for a long time. With all this in hand the German government has raised its GDP forecast for 2007 to 2.3% from previously estimated 1.7%.

So the German economic recovery is still very much in full steam which is of course great news for you the property investor. Major investments

So what impact has this had on the property market? Well, there have been such exceptional investment volumes flowing into German property this month that we have had to state them as a list! Please see below...

Henderson Global Investors in partnership with Management Fuer Immobilien announced plans to raise 1 billion euros to plow into the German real estate market. They already manage between them a German portfolio worth 3.9 billion euros.

UK fund management group Teesland iOG, part of Teesland Plc has announced it plans to raise 370 million euros by the summer for German property fund. They already have a German portfolio worth 800 million euros which they are aiming to expand to two billion!

A sale of 53 properties and an office development has been agreed by Morgan Stanley and IVG Immobilien AG. This totals 2.56 billion euros.

CMC Capital finalised a 245 million euros purchase of the A10 shopping centre in Berlin, Germany's busiest retail complex.

International Investment Bank (in Berlin) bought commercial properties in Munich worth $98 million. Standard Life announced that its select property fund was making its first move into the German market, by purchasing a retail park in the Frankfurt region.

Even the Duke of Buccleuch (Scotland) is set to double his funds exposure to the German market to 200million euros.

So there have been no signs of abating of the massive investment influx into what is rapidly developing into Europe's most buoyant property market. And as you would expect we have also been busy sourcing new opportunities for you.

To read more about some of our exciting new property deals - ranging from top located single apartments to high yielding blocks and commercial properties - please go to section 3.

2) Financing German Property
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As the property market picks up the German banks are beginning to relinquish their infamously tight grip on lending. Even so Germany still has some of the most cautious and autocratic financial institutions in the world.

The majority of investors are looking to use mortgages to increase their purchasing power. Because of this we focused this issue of our newsletter on the German banking sector and dispelling some myths about the availability of finance for foreign investors.

Please note this article is for illustrative purposes only and Alpha Real Estate Investments is not a registered mortgage advisor. Qualified advice should be sought before taking out any sort of secured borrowing.

Many have found that by going directly to the banks it is very difficult to get a positive decision and when you do you're often offered a ludicrously low loan to value (LTV). Frustratingly, this is often a result you have had to wait for as long as three to four months.

Many of you will know we work closely with a team of mortgage brokers in Berlin whose entire organisation is geared towards securing finance for overseas buyers. We have found the delivery of interest rates; LTV's and the speed of response from the banks to be significantly improved going this route.

The founders of this firm spent many years working in the banks and have direct inroads to the correct people in the right positions. That being said it is not always all about who you know! Having spent many years on the other side of the table they know what the banks are looking for: They're looking for a reason not to lend to you. By presenting your data in the correct manner they have not failed to secure financing for any of our client's to-date.

Nevertheless, there are several things to be kept in mind when planning your move into the German property market.

Mortgage applications are specific to the property

As a foreign national you are unable to make an abstract application in Germany i.e. secure an agreement in principle. All applications must be for a specific property so you need to find that property first.

But how can I know if I can buy a property without first securing the finance?

Well here at Alpha we have a pretty good idea of what the banks are looking for and if there is still doubt we can always arrange for you to speak to the brokers in Berlin.

The banks are still very cautious

In Germany you will not get the high LTV rates we have grown used to here in the UK. For single apartments you should base you calculations on 60% LTV (40% deposit). You may well get more (63%, 65%, not above 70%) but by basing your calculations on 60% if you do get more it's a pleasant surprise rather than a nasty shock.

For apartment blocks the LTV is a lot more dependant on the cash flow (and hence net yield) of the property. The calculation generally used by banks is 75% of net rent equals 8% of the loan. (Therefore, by taking 75% of the net annual rent and dividing it by 8% you will obtain the maximum amount banks will be willing to lend. Note that could still be lower based on the quality and location of the property and your own financial status; but it won't be higher.)

Larger commercial financing is a completely different kettle of fish and we won't cover it here. Feel free to contact us for more information though.

Every applicant is assessed individually

The banks do not offer blanket mortgage products and will asses each applicant and property individually. We cannot guarantee what the bank will offer before they do. Similar to insurance products if they perceive you to be a lower risk candidate you should get a favorable interest rate or possibly a higher LTV. (At present interest rates are typically 5-6% p.a., although in rare cases a rate below 5% can be obtained.)

The market lacks product sophistication compared to many other markets

All smaller borrowing (less than a few million) is done on a capital repayment basis generally on a 5 or 10 year fixed interest rate. No trackers, variables etc. Most standard terms are usually at around 20-25 years, though shorter terms are available.

The banks occasionally request borrowers to take up another one of their services as part of the mortgage offer e.g. savings account, building society account, life cover, etc...

The bottom line is that even though the German banks are not the world's easiest to work with, securing finance should not be a problem in the majority of cases. For details on what documentation the banks will look for and further general information on German mortgages please follow the link below

http://www.alphare.net/memos/MORTGAGES.pdf

3) Bargain Prices, Top Locations, Strong Rentals - New Investment Opportunities!
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With Germany - and in particular Berlin - offering some of Europe's lowest property prices and strongest rental returns, time to take advantage of this exceptional potential is Now.

This is why we're constantly researching and analyzing new investment deals for our clients, in order to secure the best opportunities for you.

This month we launched an exciting new sequence of apartments in Berlin's trendiest district Prenzlauer Berg. Going to almost half reservation in less than a week, anyone who's seriously interested in single apartments and hasn't seen the details please contact me ASAP.

The properties offer the rare combination of a highly desirable location, bargain prices (just 48-73k GBP for large 1-2 bed apartments), high standard (beautifully renovated listed building) and strong current yields.

For those of you looking for entire apartment blocks we are very excited to launch a fantastic, renovated building in probably Berlins top address a stone's throw from the Charlottenburg palace. For sale at 2.45 million euros it yields an impressive (for the area) 5.55% net. If this is the kind of thing you're looking for I would advise you to contact us now as it's rare to find a block in an address like this with a yield that makes sense.

For larger investors we have high yielding commercial properties in Berlin and West German cities, ranging from 5-100 million euros. These are just a few amongst many deals. For further information please see http://www.alphare.net or email me at info@alphare.net with your requirements.

We will be honoured to help you take advantage of the exciting and lucrative German property market, as well as answer any questions you may have.

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: info@alphare.net 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 email or call us at our offices.

Best wishes,

Andrew Stanley
and your team at Alpha Real Estate Investments
Berlin property, German property, Slovakia Property -

Alpha Real Estate Investments
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email: contact@alphare.net
phone: +44 (0)207 851 3570
web: http://www.alphare.net
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neustria · #2 22-01-2008, 02:40 AM

Hello Bob,

Recently some news was headlined in the financial press which detailed the woes that a large number of German investors have known with a couple of their "risk free" REIT Funds. The losses were substancial and some of these funds were being unwound, or repuchased by the bank's other branches in order to stave off a Northern Rock type run on these funds.

I find this incident surprising in light of what you say above (and which I have read independantly) which suggests that some big operators are now investing hundreds of millions of euros in German Real Estate.

Why haven't investments on so large a scale pushed up German property prices, making these funds profitable for their subscribers?

Neustria

investinvalue · #3 25-04-2008, 11:59 PM

Quote:

Originally Posted by neustria

Hello Bob,

Recently some news was headlined in the financial press which detailed the woes that a large number of German investors have known with a couple of their "risk free" REIT Funds. The losses were substancial and some of these funds were being unwound, or repuchased by the bank's other branches in order to stave off a Northern Rock type run on these funds.

I find this incident surprising in light of what you say above (and which I have read independantly) which suggests that some big operators are now investing hundreds of millions of euros in German Real Estate.

Why haven't investments on so large a scale pushed up German property prices, making these funds profitable for their subscribers?

Neustria

Large funds do only like size investments. They are usually not interested in anything below 10mln/ unit. Competition for these properties is usually fierce and did drive down yields to some low levels ( 4-5%). Add to this some portfolio managers getting PERSONALY some rebates back on the purchase price and some office blocks staying empty for a long while ( just go to frankfurt and you'll see a building boom in tower blocks with few companies to fill these).

These guys can project some estimated rental value for some time but if the rents do not flow in they have to revalue. Once the quick back story broke out then it was all about shareholders getting out which probably drove valuation to too low levels.

This is the danger with quoted real estate funds. 1)They are shares and can inflict a lot of pain. 2) asset manager might not at in your best interest and could end up unwinding his holdings at the worst time.

If you have enough money, it is probably best to do it on your own. Look for properties in good locations with good tenants and good rental yields. Get a good mangement company and in 20 years time you will be long the properties for your initial investment.

This is what I did. I bought some properties in large towns in Bavaria- rental yield 7 to 9%- got a mortgage for 75%+ at 4-5%. Despite repaying the principal, paying a management company and providing some reserves for repairs/maintenance, this deal is self-financing. Then if you can optimise the rents or increase rents with inflation, it becomes slowly a cash generating machine. Then after 20 years when mortgage is fully paid back, you will really have some nice cash inflows.

Looks nice, I do not think it is risky at all as my mortgages are locked for at least 10 years- when you can resell without paying a german capital gains tax. Of course, you could loose out if we have a depression a la 1920's - read current credit crunch times 10 or if Germany does end up as the pauper of the world. Possible but I hope not very likely.