Berlin: Rent Freeze and Property Investment
The rising costs of of housing is beginning to divert investment along with a pending rent freeze with property owner Deutsche Wohnen SE chief financial officer Philip Grosse saying "the damage has already been done" in a report published by The Business Times.
Mr. Grosse says that because of the Berlin's government rent freeze initiative proposed in June has now caused delays for investment in new housing stock saying:
"The longer we have that uncertainty, the worse it will be."
As a result Deutsche Wohnen is postponing new construction developments for Berlin and will develop new properties in other cities. One problem has been that the inability to increase rents along with mandated rent reductions will effect a cash flow of €330 million within the next five years.
Mr. Grosse in The Business Times:
"The city of Berlin is creating its own civil code which conflicts with the federal regulations."
"Our constitution explicitly forbids that."
A party spokesman for the CDU, Chancellor Angela Merkels party says a challenge to the city of Berlin's initiative will be made in Germany's constitutional court.
The Business Times says:
"There has been one upside to Berlin's rent freeze for Deutsche Wohnen: the movement to force the city to buy out big apartment owners is faltering. Only 29 per cent of Berliners are in favour of a proposed referendum, according to a survey published in the Berliner Morgenpost on Friday. In the same poll, 71 per cent backed a rent freeze."
One of those looking forward to the rent freeze law is Jenny Stupka of northwest Berlin who has seen her rent increase by 6% each year for five years. She hoped that the rent freeze would bring better tenancy conditions for Berlin's renters in an interview with Public Radio International (PRI). But the law may be on the way out as the German Interior Ministry and property developers are claiming it is unconstitutional.
Stupka has a six-bedroom apartment in the Wedding district of Berlin and says the rent freeze would be:
“a little break from the sleepless nights for tenants in Berlin."
She has become a campaigner with Deutsche Wohnen & Co. Enteignen, (the group using the name of its principal target Deutsche Wohnen) and would like to see a referendum that would force owners of 3,000 private apartments be returned to the city of Berlin for social housing. The proposal is expected to see opposition especially from Deutsche Wohnen, one of the largest property owners in Berlin.
Representing 6,000 real estate agents and property managers Christian Osthus, vice director with IVD says:
“Rent freeze is tenancy law. Tenancy law is decided at federal level. No state has the right to change federal law."
He compares the rent freeze of being a reminder of the Cold War East Berlin and would slow landlords from making improvement s in their properties saying to PRI:
“The GDR [German Democratic Republic] had the same regulation. A kind of rent freeze that means there was no money for modernization. What we found after the time of the GDR was a very old and bad housing stock.”
“Politicians are always concerned with renters. We don’t have a lack of regulations, we have a lack of supply.”
But others in Berlin disagree including filmmaker Felix Gaedtke who would like to see landlords have tighter regulations so as to not use loopholes in the tenancy laws. He rents a two-bedroom apartment in the Neukölln district of southeast Berlin. He tells PRI that he was threatened with an increase of 62% rent hike as a result of his landlords plan to renovate the exterior of the property. While this landlord and tenant dispute continues Mr. Gaedtke's fellow tenants fought back and for the time being the landlord has backed down. His rent is at €600 which is considered a bargain compared to rents in other cities.
“Just because other cities destroyed their social fabric, and in Manhattan you only have billionaires living there with none of the culture left, that’s not the way Berlin should go."
But are the rent freeze initiatives and the current economic climate impacting German new construction developments?
Germany Trade & Invest report says:
"The currently unsettled international economic climate seems to be having little to no effect on Germans constructing new buildings and buying and selling existing ones."
"New figures from the Germany's Federal Office of Statistics show that German construction companies invested 4.7 billion euros in tangible fixed assets in 2018 – a remarkable increase of 17.4 % over the previous year. That volume of investment was the highest in 24 years. In 1995, in the wake of German political reunification, German construction companies also invested the equivalent of 4.7 billion euros."
Investment is the current engine for the continuing boom for the national property market with data showing that for all of Germanys 16 federal states real estate investments in 2018 hit a record €269 billion from 90,000 transactions.
The largest investment growth was in purchases of apartment buildings with €180.5 billion with the German cities of Berlin, Munich and Hamburg. The prediction calls for growth to remain strong at a modest level.
Anne Bräutigam, senior manager in energy, construction and environmental technology at Germany Trade and Invest (GTAI) tells PRI:
"We anticipate further high demand for residential property."
"German business institutes reckon with up to 3.3% year-on-year growth in investments in the construction sector in 2020. And the sector will be getting some new impulses. The German government is supporting the development of new technologies, especially in the areas of sustainable construction, digitalization and building waste recycling."