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Germany may offer chance of stable growth

13/06/2010, by Michelle Devane

Germany has not been as badly affected by the downturn as its European counterparts and may be one of the overseas investment locations now of interest to risk averse investors.

The country has been attracting Irish investors for some years, but its economy did not see as huge an influx of foreign investment as other European countries during the boom years.

Most smaller investors neglected Germany in favour of eastern European countries - such as Poland, Bulgaria and Turkey - and pinned their hopes on promises of double digit capital appreciation. Some more savvy investors chose Berlin and are likely to stick with it.

Its population prefers to rent and so there’s a ready supply of good tenants.

The country has suffered in the recession, but its property prices have decreased by only a limited amount.

Buyers considering investing, in particular those taking a long term view of between five and ten years, should benefit from the recent downturn in prices, agents are arguing.

There are now some signs that investors are considering coming back to the market.

Propfund Germany, a Berlin based property investment company, specialises in acquiring and managing residential buildings in Berlin and neighbouring cities.

The company, part of the Eurix Development group, has offered Irish investors the opportunity to invest privately in the German market.

Investments can be made from €30,000 up to €3 million through its latest fund, Propfund Residential.

The company, which has been based in the German capital for 15 years, aims to acquire up to 500 residential units in Berlin by the end of the year.

These acquisitions will be financed by raising €10 million in private equity and €20 million in preferential German bank financing. Propfund Germany acquires residential buildings at reduced prices which are profitable and self-financing.

Sales and marketing director David Healy said that this resulted in the annual rental income being able to cover the mortgage repayments, management fees, maintenance and generate a profit for shareholders of between 7 per cent and 10 per cent per annum.

A Dublin native, Healy said property prices had not declined as badly in Germany as in Ireland but that some of the banks in Germany were struggling to become more liquid and consequently were beginning to sell their portfolios.

‘‘Therefore there are a lot more deals out there. The institutions and banks are being forced to sell properties, that’s why we’re only looking at these distressed sales," he said.

The firm is in the process of acquiring five residential units in Berlin, all of which are fully let. In the Pankow area of the city, Propfund aims to purchase the six-unit building on Bahnhofstrasse for €460,000 with a rental yield of 8.74 per cent.

For an investment of €2.78 million, the firm plans to purchase a 74-unitbuilding in Lindenstrasse in Brandenburg, which will produce a rental yield of 9.89 per cent. The fully-managed fund is regulated by the German Financial Regulator and returns will be paid to shareholders each year throughout the fund period of 10 years.

‘‘Due to its strong rental market, Germany has always been a location of huge interest for Irish investors. It has a highly regulated rental market, with 82 per cent of Berliners preferring to rent rather than buy their family home," Healy said.

He said the lending criteria in Germany, however, had restricted many British and Irish investors.

‘‘A lot more Irish would have invested except for the strict lending situation. Overseas investors of individual units will only secure an LTV of 50-60 per cent. That’s why we established Propfund Germany. This way overseas investors can avail of Germany lending as the units are bought as buildings rather than individual units."

In recent months, Healy said, he has found an increased number of enquiries from Irish investors. Much of the interest, he said, had been in investing amounts in the region of €50,000.

The growing interest in its latest fund has led Propfund Germany to open an Irish office.

Healy will manage the Dublin office next month.

(source: Sunday Business Post, www.sbpost.ie)