Chemnitz – View from the Streets So Far

Introduction

At ProVenture Property we are always seeking new markets to offer to our clients. A good deal of our investors seek yield, and yield markets do not stay the same forever, we need to continually search property markets around Europe to continue to deliver the service that clients expect. Our most recent foray in 2011 has been to enter the market in Chemnitz, a major city in the state of Saxony, Germany. As we have been working there for around 6 months now, we offer this report “from the streets” and our findings thus far.

Background to the Market

Should you have missed the article we produced on the investment case for Chemnitz, and why we entered the market - you can read our article on investing in Chemnitz property for sale here.

In the article we made the case for a fairly strong economic position for the city, falling unemployment and in certain parts of the city a strong increase in population and tenant demand. We also pointed out the backdrop of falling population across the city as a whole, although stabilised now, which has perhaps fed into the lower investor confidence / higher yields possible there today.

Looking across the city at rent levels, we see a surprisingly flat picture, with only a few districts not falling in the 4.1 to 5.5 Eur per sqm bracket. Whilst the lower level of this range is supported by social housing being paid around the 4 Eur per sqm level, income levels and demand in the more affluent parts of the city would in usual circumstances support a wider range of rents, with perhaps 7 Eur being the price paid in more of the city in prime property. 

 

This flat picture in respect to rents can be seen as an anomoly. As the city develops, a wider range of rents should be expected, like in most cities across the world. This points to some positioning at the current time towards more prime property and the latent increase in rents, commensurate with demand and the purchasing power of tenants in these areas.

Indeed, looking to how rents have developed between 2009-10, we see a general upward picture from the patchwork below across the city with some areas enjoying rental increase in this period of 10-20%, whilst much of the rent of the city is flat or up or down less than 10%. So pressure on rents in some areas is already being felt it can be said.

 

In terms of purchase prices, it is without question still cheap in this city. The graph below shows that, apart from some small areas [characterized by higher proportion of owner-occupation], property can be had pretty much anywhere for under 1000 Eur per sqm. This figure relates to single apartment sales, multi family apartment houses can often start as low as 350 Eur per sqm for a refurbished and rented property.

 

This picture of flatish rents, low prices, and higher yields / lower investor confidence is very much a hallmark of the markets ProVenture have entered as investors these past 20 years.

Stop Being Boring Mat

But, I said this was an article “from the streets” and we are in danger of another journey into yield calculations and city statistics with Mat here. Let's share some thoughts from some of the streets we have plodded around so far...

Our View on Property Prices in Leipzig in 2016

What will the Property Prices be in Leipzig in 5 Years? We get out the Crystal Ball..

We have written recently of historical house prices in our key markets in Germany, made reference to some of the markets that yield investors are looking at currently and discussed matters of the Euro and the likely effect on values in Germany. In this short article, we will look at the key drivers to property price appreciation and their impact on our key market of Leipzig in Germany.



Some of the key factors which will effect capital values in the next 5 years in the market can be listed as follows:

1 Investor confidence
2 Investor access to finance and finance rates
3 Rental level development
4 Owner-occupation levels
5 Recent capital value trends
6 Affordability

1 – Investor Confidence

One of the hardest factors to pin down and time, but perhaps the biggest factor when it comes to the driving of capital values upwards or downwards. One of the key determinants of confidence within a market is the likely future demand placed for property, and the prime driver for this is a city's population level. Within Leipzig, the population famously fell soon after the wall came down in 1989, but has recovered to a great extend over the past few years. A table of population in Leipzig is given below:

Year	Population
1990	511079
1991	503191
1992	496647
1993	490851
1994	481121
1995	470778
1996	457173
1997	446491
1998	437101
1999	489532
2000	493208
2001	493052
2002	494795
2003	497531
2004	498491
2005	502651
2006	506578
2007	510512
2008	515469
2009	518862
2010	522883

The city has seen a return to growth from 2001, and the rate of increase over the past decade has been one of the highest in Germany. Average estimates are now for 2025 at 538,000 inhabitants, with a high-end estimate of 565,000 by that time. The table below shows the corresponding fall in vacant units in Leipzig, having over the last decade. Investor confidence comes from every one of the following key drivers, but with a strong population growth story in Leipzig, it augers well in terms of under-pinning growth in the coming years.

Right now, an investor feels rightly rewarded with a net yield of between 7-11% in the Leipzig market. With interest rates for 5-10 year fixes at around 4%, there is still room for an increase in confidence pushing yields further down. Yields in a stable market would equate to around 2% over lending-rate, so around 6%. Should yields drop due to this increased buyer confidence, then prices have the capacity to rise by around 40%, should finance remain low.

2 - Investor access to finance and finance rates

Finance is readily available for both international investors and domestic investors, the latter enjoying very high levels of liquidity up to 100% of the property value.

Investment property in Bremerhaven, Germany

The small multi family house in Bremerhaven, Germany contains 4 apartments in a renovated old building which has a full basement and a renovated attic. A new roof was completed in 2008 . The front and rear façades are plastered and painted with new double glazed plastic windows installed in 2005. The property is heated by gas heating, hot water supply is decentralized with boilers in each of the apartments. All apartments have bathrooms fitted with showers, with three of four bathrooms have been updated about 2006/2007. All apartment s are 3 rooms, and all of which have an attractive layout and floor plan.

A fantastic property investment, available at 100,000€ - at this price,  a yield of 11.4% makes this a German property investment well worth investigating.

In addition to the cash flow generated by this fully let building - Condominium prices have already increased an average of 26% across the city since 2009, and with all the fundamentals in place for continued development of the city - we expect a good level of capital growth.

Bremerhaven - A high yielding market in Germany

Exploring Yield Markets – The Case for Bremerhaven, Germany

Our job at ProVenture is to find unbeatable property yield markets for our investors, who come from across the world and have often have a global view on making investments which deliver great returns. It is an interesting task, especially in this period of financial uncertainty and rapid asset price movements. We stick mainly to seeking within developed markets, with history of prices and stability of legal process. Our work has taken us over the last 5 years mainly to Germany, as its economy powers forwards out of the global financial crisis as one of the leaders in manufacturing and export of high-end goods. That is not to say we are myopic in our search, we continue to seek markets around Europe and also in the USA, the latter bringing some interesting opportunity of late for cash-driven investments. Perhaps you have caught our property investment articles on this subject?

But we are, now and for the coming years, continually being drawn back to Germany. The high-proportion of tenants has resulted in some great and stable monthly returns for our investors, and many have enjoyed very good capital growth of the last few years. Germany famously did not domestically participate in the credit binge of the last decade and property prices have remained very favourable for investors to buy into, backed by high levels of finance at historically low rates. Our work in Leipzig for example has resulted in the sales to around 50 investors, from small studios to large property property portfolios with all of our earlier investors in the market [say around 2007-08] now sitting on gains of around 20-40%. A very good result, compared to other developed markets in this period of general decline. And lets remember the average yield on purchase price for our investors has been between 10-11% during this period, producing a useful income whether the investments were made in cash or backed by finance during the period of hold.

But we cannot rest on our laurels so to speak, and have to answer the question so many investors ask us “Where is the next place to buy”. In this paper, we will research one such new market, still in Germany, the city of Bremen and its harbour city of Bremerhaven as potential places to invest in the coming years. Lets look at Bremerhaven first.

Property investing in Florida - A yield investor's holiday

Perspectives on the Florida Investment Property Market

A view from a Yield Investor on the market in Orlando

When planning our annual family holiday, my long-suffering wife has to balance her needs for good weather / shopping with my interest in going to somewhere with a yielding property market. This has resulted in a lot of Scottish holidays in the early years of our marriage, followed up by Germany and eastern Europe for the last few years. I have to say, my wife has compromised heavily on holiday weather on occasion. I am not sure how I got away with so many Leipzig 'holidays' in the last few February half-terms, having family fun in minus 20 conditions. I am still unclear why my wife stays with me, she is 10 years in now, I am sure she has her reasons. So it was a pleasant diversion for the family (in particular my wife) this year to go to balmy Florida for Easter for holiday, from where this rambling "postcard" comes.


For the past 20 years Florida has been a part of the world that is very familiar to us to be fair, my brother and sister have lived there since the 1990s and so have my mum and dad on and off (until my dad fell out of a tree, another story). And so, we have visited many times to visit family, and seen the journey my family and friends have had in property over this time and have some perspective on the market. Why I am tapping this away from a cramped economy return seat on Virgin Atlantic is to jot some ideas down, hopefully for some interest to investors looking at the market or just looking how property markets develop in general. I have watched with keen interest the market develop from a relative affordable base in the mid 1990s, through rapid growth each time I revisited until 2006. And this is my 3rd trip back during this financial crises. But the real raison d'etre for looking more deeply into this market was provided by a cockney fellow I overheard on the telephone , apparently to his wife. It was day 2 of the recent London Property Exhibition, and it seems he had made an acquisition:


"You sittin' down luv? Well me and Dave popped into some property thing after going to the body builder show" [The London Excel was hosting 2 exhibitions thus weekend, for what you thought was a mutually exclusive audience]


"Well, guess what I bought today? You're never going to guess"

1.035M€ Property Investment in Leipzig, Germany 8%+ Yield

Proventure Property are pleased to present this investment object in Leipzig, Germany.  Located in the heart of the city in Saxony, this very well presented building of mixed use contains both residential and commercial units and is over 1,000sqm.  

The rent list of this Leipzig property is available on request from James at ProVenture Property.  In broad terms the property consists of around 870sqm of residential apartments and 190sqm of commercial real estate.  The commercial units are currently rented and 85% of residential units are tenanted.  Full details are available for inspection during the due diligence process.

Where are investors in German Property investing?

Where Are Investors Looking in Germany for the Great Deals?

Munich, Bremerhaven, Berlin, Leipzig & more

The stall is well laid out for Germany to see a strong housing market in the short to medium term. Business and consumer confidence is now higher than it has ever been since re-unification in 1990, interest rates are at record lows and unemployment falling fast in many regions. Against this backdrop, German house prices have been fairly unremarkable, indeed boring, over the last 20 years showing no real appreciable gains in real terms against inflation. Affordability for housing is at record lows, as low as 15% of take home pay needed to service the housing costs, and access to finance for German residents and international investors alike is very good. The German market remains the most under-valued in the world, according to the OECD. This is all quite different to the picture that is other developed countries, who are nursing the direct losses of their nation's wealth, that of their housing stock and banking sectors at least, after the credit binge and subsequent financial collapse. So, it makes you think “what is going to set this market on fire?” and “where will the fire burn the brightest / the longest?”.

Lets take a look a some German cities, and see where advantage lies for investors who have short, medium and long term views on the return of their money.

As the re-unified country develops, it makes good sense to look to the more established markets in the former east of the country, and then turn attention to some markets within the former East. So, lets look at some really contrasting markets in the country, to spark some thought.