In a deal that will wipe out the eastern German city of Dresden's debt in one go, US property investment company Fortress Deutschland has been given the go-ahead to buy the city's entire residential real estate holdings.
Apartments in Dresden have become very attractive to foreign investors
Dresden's city council voted on Thursday to sell the city's entire residential real estate holdings -- around 48,000 apartments -- to US investor Fortress Deutschland for a price of around 1.7 billion euros ($2 billion), clearing the eastern German city's 740 million euros of debt in one go. The city council agreed to the sale with a vote of 40 in favor and 29 against.
The controversial decision, which went against the wishes of 45,000 residents who signed a petition protesting against the deal, makes Dresden the first major German city to sell its entire residential real estate holdings and could have a knock on effect for other cash-strapped cities.
Poorly performing economies and high social costs have saddled larger German towns and cities with mountains of debt. In recent years, the sale of apartments built to serve lower-income workers has become a quick way of reducing debt, to the chagrin of tenant associations.
The sale of Dresden's real estate holdings may lead to other cities taking similar action. Berlin has already sold more than 260,000 apartments to private investors in the last three years. Hamburg and Cologne are also considering such sales.
"Dresden sale is no blueprint for debt solution"
The sale of Dresden's real estate worries residents
However, Gerd Landsberg, the managing director of the German City and Districts Organization, said that Dresden's decision should not become a model for other cities wanting to clear their debts through such a scheme. "This is an individual case," he said, "and should not become a blueprint for the solution of financial problems."
Landsberg said he would be pleased if Dresden succeeds to free itself from debt but added that such sales are not the answer to financial crises. Only the government and individual states can solve the problems by reducing financial demands and increasing investment, he said.
The German Tenants Association called the deal "wrong and short-sighted," saying that the tenants would be expected to pay the bill in the long run. "The high purchase price paid by Fortress will have to recouped somewhere," association director Franz-Georg Rips said in a statement.