In Berlin big real estate investment companies are facing ever more backlash from locals who fear higher rents or being pushed out of the city center. Is there still a future for grand real estate speculation?
Around 85 percent of people in Berlin rent the place they live in. But recently the status quo has been turned upside down. The city has sold thousands of apartments to investors. These apartments which were once for rent are often renovated - code for "luxury" - and then sold at a profit to individuals. Rental properties are becoming scarce. Naturally prices have skyrocketed. All this is rapidly changing the city that was once famously known for being "poor but sexy."
One building complex in Berlin has recently made headlines: Lausitzer Strasse 10-11.
Situated in the Kreuzberg neighborhood, it is an early twentieth-century multi-use building with apartments and work spaces spread around five large courtyards.
The building was bought from the city reportedly for 3 million euros ($3.2 million) around 10 years ago. Recently it was put up for sale again - this time for 19-20 million euros. Most likely the current tenants would have to clear out to make room for luxury lofts. Now the building is hung with signs "LAUSE BLEIBT" - "Lause stays."
Enter Taekker from Denmark
Danish investors in Germany are so numerous that they have become a punch line. But one firm stands out – Taekker. Jørn Taekker started buying properties in Denmark before coming to Berlin. He is a carpenter and building engineer by trade. According to all accounts he is quite amiable. However, repeated calls and emails to the company requesting basic information went unanswered.
Public information about the company is scant. What is known is that the company was able to buy up thousands of pre-World War II properties on the cheap, among them the building complex on Lausitzer Strasse. Generally the apartments continued to be rented out.
During the 2008 financial crisis, the Danish parent company of Taekker nearly went bankrupt due to its financing in Denmark. Its portfolio of German properties was used as collateral and the company was able to stabilize itself.
After that Taekker started to sell individual apartments to private investors rather than re-rent them. Instead of slow long-term growth, the company decided to go for quick profits.
A current tenant of the building on Lausitzer Strasse who does not want his name published for fears of reprisal says, "One day the company called and said they wanted to show some people my rooms. We made an appointment. Arab sheiks, people from Hamburg and Denmark came. At first I thought it was funny, but then I realized that they wanted to convert the building into luxury lofts."
There goes the neighborhood
Recently the company has been running up against growing resistance from local residents who see their neighborhoods being destroyed by higher prices. A huge back-lash put the Lausitzer Strasse project on ice. Taekker now say they will not sell the building, which is only blocks away from its own Berlin offices.
The Lausitzer tenant has experienced this before. "I lived for many years in London, Barcelona and New York. In New York's Williamsburg neighborhood, I rented a huge loft really cheap. No one wanted to move there then. But then things changed fast: investors came and today it is one of the hottest places in town with astronomical prices. People like me can no longer afford to live there."
Why Germany? Why Berlin?
Berlin's history plays a role in its becoming a real estate anomaly. The Cold War division of the city, subsidies for West Berlin, Communism in East Berlin and the lack of industry skewed the market. Renting and buying here have long been much cheaper than in most other major cities. Where else could you find an 80m² apartment in the city center for 300 or 400 euros a month, like in Berlin in the early 2000s?
"Germany is a safe harbor for investment. We have a stable economy and government – something that is not to be taken for granted," says Reiner Braun, director of the research institute Empirica.
Official statistics show that he is right. Berlin's population has exploded and now tops 3.67 million. In the last five years the city added 243,000 residents. Last year alone over 60,000 people moved in, many of whom want to live by themselves.
But what the city lacks is housing for all of its new residents. And the displacement of the poorer established tenants from the inner city in favor of expensive luxury apartments goes on. Since 2004 property prices have risen by 115%.
In the opinion of the real estate experts, there will still be sufficient living space in the future - only not so central. Klaus-Peter Hesse, managing director of the Germany Property Federation, says "Rural areas have considerable potential. There are more and more small towns and the outskirts of town. This is where cheap housing is being created."
This is exactly what the people in Kreuzberg fear. The tenant in the complex has already seen this in other parts of Berlin.
"We are almost the last bastion in this street. The investors have moved from district to district. Mitte and Prenzlauer Berg are dead and unaffordable. Now comes Kreuzberg."
Real estate boom coming to an end?
The last big boom in Berlin real estate between 2004 and 2007 was a buying spree by large institutional investors. Now the boom is being driven by international private investors who are looking for smaller longer-term investments.
The newest data show that the prices in the biggest cities are not increasing as fast as they once did. Martin Steininger, chief economist at real estate analyst Bulwiengesa, agrees. But looking closer he says that the luxury segment of the market is still the most lucrative in Germany's biggest cities.
"In general, today it is more difficult to generate very high margins if you are getting into the market now, because investors themselves have to pay more. But in the luxury segment there are still very good margins, since you always have a group of buyers who will pay almost anything."
Residents still hope that their protests will scare away potential buyers and that they will get backing from local government. They do not want to lose the social mix that makes their neighborhood so interesting.
In the end though it may be other forces that slow down real estate speculation. Ancillary transaction costs are high, and have been increasing in Berlin. Buying property is not as cheap as it once was. Additionally, building regulations for energy efficiency and fire safety keep becoming more elaborate and therefore more expensive. Plus it can take years to get building permits approved.
There is no doubt that big investors need to work on their image problem. In the end Taekker's decision not to sell the Lausitzer Strasse complex may simply be a delay tactic. Those who live and work in the building are hoping to stay and keep their rents low no matter what happens. Right now, only time can tell if Taekker wants to support slow growth in the city or make a profit at any cost.