Real Estate Investor Magazine South Africa February 2015 | Page 61

BY WIM PRINSLOO

FOREIGN

When the Stars Align
E

arly in 2014, Reitway Global saw the opportunity
to invest in the German Listed Apartment sector.
After further research, our investment team came
to the conclusion that the stars have indeed aligned to
present an excellent real estate investment opportunity.
In this particular investment case, the ‘stars’ were
represented by the combination of record-low real estate
values and favourable market dynamics in Germany.
1.Record-low prices in Germany
Firstly, apartments in Germany are currently selling
at prices that are 10% below their nominal levels from
40 years ago. This seems anomalously low compared to
residential prices in the UK and Australia, which have
appreciated by more than 300% over the same period.
A more superior way to assess affordability is to
compare the rentals earned, versus the prices paid in
different housing markets. Based on this price-to-rent
ratio, the German housing market is 15% ‘cheaper’ than
its historical levels and significantly more affordable than
the housing markets of other developed economies in
Europe.
2.Favourable market dynamics
Fundamentals are surprisingly positive for the German
Listed Apartment sector, despite some near term
headwinds for the overall economy. This is due to the
following market dynamics at play in Germany:

Investing in German apartments
• Rising consumer income: Disposable income in
Germany has been rising steadily and unemployment
is at its lowest recorded levels.
• Increase in households: The number of households is
increasing as workers from weaker countries in the
Eurozone immigrate to Germany in search of better
job prospects.
• Low supply of real estate: Supply remains constrained,
as the cost of developing a property is double the cost
of purchasing one in the secondary market.
Something has got to give
The opportunity of earning a growing 7% rental yield
when borrowing at less than 3% is a very attractive
investment outcome. To put this into perspective; in
South Africa, residential property currently offers gross
yields of around 9% while the banks are lending at about
the same rate. Reitway’s view is that the current dynamics
in Germany must translate to meaningfully higher prices
for it’s apartment sector.
This view that ‘the stars have aligned’ is evident from
the €7.9 billion of new investments into the sector,
over a period of 12 months which ended in June 2014.
Importantly, property prices are finally beginning to rise
due to the attractive market opportunity.

German house prices
are low in a world of
expensive real estate:
Data Source: IMF and
OECD. As of Quarter 2
of 2014.

RESOURCES
Reitway Global Property
www.reimag.co.za

February 2015 SA Real Estate Investor

61