European economic growth outpaced the United States and Japan in the second quarter, driven by Germany's best performance since reunification, European Union data showed last month.

The economy in the 16-nation eurozone grew by 1.0 percent between April and June, compared to quarter-on-quarter growth of 0.4 percent in the United States and 0.1 percent in Japan.

Europe was pulled up by Germany's best quarterly performance since reunification in 1990, with growth of 2.2 percent, according to the Eurostat figures, which confirmed a previous estimate.

So where does this leave the German housing market? Well, after a decade of near stagnant prices in many parts of the market, the uptake in employment and consumer confidence is having an effect on the ground. It could be said from a property cycle perspective that property is now entering a phase of appreciation, from a point of the current high rental yields / low purchase prices. This occurs in any functioning market, and steady capital appreciation should be expected as confidence to buy off lower yields increases.

Whilst most of the developed world was experiencing a property boom in the early 2000's, between 2003 & 2005 the German property market experienced its period of downturn and has been recovering ever since. During the global recession, contrary to the rest of the developed world, property prices remained level and even showed periods of growth and Germany now finds itself in the 'upturn' segment of the curve while most countries markets are still stagnating.

Other factors are at play in the German market however. In many location, rental levels have remained very low for the past decade and show huge potential for increase. For example, in the capital Berlin, it is not uncommon to pay around 300 Eur per month for a 2-bed apartment in a reasonable location. This is cheap by any standards, especially in the strongest economy in Europe. Housing costs represent around 20% of household income in Berlin which points to a very high level of affordability, or put another way potential for rental increases as the economy continues to strengthen. By way of comparison, renters in UK and USA would expect to devote around 30-35% of their household income on rent and associated costs. This is a real oddity in the German market that could well be equalised as the economy develops.

And as rents rise, so do rental yields and consequently capital values.

Other factors are at play in Germany, which are peculiar to the market and are of interest to investors as the economy improves. Stemming from another oddity in the market, low owner- occupation, it is fair to anticipate an increased appetite and demand for real estate. Currently, predominantly in cities in the former east such as Leipzig, owner occupation rates can be as low as 15%. So, 85% of the population are in the rental sector. This not only includes the usual tenant sectors such as students and young professionals but also wealthy professionals, those nearing retirement and those in retirement. With an increased confidence and ability to buy, backed by the high levels of finance still available to German residents, wealthy professionals are increasingly buying the home they live in or moving to a property which they own. Additionally, those planning for retirement may opt to remain tenants, but see that real estate could be a good way to ensure they have a roof over their heads come pension age. There is currently a developing "buy to let" market, servicing those older and wealthier individuals who wish to buy a single apartment to rent and use as equity in retirement. As the demand from these new areas increases, who pay less-regard to the yield levels that professional investors seek, capital rises must follow.

Of course, the market is fragmented on a city level, suburb level and even street level. Some areas will benefit more from the economic upturn in the country than others. Locations that are well-aligned to employment in the export sector, with a shortage of housing stock will of course perform well. Much harder to determine, if which suburbs and streets are more likely to feel the benefit of increased owner occupation or demand from the domestic buy-to-let sector. The ProVenture team stand by to help guide your way through the market, based on your investment objectives, as the market develops.