Germany, a highly industrialized nation dependent on its technical expertise, extends only a limited welcome to qualified foreigners. But is it an immigration policy which threatens to gamble away the country's future? With the economy rapidly recovering, German companies have once again begun complaining of a shortage of experts and engineers. But despite periodic efforts, the country has yet to fully modernize its immigration policies. In the international competition for highly skilled labor, Germany is falling behind. For years, German politicians have wasted valuable time in an international competition for talent with their half-hearted immigration and integration policies. And now, just as the country seems to have emerged from a major crisis, the alarmists are issuing new warnings.

(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.