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 Why invest in Berlin?

The simple answer is that it represents unbelievable value! You can buy an apartment in Berlin for little more than €50,000.00 - you can't buy a garage for this price in London or Dublin!

So how have we come to this extraordinary situation? To understand the reason we need to look at Berlin's unique recent history. After the opening of the Berlin Wall (1989) and the reunification of Germany (1990) there was an incredible wave of optimism and expectation for Europe's largest economy and its newly created capital city - Berlin.

So how have we come to this extraordinary situation? To understand the reason we need to look at Berlin's unique recent history. After the opening of the Berlin Wall (1989) and the reunification of Germany (1990) there was an incredible wave of optimism and expectation for Europe's largest economy and its newly created capital city - Berlin.

The pent-up demand particularly from the East Berliners was immense. The conclusion at the time was that the city required a massive investment and construction programme in all sectors (residential, office space, hotels etc).

However, the optimism was fatally flawed. Economically it simply didn't add up, the fiscal requirements on the public purse created major monetary problems. New jobs were not created, the artificially preserved East Berlin economy was shattered and the public and corporate institutions could not provide the necessary financial support. The net result was a migration of workers and their families to the growing, financially and structurally sound and unaffected areas of Germany - Düsseldorf and the Ruhr area, Munich and Frankfurt.

The Berlin construction boom of the early nineties coincided with both the reduction in residents and more importantly their purchasing power together with an increasing unemployment level and the consequent financial strains on city and federal coffers. The net result was a fall in the price of property and rents, an increase in the availability of office and residential space without an appropriate increase in demand. Between 1994 and 2004 new property prices fell in Berlin by 30% and rents by 15%. The disposal of large property portfolios by public authorities further undermined price levels. Only in the last three years has this situation stabilised.

Overall while property prices in most European countries significantly increased those in Berlin stagnated or fell. Berlin now represents the most competitively priced property in Europe.

And here is the opportunity because the best chance in property markets come precisely at the end of a difficult process of adjustment.

And we are not the only ones to think so - private equity funds have invested approximately 35 billion euros in the German property market in the last five years! Investors include names such as Goldman Sachs, Morgan Stanley, Terra Firma, Cerberus etc. For example, Fortress (an American private investment firm) bought 48,000 apartments in Dresden for 1.7 billion euros in March, 2006. (See International Herald Tribune article link: http://www.iht.com/articles/2006/05/03/business/dresden.php).

In the current market a new apartment in Berlin costs 30% less than the same apartment in Munich. Moreover, international comparisons reveal Berlin property at an average price of €1,000.00/m² with Paris and London in excess of €5,000.00/m²!! Berlin property prices are currently below those of Prague, Budapest and Warsaw, to name just three!

Only 12% of Berliners own their property compared with over 20% in Hanover, Hamburg, Munich and Stuttgart. Overall in Germany, 43% own property and the trend is rising!

Tourism increased by 16% in 2004 alone. In excess of 2,000 four and five star hotel rooms have been built in the last three years including the Ritz-Carlton and Radisson. There were 14 million overnight stays in 2005 compared to 11.2 million in 2003. British tourism increased by 22% in 2006 alone.

Air traffic into Berlin airports is up by 8% in 2006 and flights arrive from Ireland (Belfast, Dublin and Cork) and the UK (Bristol, East Midlands, Glasgow, Liverpool, Manchester, Newcastle, Gatwick and Luton). A new airport (Berlin Brandenburg International) is under construction which will bring significant levels of investment. In the ten years between 1990 and 2000 net migration from Berlin totalled almost 200,000 people. Migration stabilised in the years 2000-2003 with little change to the net total. The latest statistics (December, 2005) indicate that over 7,000 people arrived during the year. Berlin is growing again!

This is what this all adds up to is a tremendous investment opportunity!