Property investors warned-off Berlin

Overseas property investors considering Berlin as a possible investment destination are being warned that the outlook for the German capital is disappointing.

Economic indicators, such as unemployment and GDP per capita, show that Berlin's economy is currently weak and not conducive to rising house prices, according to real estate consultants German Hawk.

The city's population has dropped since the mid 1990s, falling 83,000 between 1994 and 2005 to 3.397 million and is expected to continue to decline at a rate of 5,000 a year.

In a new report, German Hawk says that despite Berlin's reinstatement as Germany's capital, it has not become the country's economic capital.

As such debts have risen from €10 billion in 1991 to €58 billion in 2005, with even the Berlin Senate Department of Finance admitting that public budgeting was in dire straits.

The unemployment rate in Berlin is 17.2 per cent compared to Germany's overall rate of 10.5 per cent, while the average GDP per capita is only €23,460 in Berlin, compared to the German average of €34,623.

The combination of these two factors means Berlin's residents do not have the financial strength to support higher rents.

A recent survey by German business journal Wirtschaftswoche shows that property investors would be better to look towards Munich, Frankfurt and Stuttgart – the three cities voted the most attractive in Germany. Berlin by contrast occupied 48th place in the survey.

German Hawk says: "We see many buildings with repair and maintenance backlogs for sale in weak locations. Many of them have already changed hands once or twice recently. Berlin still has its troubles. Even it appears cheap, it is not, when risk is considered."

However, there is light at the end of the tunnel. The planned expansion of Berlin Brandenburg international (BBI) airport is expected to boost the local economy bringing in 20 million passengers by 2011, rising to 30 million in the ensuing years.

The experience of Munich shows that the expansion of the Franz Joseph Strauss international airport has led to falls in unemployment and rising rents.

The report concludes: "Long-term prospects look better due to the positive impact of the German economy and expansion of the BBI airport.

"As reported in the Wirtschaftschwoche, cities such as Munich, Frankfurt and Stuttgart rank highest. So, why not have a look at them?"