The German property market is thriving; with massive momentum added to real estate prices by sturdy construction, the industry has shown signs of the most significant growth since the reunification. However, although the current outlook is optimistic, experts warn that the economic turmoil engulfing the world and the subsequent instability in the financial markets may spoil the show. Here is an article for more on this.
If the latest figures released by the King Sturge Real Estate Economy Index are anything to go by, there is ample proof of the fact that consumers have not yet lost confidence in the German property market as a viable investment vehicle.
The data released in August clearly pointed a conspicuous gain of 8.6% which put the score firmly at 120.2 making it the highest level of index points ever in the history of the German property index since it started in January 2008
While the score for last month currently stands at 110.7, since it is well past the mark of 100 index points; the figures strongly suggest that most of the 1000 market players who participated in the polls depicted a positive sentiment about the market parameters.
The massive growth in the real estate sector in the month of August can be attributed to both the income opportunities in the country as well as the development of investment.
Other vital figures that reasserted the direction of the German property market trend included the Investment climate indicator for investment decisions and real estate acquisitions. This scaled a height of 132.1 index point after a sharp rise of 8.6%; a marked increase over the figures of the previous month which were trailing behind at 121.6 index points.
Similar sentiments were echoed through the upward movement of Rental Income which is a combination of expectations in terms of development of rents and revenues; this figure also increased by 8.6% to touch the 108.7 point mark. Once again, a massive gain can be seen over the previous month figures which stood at 100.1 points.
In an interview, Sasha Hettrich, a managing partner from King Sturge Deutschland said that at this point in time the German property market was showing the fastest growth since the reunification. As a matter of fact, he also stated that the construction industry has emerged as a clear winner and a driver of economic growth. He went on to add that with spring around the corner and most of the harsh winter weather behind, builders are busy trying to make up for their production backlogs and get their projects back on schedule
However, Hettrich also added a small warning saying that there is some extent of unchecked buoyancy in the German property market which is normal in boom periods; however, investors need to be cautious of this. He also stated that the glum economic outlook of the EU and the world at large coupled with upheavals in the financial markets may have a significant bearing on the real estate sector and hence should not be ignored.
Most major market players came back with positive rating across the various segments of the German property market from retail to residential for the month of August. Among all the segments, the Office Climate was way ahead with a massive increase of 11.4% which saw index points reaching the 106.1 level, a significant gain over the 95.3 index points seen for the pervious month. This climb made it the highest score since the first quarter of 2008. The notable thing about this figure is the fact that this segment of the German property market was always perceived as problematic and today this very segment has garnered the most attention from potential investors.
The Industrial Climate followed closely in the heels of the Office Climate with a gain of 10.9%, reaching a height of 116.3 index points as opposed to the 104.8 index points of the previous month. The Retail Climate was not the one to be left far behind and showed an improvement over last months 109.7 point at a score of 122.1 for August.
However, the Residential Climate took the crown in the Climate index race for the month of August by reaching an uncontested position at 152.4 point; another all time high which took it over the previous months mark at 150.4.
The positive sentiments seen through out the real estate sector are a reflection of the macro economic indicators associated with the German property and construction industries. The index which is calculated through the use of the data furnished by DAX, DIMAX and ifo along with other macro indicators such as government bonds and interest rates also saw a modest rise in response to the spike in the various segment of the real estate sector. This index rose to 196.1 points, a gain of 1.5% over the 193.3 points recorded for the previous month. This gain puts it close to the score of early 2008.
However, it is imperative for investors to understand that the performance of the credit and financial sectors can have a deep impact on the German property market because these industries are closely intertwined. Hettrich said that despite the blatant optimism that prevails in the market, he is cautious of the considerable risks that linger around every corner brought on by the economic uncertainly.
As a matter of fact, most experts concur with Hettrich’s observation and believe that the growth of the economic sector and the recovery can hardly continue at this ‘honeymoon’ pace and that the economy will simmer down in the second semester. So, although another collapse has not been predicted, it is best to exercise caution.
Another important point brought out by Hettrich was about the expiry of the economic stimulus plans. He mentioned that it can be assumed that while the economy will slow down in response to the expiry of the stimulus packages; it will not slide back into recession. He also went on to add that the growth seen in the German property sector with the marked increase in index points across the various segments may very well extend into the coming year.
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