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Berlin's market for premium real estate leads the way

Bucking the trend: Berlin's market for premium real estate leads the way

The European market for premium real estate had many losers last year, but it also had one big winner: Berlin. The Prime International Residential Index (Piri), compiled by the global real estate consultants Knight Frank, measures the performance of 100 of the world's most important premium residential real estate markets. According to the latest index, prices in the prime residential segment fell in many cities across Europe: Of the 34 global centers which experienced declines, 22 were in Europe. Saint-Tropez suffered a substantial drop, with values falling by 3.4 percent over the last twelve months. Prices for premium residential properties also fell in Cannes (-2.7 percent) and Paris (-2.1 percent). Still, the segment's growth didn't grind to a halt everywhere in Europe. The picture in Berlin is indeed very different. The index revealed that prices in Germany's capital increased by an impressive nine percent. In comparison, the global index reported average value increases of “just” 1.8 percent for the 100 markets tracked in 2015.

The price trend is set to continue

The enormous gains within the premium segment prove once again that Berlin has firmly established itself as one of the word's top investment centers. The “City on the Spree” was ranked eleventh overall in the Piri index – just behind Munich, as the second highest ranked German city. And there is nothing on the horizon to stand in the way of further price growth. After all, in comparison with other top centers in Europe, Berlin still has plenty of room for value gains. Purchase and rental prices may have risen by between 30 and 40 percent over the last three or four years, but they are still relatively low in relation to other major cities internationally. Recent strong price growth should therefore be viewed more in terms of a catch-up effect after years of chronic undervaluation. The situation is very different from that in, say, London, where numerous streets in exclusive boroughs such as Mayfair and Chelsea have become like ghost towns. In a market that has come to be known as “buy-to-leave”, absentee owners have been buying prime residential real estate for value appreciation, rather than as homes to live in. There can be no suggestion that Berlin's prime residential market is heading in a similar direction. The city's population continues to grow by more than 40,000 a year, and average incomes continue to rise. Demand for residential real estate is growing steadily – and new housing construction is unable to keep pace with this rising demand.

Demand from ultra high net worth individuals strengthens

The study also reveals that residential real estate is set to become the most popular asset class among ultra high net worth individuals around the world within the next ten years.  This is the conclusion drawn by Piri's expanded survey of roughly 400 leading private banks and investment advisors, all of whom work closely with ultra high net worth individuals (UHNWIs). Their assessment couldn't have been clearer: More than half of the survey's repondents is certain that residential real estate is a profitable form of investment, provided there is potential for value appreciation.