Is the initial rent return the deciding factor when buying a property?

The demand for property is huge. More and more private investors are taking refuge in material assets such as real estate to protect themselves from inflation and the effects of the national debt crises. Two groups are immerging here; one group looks at the initial rent return, the other at the potential rise in value of the property.

For the first group premium properties in top locations in German cities seem to be unattractive at present. Here prices are high and the rent return is often as low as 2 or 3%. Properties of average quality and in worse locations offer a much higher return and are therefore a more attractive investment for this group. However many investors do not seem to be aware that these properties also carry a higher risk.

The second group operates differently. In the financial crisis of 2008/09 family offices in particular purchased material assets such as premium property for their clients. This served primarily as a stable investment, which would hold its value. Following the Euro crises other wealthy investors apart from family offices followed this premise. They set store by a high level of security and growth potential, which the average property in Bremerhaven or Magdeburg does not offer in the same way as premium properties in Hamburg or Munich do.

The high demand for premium property has ensured that the price level in the last few years has risen considerably. Will it stay this way? A positive indicator is that the gap in incomes and wealth is getting wider and will continue to widen, particularly in Germany. This fact, which is a source of regret for socially minded politicians, means that for investors there will be a long term and stable demand for high quality property in the future.

Picture: Uwe Schmitz (Chairman of Frankonia Eurobau),
A. G

Frankfurter Allgemeiner daily newspaper, 31.08.2012

9 September 2012