Is Germany the next property investment market for Hong Kong investors?

As the Hong Kong market continues to heat up, Brexit uncertainty, and other global markets appearing priced in, investors in Hong Kong are increasingly looking to western Europe, specifically Germany.

Germany, despite boasting Europe’s largest economy and population, has not always been a natural destination for Hong Kong investors seeking to invest in property overseas. Perhaps due to an Anglo-centric bias from Hongkongers, and other jurisdictions closer to home, the German property market has hitherto been overlooked for some years.

However, compelling data and a favourable investing environment are contributing to its recent surge in popularity. The recently published Global Real Estate Outlook Report compiled by IP Global, which tracks potential markets around the world for investing into property, singled out Germany as one of the most attractive jurisdictions available.

There is a marked housing supply-demand imbalance in major cities across Germany, which is particularly prevalent in Berlin and Frankfurt, and increasing with flourishing migrant populations and a birth rate that has risen to a 33-year high. This supply deficit is forecast to remain at levels of up to 40 per cent until 2030.

In Germany’s capital, 40 per cent of the population is under 35 years old and the city ranked third on the 2016 Youthful Cities Index. Berlin’s growing number of start-ups and new businesses is also fuelling population growth and a youth-centric culture, with 400,000 new residents expected by 2030. This demand is likely to put further upward pressure on prices in the coming year. Currently, Berlin boasts a 1.2 per cent vacancy rate due to a chronic undersupply in housing. In 2016, 12,000 new homes were built against the demand for 20,000.

For potential buyers, German banks offer very low rates of interest, typically 2.3 per cent for a 10-year fixed rate. These rates are significantly lower than anywhere else in the world right now, and have encouraged a surge of foreign investment into Berlin. While in some areas of Berlin, this has led to a certain level of disquiet for existing residents of neighbourhoods such as Neukölln, as the effects of gentrification drive up prices, it is an unavoidable effect of the favourable conditions in the domestic market.

The government meanwhile is attempting to limit the amount of supply in the market for rental units, which has meant an even greater uptick in demand from potential owners. We have seen a lot of proactive enquiries from Hong Kong buyers who are finally warming to the idea of investing in Germany, on a buy to let basis, based on the fundamentals driving the market, as well as the prospect of zero per cent capital gains tax further down the line.