German heritage enhanced by refurbishment

RISING PROSPECTS: Economic stability, booming property market and incentives are pluses

Heritage Preservation
Like Malaysia, Germany has many UNESCO World Heritage Cultural and Natural Sites. Therefore, it is befitting that the preservation of Germany‘s heritage buildings, better known as listed buildings, which give cities their character and are the face of a city are given priority by the German government.

Only 1 per cent of the German property market is given the status of listed buildings by the German government, and these buildings are brimming full with character and personality. Once renovated, they offer a unique ambience for the owners and tenants. The purchase and renovation of these buildings are heavily incentivised with unique tax advantages for German buyers.

The attractiveness of investing in listed buildings becomes apparent because they gain superior sale prices after having been newly renovated due to their rare nature. The rent gained from them is also higher as it is generally an inflation-protected property investment.

German investors are able to obtain 100 per cent financing for the purchase of listed buildings. Furthermore, they can reclaim 100 per cent of their investment over 12 years as a tax deduction.

From the first to eight year, a deduction of 9 per cent per year and from the ninth to 12th year a deduction of 7 per cent per year of their investment from their tax bill.

The refurbishment process: Charles Smethurst, CEO of Dolphin Capital GmbH, a developer of German Government Listed Buildings, shares how his company restores such buildings and how it would benefit the investors.
In the first of five stages, the developer screens for potential listed buildings, does an analysis of the site with photo documentation, conducts a site meeting with the architect and then makes a tender offer to the seller.

This is followed by the second stage namely the acquisition of such buildings with funds from banks, private investors, high net worth individuals, pension funds and private equity.

The apartments are then sold to the German market by Fellow Homes which focuses on marketing German listed buildings. When all the apartments are sold, the investors on the second stage will receive their investment capital with profits in the third stage.

The refurbishment process then proceeds in the fourth stage, and then in the last stage it is finally completed.

Thus, listed buildings in Germany are proving to be an attractive investment in real estate and are already being considered by investors not just in Germany but in Asia.

Top economic performer: The European sovereign debt crisis may be casting a dark cloud over the European economy, but Germany remains resilient and is the top performer in Europe with its economy expanding 0.5 per cent in the latest quarter compared with the prior three months, according to the European Union‘s statistics office in Luxembourg.

Smethurst commented that in the past, the European Union had pushed for austerity measures but now there is a push to create jobs in order to generate growth.

Germany’s contribution to Europe’s economic resilience should not be underestimated as it is the largest European economy and the fourth largest in the world, behind the United States, China and Japan according to the International Monetary Fund. According to statistics from the World Trade Organisation, Germany is also the world’s third largest importer and exporter of merchandise goods, third largest exporter in commercial services and second largest importer in commercial services.

Ranked the sixth most competitive country in the world after Switzerland, Singapore, Sweden, Finland and United States, according to The Global Competitiveness Report 2011-2012 from the 2011 World Economic Forum, the economic fundamentals of Germany remains strong and firm.

It already has an excellent infrastructure; efficient goods market; highly sophisticated business sector, with German companies among the most innovative in the world; and significant market size, based on both its large domestic market and strong exports.

Booming property market: With the highest commercial growth in Europe and a stable legal system for property, this has established Germany as one of the best countries in Europe for property investments.

Sharing his views on the property market in Germany, Smethurst said that in 2007, during the pre-crisis period, values of property in the city centre increased slightly. Then like other countries during the crisis period, its property prices dropped like the rest.

Currently, the property market is now booming and is expected to rise in the next 12 months. In the long-term, demand will continue to be high. In Berlin, where the population is 3.5 million, prices still have room to grow.

As a steady investment vehicle, Germany’s property market is now entering a new growth period after years of reconstruction after the re-unification, and has been seeing a major influx of foreign investments in recent years. Given that Germany is an investment safe haven, and that its property market is at the beginning of an upcycle, overall prospects for the German market remain healthy for the foreseeable future, supported by rising demand and slow supply of housing.

 

Interior of a house before refurbishment.

Interior of the same house after refurbishment.

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