Unlike what many other industries witnessed, the pandemic did not undermine Germany’s real estate growth.
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Q4 2021 hedge fund letters, conferences and more
Between September 2020 and September 2021, the German real estate market experienced an investment inflow of nearly 25 billion Euros. The city centers of Germany’s top real estate locations — Hamburg, Berlin, Düsseldorf, Cologne, Frankfurt, Stuttgart, and Munich, keep attracting investments as shopping centers.
In Germany, both commercial real estate and rental flats continue to be in demand, while rents in the residential asset class are also on a growth trajectory — even though at a slower pace. The office market segment is also stable as modern offices maintain their demand as communication centers.
I talked to Alexander Surminski about this market’s past, present, and future and the importance of making informed and efficient choices. Alexander Surminski is the CEO of Immocation, a Munich-based company that helps back real estate investments with proper knowledge about the industry.
What role do you think knowledge plays in making efficient real-estate investment decisions?
“As in any other market, perceptive speculations play a significant role in real estate investment decisions. For instance, many see it as an exclusively old-age provision, while it is prudent to start dealing with real estate from a young age. When you take up something at an early age, you must always fill up your experiential gaps in the area with available knowledge.”
“To cite an example, our YouTube explanatory videos about the market reach out to almost 160,000 viewers regularly. There are many publicly accessible knowledge avenues that people should explore to educate themselves on a future-looking investment like real estate. Only with knowledge and networking with similar investors, enthusiasts, or experts in the area, one can etch out a future road map of how to deal with the investment optimally.”
What types of investors do you generally see in this market, and what investment motives?
“Our experience working in this industry for a substantial period has exposed us to three broad investor categories. This category generally holds a portfolio of one to three rented condominiums. Some see real estate investment decisions as old-age provisions. But some investors are deeply ambitious and are ready to take the high-risk-high-return plunge.”
“In this category, we have seen investors who invest at the cost of giving up their primary job. Then there are moderate investors in between, whom we may term hobby investors. The objective of this category of people is to stay financially independent and generally hold more than ten apartments or apartment buildings in their portfolio.”
Why do real investments appear better compared to stocks or bonds?
“Here, I would like to differ with the presumption that real estate investments always come at the cost of other traditional finance investments, such as stocks or bonds. It is a distinct asset class, and investors choose to put their money in it for its inherent benefits.”
“For instance, you can leverage real estate assets as collateral to get loans from the bank. It is not a static asset when you hold it. You can generate passive income by putting up real estate on rent.”
“Real estate asset also works as inflation protection. The usual case is that property prices rise with rising inflation, reducing your debt burden. Although debts do not decrease in nominal terms, owning tangible assets in times of high inflation is always better than ordinary savings.”
Many market researchers, at least those beyond devising the Empirica Bubble Index, anticipate a real estate risk bubble in twelve German cities. How do you assess their premonitions?
“Indeed, real estate prices in German cities are often prohibitively high. We assess that the discrepancies between property purchases and rental prices cause it. It is surely not a case to be ignored as the difference can become as high as a factor of thirty. Moreover, there exists the issue of the affluent versus the regular real estate investors.”
“The affluent buyers often do not care for the prices as their motives make them see the purchases as a place to park their excess wealth. This behavior inflates the price, resulting in an entry barrier for regular investors.”
“But, at the very base of it all, there lies a simple truth that is hard to ignore. The pricing of any real transaction is ultimately decided by the seller and the buyer. Buyers’ knowledge of the industry plays a crucial role here in estimating whether the quoted prices are inflated are not.”
“There are ample reasons why owners decide to sell their properties well below the market value. A strong and unbiased market intelligence platform helps regular buyers locate these properties. We believe that while there will continue to exist skepticism around the real value of an asset, there are multiple ways to cut the clutter and reach empirically sound conclusions.”
How can regular investors access this knowledge that helps them make correct buying decisions?
“Platforms like Immocation help deliver this knowledge through various physical and digital knowledge transfer avenues. We also conduct long-term training programs on old-age provisions, additional income streams, asset growth, and taxes. One can access them for deep dives.”
“Overall, there is no shortage of experts in the market. There are qualified investors, lawyers, tax advisors, appraisers, and former bankers who know real estate in and out. All you need to identify are avenues to reach them.”
“While going as an individual investor, you may face two types of risks: one that you have control over and the other that is beyond your reach. If one does not overburden himself with debt by overestimating his capabilities, I do not see any major risk with real estate investments in 2022.”