The Outlook for Real Estate in Berlin

**The information contained herein is an overview of the German real estate market. Please contact Frenkiel International Inc. for a complete and confidential discussion of your specific requirements.

It has been said that the only consistency in the German real estate market is change. For a myriad of economic and political reasons, the value of real estate in the former East Germany has both soared and dipped. We will show you in this report that this real estate market has reached its peak, and that now is the time to sell.

The dismantling of the Berlin Wall has been hailed as a crucial step in the democratization of Central and Eastern Europe. The spirit of democracy, which fueled the reunification of Germany, has also fired the great engines of capitalism.

Since the initial euphoria of reunification, the demand for real estate in the former East Germany has been dampened, as the sobering reality of the merger of East and West has become apparent. The absorption of the former East Germany has proven to be a daunting task, forcing new taxes, higher unemployment and a limited housing stock.

The foundation of capitalist democracy is the individual’s right to own his own property. But that is not always easy to accomplish, even in a unified Germany. Cleaning up the real estate mess caused by the Second World War, the Holocaust and fifty years of totalitarian rule — when no one, save the state, was permitted to own private property — is a massive and very slow-moving task.

Because of the bureaucratic red tape involved in finding the owners of these properties, sorting through the heirs and assigns and changing socio-economic conditions, the price of real estate in these European markets fluctuates drastically. It does not help the market when many of these properties suffer from severe damage due to neglect.

With 3.4 million inhabitants, Berlin is by far the largest city in Germany. When the Wall came down, the city was declared the capital of unified Germany, and the market anticipated a substantial increase in demand for real estate. At the time, property values skyrocketed as speculators and investors sought to profit from the transformation.

In June 1991, the Bundestag voted to move the Federal Government from Bonn, where it had been for more than 40 years, to its traditional home in Berlin. The cost of the move was estimated to be $7 billion and was to have been accomplished by 1999. New projections, however, suggest that the cost could be several times higher than the original estimate and specialists now believe that the move cannot be completed before the end of the decade. There is a push by left-of-center political groups, such as the Greens, not to move the government at all, because it is expensive to live in Berlin, and the government will have to provide subsidized housing for its employees. This further depresses the market.

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