Why has Germany become a favoured location for the Irish?

Higher yields and the availability of attractive investment opportunities in large cities such as Frankfurt, Munich and Berlin have attracted investors of all kinds. Henry Cleary, head of the real estate division at Barclays Bank Ireland told a recent seminar that two out of every three foreign deals he evaluates are based in Germany. "This is not surprising as it is the largest economy by GDP in Europe, has higher yields and it is showing signs of economic recovery, " he said.

These factors are just part of the appeal of one of the most interesting investment opportunities on offer to Irish investors at the moment. Pasteur Strasse is a brand new development consisting of 12 apartments and one commercial unit including 12 parking spaces, which upon completion will be fully sold out and rented for the new owner. The overall value of the project is Euro4.1 million (freehold).

"Located in Prenzlauer Berg, one of Berlin's more affluent neighbourhoods, this development represents an ideal pension fund purchase or stand alone investment model, " said David Nugent, senior property negotiator DTS International Property Services.

DTS International Property Services is one of the leading players in overseas property investment. Having started out as an auctioneering and estate agency practice in 1990, it has moved into consultancy and property development with notable success in a number of international markets.

Prenzlauer Berg is a former borough of Berlin situated in the eastern part of the city. In 2001 Prenzlauer Berg was combined with the former boroughs Pankow and Weibensee under the name of Pankow. After German reunification in 1990 Prenzlauer Berg attracted large numbers of young people and is the main residential suburb for young professional Germans.

Countless pubs, restaurants, cafes, galleries and shops create an atmosphere unrivalled in the rest of Berlin. Prenzlauer Berg has become famous for being one of the few places in Germany where there has actually been a baby boom in recent years and as a result there is an abundance of playgrounds (Helmholtzplatz, Kollwitzplatz), kitas (kindergardens) and shops selling toys and children's clothing.

Kollwitzplatz and Helmholtzplatz with their weekly street markets and the former breweries of Kulturbrauerei, Pfefferberg and Kastanenallee are the major areas of interest. Prenzlauer Berg also boasts one of the most important cultural scenes in Berlin, especially in the area around U-Bahnhof Sch�nhauser Allee.

The Pasteur Strasse complex stands in landscaped grounds and benefits from excellent transport links and a full management and letting service and offers 4.7 % rental yield for the first year.

"For an investor buying in at this very early stage, we believe that an investment in Pasteur Strasse holds a realistic chance of significant capital appreciation in the future, " added Nugent. "Professional opinion in Germany is that this project should accumulate in values of between 20 to 30 % within the next five years."

Pat Cody, managing director of Marlborough International Property says huge demand for individual units and apartment blocks on the residential side and a wide range of commercial properties from shopping markets with strong tenants and attractive yields to development land, hotels and office buildings in the major cities have made sourcing suitable properties in Germany a real challenge.

He suggests that it can take more than two years to source high quality property investment opportunities and admits that Irish investors have also struggled as individuals to get finance from German financial institutions, although this situation has started to improve.

There are many parts of the German market that can offer a good profit and Berlin still offers excellent residential investment opportunities. However, Cody's hot tip for budding property magnates is to target properties surrounding the central area of Mitte, as these areas will potentially offer higher capital appreciation and stronger yields.

"Dresden also offers good returns on residential investment, where we have sourced a number of apartment blocks, " he said. "The most important aspect of any commercial investment in Germany is a strong, blue chip tenant, in a relatively long lease (by German standards, approximately 10 years) and with a solid yield of around 7%."

As in any market, the major issues that Irish investors in Germany have to keep in mind are fiscal, legal and property law. Henry Cleary, head of the real estate division at Barclays Bank Ireland advises Irish buyers to make sure they get proper tax advice when investing in Germany. This is particularly important since specific issues arise when you are acquiring an asset either through a corporate structure or personally.

"When it comes to legal issues, in Germany, unlike in Ireland, you have the notary and they have distinct roles, which you need to be aware of, " he explained. "In relation to property, lease terms are different to what exists in Ireland and the UK. For instance, shopping centres tend to have a small number of anchor tenants on longer leases while other tenants have five year leases."

Turnover rent clauses are common features for properties in prime locations and lease terms vary widely for office space. Headquarter offices tend to be on longer term leases while multi-let offices have tenants who are typically on 3-5 year leases.

Logistics warehouses are let out on 3-5 year leases unless the assets are of a strategic importance for the operation of the tenant in which case the lease length will be longer.

Cleary advises investors to bear in mind that the east/west divide is not yet a relic of the Cold War. "There still exists a divide between the old and new federalist states when it comes to property, " he warned. "Yields tend to be higher in regions where there is more risk, although most Irish investors are investing in leading cities such as Berlin, Hamburg, Munich, Frankfurt, Cologne and Munich."

While Cleary agrees that the German market offers opportunities for all sizes of investor, syndicates have kept his team particularly busy.

There are also a number of medium-size Irish investors operating in Germany, while several specific funds have been established seeking development and investment opportunities.

"Syndicates have become increasingly common over the last year and a half when acquiring properties in Germany, " he said.

Having spent the last decade working with Irish investors in Germany, Berlin Investment Properties is well aware of the capital growth potential of properties in Berlin.

The company recommends an inspection visit that consists of two full days in the city. The first day includes an introduction and tour of Berlin accompanied by a native speaking sales consultant with visits to the properties identified as potential investments.

This is followed by free legal consultation from an independent German lawyer and a meeting with the sales consultant. The company advises that it is necessary to have mortgage finance in place before arrival in Berlin.

Noel Merrick of Merrick Property Investments also feels that Berlin offers the best value in Germany. "It is by far the biggest city in Germany, offers the highest yield, a low cost per square metre for property and room for significant capital appreciation in the future."

For the individual investor with Euro70,000 to Euro80,000 to spend on a one-off apartment Berlin is undoubtedly the best location says Graham Carr of Premier Property International. Commercial investments include apartment blocks with good yields and offices with multinational tenants and good leases (or covenants as they are called in Germany) ranging in value from Euro1 million to Euro10 million.

However, there are investment opportunities in other parts of the country. For example, BG Property Consultants is promoting an apartment complex in Rostock with apartments starting from just over Euro16,000.

"As Germany is one of the largest exporters in the world we have been focusing on selling properties in the port cities and have found that Rostock has the most to offer in the way of capital appreciation, " said senior sale director, Natalie Ogle. "Aside from the port it has an excellent coastline and a sizeable university."

Regardless of the property type, Graham Carr recommends investors take a long term view of their investment and this view is widely supported.

"Property prices in Germany are still extremely competitive compared to Dublin or London, but are starting to rise, " said Neil Jakob of GermanPropery. ie. "The economy is improving and there is a noticeably more optimistic outlook, in part reinforced and publicised by last year's World Cup. In addition, Germany boasts an established and stable legal and political framework, something often absent or only developing in some of the other emerging property markets."