It’s six months now since I did a write-up on KWG Kommunale Wohnen AG (BIW:GR) (the ultimate post in a 5-part series). Actually, a recap’s in order here & probably the best introduction for this post:
Part I & II: German residential property has been (recently) described as:
‘Perhaps one of the safest & most attractive asset classes in Europe, or even the world‘.
Its attractions include:
- Demographics: German population growth is broadly neutral, but is experiencing pronounced trends in favour of urban migration, smaller households & increasing floor size per capita. Investor horizons are often limited when it comes to property – they’d do well to note Germany has the largest population in Europe, the 16th largest in the world & Berlin is Europe’s 2nd largest city with 3.5 million inhabitants!
- Supply & Demand: Annual housing demand’s around 250-350 K pa, well ahead of housing completions which are now accelerating but only recently bottomed out at 175 K pa in 2009-10. Germany’s second-hand property also trades at a major discount - e.g. in Berlin, existing housing stock can be purchased at a 30%+ discount to new building costs.
- Home Ownership: German home ownership is a lowly 46%, in stark contrast to the usual Western market rate of 60-65%+. This reflects the government’s long history of housing provision & rent subsidies/suppression, but in recent years authorities have increasingly opted for privatisation. Couple this with rising prices & rents, plus the desire for a safer long-term investment alternative (vs. equity/bond markets) – I think we can be confident of a slow & steady convergence towards Western home-ownership levels.
- Economy: Germany’s by far the largest & strongest (major) economy in Europe. It’s one of the few countries with a primary budget surplus & their Debt/GDP ratio is a manageable 81.6%. Inflation’s at 1.9%, the best in Europe (well, except for Greece..!?). Finally, Germany’s got one of Europe’s lowest unemployment rates, at 5.4%, and is also one of the few with an improved rate yoy. This all offers an attractive macro backdrop – aside from its absolute merits, it seems obvious Germany will also retain its relative economic & investment advantage vs. the rest of Europe.
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