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Blog | 29. November 2016

GERMANY’S FOUNDATIONS TARGET RESIDENTIAL REAL ESTATE IN BIG CITIES

One in three charitable foundations in Germany are looking to increase their investments in real estate, especially in the residential sector. This is the result of a survey carried out in Spring 2016 by the Maecenata Institute for Philanthropy and Civil Society, which interviewed representatives from 288 charitable foundations. The foundations’ investment strategies prioritize stable yields, consistent rental incomes, stable value appreciation – and the chance to diversify risk. The volume of individual rental agreements within a residential real estate portfolio means that concentration risks can be avoided and other investment-related risks reduced.

German foundations are subject to a set of strict regulations, designed to protect the assets they hold from mismanagement and fraud. Almost two-thirds of them manage assets worth more than 2.5 million euros, which the foundations use to provide a wide range of charitable services. Foundations make a valuable contribution to German society, and their engagement often picks up where state institutions and private sponsors reach their limits. In order to grow their capital, foundations need to generate suitable returns on investment, without placing their capital reserves at risk. As interest rates have remained low for such an extended period of time, thanks to the European Central Bank (ECB), it has become more and more difficult to achieve these returns with investments in stocks and bonds.

GROWTH REGIONS AND MAJOR CITIES

As a result, charitable foundations have been steadily increasing their investments in real estate. Real estate investments currently account for an average of 39 per cent of their investment portfolios. A sizable majority of foundations have already invested in domestic and foreign real estate, and over the next five years they want to step up their investments, especially in German property. Above all, foundations are prioritizing direct investments in low-risk assets in the core sector. They are planning investments in growth regions and big cities, such as Cologne, Stuttgart and Berlin.

YIELDS IN BERLIN ARE IN LINE WITH TARGETS

The opportunities for investors are strong wherever housing is in short supply. Take a city like Berlin, for example, where the economy is growing by an average of 2.1 per cent per year, where real GDP grew by 3 per cent last year – and where the population is constantly growing. 3.5 million people already live in Germany’s capital city, but by 2030 the figure is set to rise to 3.7 million. Growth like this has an impact on the housing market: Over the last ten years, rents have increased by more than 55 per cent and the average square meter price for a condominium has surged by 73 per cent. The average yield in the residential investment market now stands at 4.5 per cent – and that is exactly in line with the earnings required by Germany’s foundations. Almost two-thirds of the surveyed foundations revealed that they generate yields of between two and five per cent from their real estate investments. For 70 per cent of the foundations, this is well within the range of their target returns.

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Blog | 29. November 2016

GERMANY’S FOUNDATIONS TARGET RESIDENTIAL REAL ESTATE IN BIG CITIES

One in three charitable foundations in Germany are looking to increase their investments in real estate, especially in the residential sector. This is the result of a survey carried out in Spring 2016 by the Maecenata Institute for Philanthropy and Civil Society, which interviewed representatives from 288 charitable foundations. The foundations’ investment strategies prioritize stable yields, consistent rental incomes, stable value appreciation – and the chance to diversify risk. The volume of individual rental agreements within a residential real estate portfolio means that concentration risks can be avoided and other investment-related risks reduced.

German foundations are subject to a set of strict regulations, designed to protect the assets they hold from mismanagement and fraud. Almost two-thirds of them manage assets worth more than 2.5 million euros, which the foundations use to provide a wide range of charitable services. Foundations make a valuable contribution to German society, and their engagement often picks up where state institutions and private sponsors reach their limits. In order to grow their capital, foundations need to generate suitable returns on investment, without placing their capital reserves at risk. As interest rates have remained low for such an extended period of time, thanks to the European Central Bank (ECB), it has become more and more difficult to achieve these returns with investments in stocks and bonds.

GROWTH REGIONS AND MAJOR CITIES

As a result, charitable foundations have been steadily increasing their investments in real estate. Real estate investments currently account for an average of 39 per cent of their investment portfolios. A sizable majority of foundations have already invested in domestic and foreign real estate, and over the next five years they want to step up their investments, especially in German property. Above all, foundations are prioritizing direct investments in low-risk assets in the core sector. They are planning investments in growth regions and big cities, such as Cologne, Stuttgart and Berlin.

YIELDS IN BERLIN ARE IN LINE WITH TARGETS

The opportunities for investors are strong wherever housing is in short supply. Take a city like Berlin, for example, where the economy is growing by an average of 2.1 per cent per year, where real GDP grew by 3 per cent last year – and where the population is constantly growing. 3.5 million people already live in Germany’s capital city, but by 2030 the figure is set to rise to 3.7 million. Growth like this has an impact on the housing market: Over the last ten years, rents have increased by more than 55 per cent and the average square meter price for a condominium has surged by 73 per cent. The average yield in the residential investment market now stands at 4.5 per cent – and that is exactly in line with the earnings required by Germany’s foundations. Almost two-thirds of the surveyed foundations revealed that they generate yields of between two and five per cent from their real estate investments. For 70 per cent of the foundations, this is well within the range of their target returns.

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