Thanking the Germans for the Irish Property Boom

Hello and welcome to the Someplace Else Blog.

Those of you who read these blogs on a regular basis (many thanks) will probably know that I am quite prone to wax lyrical about the booming property markets of Eastern Europe and South American on a regular basis.

There is one great country which I haven't been paying enough attention to lately though, and it's Germany. Most people with a passing or professional interest in Germany will know the basics by now: huge exporting economy, low property prices, low rental yields and a sophisticated banking system that is nonetheless universally reluctant to lend foreigners more than 60% for an investment mortgage.

We shouldn't complain too much though, if it wasn't for Germanys big and financally cautious population of over 80 million people, then Ireland (and to a lesser extent, the UK) would never have had such a huge property boom during the 1990s and early 2000s. It was low interest rates and the cheap availability of credit above anything else that enabled so many people to speculate and make fortunes on the property markets, which in turn granted ordinary homeowners huge equity in their own properties without really doing anything at all.

As the European Central Bank has one interest rate for the whole eurozone, it is the financial saving and spending habits of the big EU countries that determine what their monetary policy will be. When the world economy was booming and you had a large and very wealthy country like Germany saving lots of money in banks, then other banks had more to lend, interest rates were very low and little countries like Ireland could more or less borrow and spend as much as they wanted without having any significant affect on Europes overall borrowings and savings at all. So let us all please raise a glass and toast the wonderful Mr and Mrs Wadenburg, whose careful savings helped Mr and Mrs O'Connor borrow enough money to purchase two buy to lets in Rathgar, a holiday home in Marbella and piece of land somewhere in Brazil.

In all seriousness though - one of the dangers about so many people making so much money so quickly, is that future property purchases might be made on the basis of a similar quick and easy return. Is this the best way to sustain a profitable portfolio over the long term though? Might it be more sensible to invest part of your money in property markets where the short term outlook is very exciting but the long term outlook is uncertain, and another part in markets where the short term outlook is uncertain and the long term very exciting?

It is easy to cross Germany off your list as property prices are flat and rental yields are an unexciting (but very reliable) 3-5%. Think about it again though, and with a long term 8-10 year view rather than a 3-5 year view and the picture will start to look very different. To but it bluntly - Germany is a rich country with emerging market property prices and over the long term, I have no doubts that prices will go back to where they should be alongside those of other major countries. Is it not amazing that we have this huge and vitally important economy in the heart of the EU and yet a one bed apartment in a posh part of its capital city costs about 25% of an equivalent property in London, Paris or Dublin?

In conclusion, those who would really like to plan their purchases based not on what is hot now or what will be hot in six months time, but rather on what mixture of properties is most likely to provide a steady income stream for your family with the right balance of short, medium and long term capital growth should definately take a closer look at prime properties in the major cities of Germany.

All the best

Colin