As discussed in my previous post on the city of Leipzig, it is one which should definitely be on the radar screen of international property investors. The GDP per capita is still c. 20-25% below the German average, and house prices among the lowest in the country (when looking at cities).
Leipzig has, however, experienced a renaissance, with population steadily growing (unusual for Germany), numerous young people moving there, attracted by the city’s cultural offering, media and art scenes, its nightlife, its low rents, as well as several corporations (eg. Amazon) establishing a significant presence. A bid for the 2012 Summer Olympics to be hosted in Leipzig was widely backed by politicians as well as the local population, a clear sign that Leipzig and its inhabitants are keen to see the city regain some it’s pre-war grandeur.
Leipzig property remains cheap, although prices have already started rising. Five years ago, an entire, empty and somewhat rundown period building could still be bought for as little as 20,000 euros. Whilst prices have risen significantly, there are still good news: you will still be able to get such a building, in some cases, for less than 100,000 euros, and the market is continuing to trend up. A search on some of the major German property engines will show that there is now increasing scarcity of such buildings, whilst several years ago supply was still abundant. Whilst many of those buildings are still empty and rundown, there is also a lot of construction activity in the city, and interest from international investors is growing. However, it is, at best, like the Berlin property market a decade ago, when prices of flats and buildings were still extremely affordable.
The pitfall is, clearly, that, due to high construction activity, renovation costs have increased faster than rents in the last few years (which are still low owing to excess supply of housing). However, Leipzig would start experiencing housing scarcity in six to eight years if the population continues to grow at current levels and construction activity does not significantly pick up. This will, eventually, lead to rising rents, making refurbishing more attractive. In the short-term though, old, empty buildings don’t necessarily need a full renovation, and can, instead, be rented out at lower prices after only investing a smaller amount into basic refurbishment. This is certainly an attractive way for investors to benefit from income (yields up to 15%) and significant capital appreciation.