Volume 12, Issue 2

The profitability of real estate investments in Germany has been highly influenced by taxation and subsidies. We calculate realized returns on investment and subsidy quotas to resident individuals from an investment in average apartments in 50 major cities, rented out and self-occupied. The investment periods (1991-2001, 1996- 2006, and 2004-2014) picture major changes in the taxation of rental income and in home buyer subsidies. Unsystematic tax shelters have favored the purchase of apartments to rent out by high income individuals. Home buyer subsidies have only partly brought similar returns to average earners. Dodgy clientele effects persist until today.

A large literature emphasizes the virtues of home ownership. This article illustrates that homeowners’ influence need not always be benign. Taking a first look at large vacant housing in East Germany, the article in part attributes vacant housing and its demolition to homeowners’ interest in keeping real estate prices up.

The dramatic world-wide housing boom and bust cycles during the last few years are often described in the media as “bubbles” and were largely caused by irrational exuberance due to the liberalization of housing finance (i.e. credit market irregularities in the U.S.: the subprime markets and mortgage structured products). Following Dorofeenko et al (2011), this paper, however, argues that many of the business and housing stylized facts, especially, the U.S. housing price and residential investment volatilites can be explained by analyzing the role of uncertainty (risk) in the framework of a Real Business Cycle model that includes a housing sector with financial information frictions. Consequently, we show for the U.S., these large housing price and residential investment boom and bust cycles are at least were driven largely by economic fundamentals with irrationality (or psychology) at most in the background.

This article examines whether international investors benefit from adding real estate investment trusts (REITs) to a mixed asset portfolio consisting of global stocks, bonds, hedge funds, and commodities. Previous literature has shown that REITs provide a strong co-movement with direct real estate in the long run. We therefore test the diversification potential of international REITs within the strategic asset allocation. Using the Johansen cointegration technique, we show that there is no long-term co-movement between REITs and the other asset classes in the period from January 1990 to December 2009. Thus, the empirical evidence suggests that REITs improve the diversification potential for active investors and those with a long-term investment horizon by simultaneously generating continuous cash flows.

The current population forecasts bode ill for “the” real estate market in Germany: The regionally differing decreases in population will affect both the office and residential real estate market, however, not to the same extent. A reduction of property values with impacts on the economic activity and growth may follow. Due to potentially more restrictive technical requirements in order to slow down climate change investment losses in the real estate business could even be increased if no stronger international demand for property on the German real estate market can be generated through a higher level of transparency. An improved family policy, more incentives for internationals to migrate to Germany (which is where universities could play a significant role) as well as programs for the maintenance of existing facilities and their energy-efficient upgrading could be essential elements within a strategy for real estates.