Hi everyone, Happy New Year!
I am comparing two investment opportunities which I have right now:
But the more I think about it and analyse, the more it looks like a very risky deal.
Apart from being a part-time job and being very undiversified and illiquid, I have 2 more concerns:
Please verify if my understanding is correct and share your thoughts.
And thank you for your time!
According to Destatis:
Interest rates are harder to predict, but it looks like they already hit the (psychological) bottom and furter decrease will unlikely drive many people to buy their own property.
There is very little room to go down, but a big potential to go up, which will lower the demand and prices.
It is hard to predict how innovations and productivity will drive the economy till 2050, but rapid decline of working-age population and rapid growth of old age population suggests that the economy as a whole will probably stagnate.
PWC projections suggest that emerging markets will grow and dominate the world economy by 2050, so investments might shift more from developed (e.g. Germany) to emerging markets.
It looks like rent cap in Berlin is only a beginning and other cities will follow the trend due to a rapidly growing rents.
So, this factor is also likely to slow down RE price growth.
I am comparing two investment opportunities which I have right now:
- buying an apartment to rent in one of German cities with 3-4% rental yield (e.g. Frankfurt, Nürnberg, Karlsruhe)
- investing into broad world index (e.g. MSCI World)
But the more I think about it and analyse, the more it looks like a very risky deal.
Apart from being a part-time job and being very undiversified and illiquid, I have 2 more concerns:
- according to Bundesbank, properties in big German cities are now 15-30% overvalued (I don't want to buy high)
- growth of property prices in Germany might decline a lot (I don't want to sell low)
- demographics
- interest rates
- economy
- government policies
Please verify if my understanding is correct and share your thoughts.
And thank you for your time!
Demographics
According to Destatis:
- total population is projected to stay the same, decline by 4% or decline by 7% (depending on immigration, fertility, etc) till 2050.
- working age population (20-67 y.o.) is projected to decline by 11%, 17% or 23% till 2050.
- old age population (67+) is projected to increase by around 30%
- a huge decrease in a working age population, which needs to live closer to work
- a huge increase in old age population, which will have less reasons to stay in big cities (e.g. closer to work) and more reasons to move to a more affordable locations (e.g. decreasing pensions due to a demographic shift)
Interest rates
Interest rates are harder to predict, but it looks like they already hit the (psychological) bottom and furter decrease will unlikely drive many people to buy their own property.
There is very little room to go down, but a big potential to go up, which will lower the demand and prices.
Economy
It is hard to predict how innovations and productivity will drive the economy till 2050, but rapid decline of working-age population and rapid growth of old age population suggests that the economy as a whole will probably stagnate.
PWC projections suggest that emerging markets will grow and dominate the world economy by 2050, so investments might shift more from developed (e.g. Germany) to emerging markets.
Goverment Policies
It looks like rent cap in Berlin is only a beginning and other cities will follow the trend due to a rapidly growing rents.
So, this factor is also likely to slow down RE price growth.