Concrete Investment

Three years ago my precious (the beautiful lady who stands next to me) convinced me to buy a flat we now own. We have been living here for a little more than 2 and a half years. For a few weeks the same developer has been advertising condominiums just 200 meters from our place. The houses do not only look pretty much the same, they more or less used the same construction plan.

Today I checked the little sales office they put up near the street and talked to the guy selling the condos. You must know this is just south of Munich, Germany. As it is only 200 m from our place, I really consider it the same neighborhood. At the moment its just an empty slot near the road - just recently a very old barn under monument protection collapsed on the space. So it is now open for new development.

What interested me most was the price development. As I mentioned - the new buildings really look the same. Energy standards are higher somewhat, as this is a legal requirement here. This will add a little to construction costs, but our condo is quite the same energy standard and has geothermic heating too. The condos on the new place have been designed smaller, so where our place has two flats on a floor, there are three at the new place. This also means downsides on the floor plans of the new condos - even smaller kitchens, bathrooms without window, ...

In general I would say the old and the new place are the same standard: higher energy efficiency vs. smaller condos (both of them maybe tiny to US standards ...). But the price difference really did surprise me. The condos in our house sold for 3.200 to 3.900 EUR a square meter - depending on size, floor, etc. This calculation is done without parking slots (inside or outside) and without taking rooms in the basement into account. The new condos (on comparable calculation) sell for 4.000 to 4.500 EUR a square meter. With construction not even started and condos ready to move in at the end of 2012 earliest, already 50 % of the 28 condos are reserved (which requires a fee to be paid). So the prices are not unrealistic.

So the market changed a lot. We bought our flat after we walked through the rooms, talked to the construction manger, brought in the family, got a list of questions from my cousin - an architect - answered. The new project will most likely be sold before the first wall is even constructed.

That's the time to send a kiss to my precious - maybe she is wiser than I ever will be.

This also shows how weird the market got by now in Munich. On Saturday - visiting the Munich Börsentag - Dr. Jens Erhardt stated that returns by renting out condos in Munich might now be rather 2 % than 5 %. Historic price levels of 13 times yearly rental income to buy a house or a condo are totally out of reach - today its more like 20 to 30 times. I am afraid this market distortion by cheap money, uncertain outlooks and flight to concrete is not a Munich only phenomenon.