Penthouse dreams

The past 10 years have seen a surge of properties developed for the mega-rich, luxury flats with multi-million price tags. But who’s buying? And are those new buyers responsible for the end of the city’s legendary affordable housing market?

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Yoo Berlin, Koopmann Kommunikation

The past 10 years have seen a surge of properties developed for the mega-rich, luxury flats with multi-million price tags. But who’s buying? And are those new buyers responsible for the end of the city’s legendary affordable housing market?

Stepping into “Germany’s most expensive apartment” feels more like entering an empty office than a home. But with the help of Swiss interior architect Nadia Kayat, the penthouse is transformed into a playboy’s lair decked with platinum-coated walls, Eames chairs and crystal chandeliers – at least on the large simulation hanging on the wall. The bespoke interior design, 24-hour concierge service, shared wellness area with pool and gym and commanding view of the Reichstag and government quarter will no doubt make its future owner feel like a king. One would expect no less after paying €25,000 per square metre (or €6.25 million for the 252sqm apartment).

Welcome to the eighth floor of Yoo Berlin, a pyramidal metal-clad palace for the mega-rich overshadowing the Berliner Ensemble in Mitte. One can’t help but imagine the famous communist playwright-director Bertolt Brecht turning in his grave at the thought of having such plutocrats as neighbours.

Despite the central location and all the perks, Yoo Berlin feels like a bit of a rip-off, though: the rear windows look out directly onto the busy offices of consultancy Roland Berger in the other wing of the building; the entrance hall created by French star designer Philippe Starck (red leather bench, Swarovski crystals dangling from the ceiling) is tasteless; the building as a whole feels cold and soulless.

Three years ago I couldn’t imagine buyers paying more than €10,000 per square metre. A year later I was sure €15,000 was the upper limit. Now we’re at €20,000 and above.

Nonetheless, 95 percent of the flats have been sold or reserved, or so says the real estate broker with slicked-back hair, pointy black shoes and red folded handkerchief in his breast pocket. But who buys such places in Berlin, a city plagued with the country’s highest unemployment rate and record numbers of welfare recipients, a city legendary among international bohemia for its affordable accommodation? “A bit of everyone,” says the Yoo Berlin rep. “Fifty percent Germans, 50 percent foreigners.” Discretion towards the buyers dictates that he’s unable to reveal any more details about them.

Who’s buying luxury?

Billy Telford, managing director of a high-end real estate agency in Prenzlauer Berg, breaks the buyers of Berlin’s luxury properties down into three groups: “Rented flats and buildings are mostly bought by wealthy individuals and institutional investors from Germany, but not by average earners and hardly any Berliners. Private buyers from elsewhere in Germany often buy a second home in Berlin for professional reasons. Internationals – especially from other European countries and Asia – are looking for Berlin properties as capital investments, primarily new projects in Mitte.” The Kollwitzstraße storefront of Next-Estate GmbH advertises plenty of luxury properties across the city, from a 171sqm flat for €1,045,000 in a new building on trendy Kastanienallee to a four-room, 312sqm penthouse near KaDeWe in City West for €3,213,600.

“Three years ago I couldn’t imagine buyers paying more than €10,000 per square metre. A year later I was sure €15,000 was the upper limit. And now we’re at €20,000 and above,” says Sebastian Fischer, a native Berliner with 10 years of experience in the business. The tall, thin and impeccably dressed managing director of the Berlin branch of upmarket agency Engel & Völkers speaks in rapid fire while clicking through the portfolio of a yet-unbuilt luxury townhouse near Hauptbahnhof on a giant flat-screen in the company’s “shop” on Torstraße. For him the “luxury” price category starts with properties costing €6000-7000 per square metre. These flats are virtually all in new buildings in Mitte and Charlottenburg. “In Mitte 40 to 50 percent of the flats on offer fall in this category,” he says. “And they’re being bought.” Most of his luxury clients come from other regions of Germany. “Half of the buyers are owner occupiers, another 25 percent might use a flat for their children living in Berlin or as second homes, the rest are pure investors.” Business is good.

What happened to cheap Berlin?

For average Berliners, this luxury boom comes as a shock. The real net incomes of the majority of Berliners haven’t risen over the past decades – so the new penthouses and Mitte lofts are out of reach for virtually all locals. What happened to Berlin’s legendary cheap real estate market? Ares Kalendides, director of Berlin-based urban development consultancy Inpolis, traces it all back to the late 1990s. “The first post-reunification construction boom had fizzled out and the bankrupt city was desperate to attract high-wealth individuals. But the first true luxury development was the townhouses near the Foreign Ministry around 2005.” With the financial crisis igniting in 2008, wealthy Europeans began to plough their cash into Betongold, or “concrete gold”. Real estate in Germany, perceived to be the too-big-to-fail stable core of the eurozone, became a favoured destination for investors in need of a safe haven. This was supported by former mayor Klaus Wowereit’s PR machine. “The government encouraged the flow of capital through a relentless rhetoric about Berlin being full of young artists and innovators. A city with an unprecedented lifestyle. A world-class cultural scene, a dynamic start-up scene… and affordable at that!” The slogan that turned viral, “poor but sexy”, sounded like “Buy now, before it’s too late to get a bargain!” to the ears of savvy international investors.

In the decade since that phrase slipped from Wowereit’s lips, the market for mid-range properties boomed. Spacious 19th-century flats in central areas like Prenzlauer Berg, Kreuzberg and Friedrichshain were snapped up by the capital’s new middle-class families for reasonable prices well under €3000/sqm. But at the same time more and more properties were developed for the mega-rich: flats in the Ritz-Carlton’s tower on Potsdamer Platz (popular with jet-setting millionaires) or “the urban city apartments” of Living 108 in Mitte’s Chausseestraße (perfect for start-up dudes) or the planned Kronprinzgärten, a faux-historical “ensemble” of townhouses, flats and penthouses with rooftop pools a stone’s throw from Unter den Linden, “where the historical heart of Berlin beats” (targeting conservative rich Germans with a love of Prussian classicism). And then there’s Yoo – dubbed by Handelsblatt as “the McDonalds of luxury apartments”, a global brand of luxury living blessed by Philippe Starck.

Are the rich to blame?

But how does the relatively new phenomenon of luxury property fit into the picture of Berlin’s ever more problematic housing situation? Are all the new penthouses and swanky condos to blame for the fact that it’s nearly impossible to find reasonably-priced rentals in central areas? The answer from Andrej Holm, urban researcher at Humboldt University and Berlin’s best-known gentrification critic, is not what you’d expect: “The fact that they are building luxury flats isn’t the main problem. The problem is what isn’t being built, namely flats with rents under €8 per square metre.” Holm says affordable housing projects do compete with luxury ones for suitable plots of land, at least in the inner city, but the real problem lies elsewhere, since luxury flats represent a tiny fraction of Berlin’s 2,000,000 households. The population is growing by 40,000 people per year and enough new flats simply aren’t being built, with 5000 new units in 2013 and 10,000 in 2014. Newbie mayor Michael Müller, former Senator for Urban Development, has pledged to build more affordable housing, but for Holm the biggest problems are how to curtail crazy rent increases for average Berliners and prevent evictions from existing buildings – not the decadent investments of the upper one percent.

The very top end of the market seems to be simply detached from the worries of average Berliners about housing becoming unaffordable. The academic and the estate agent practically agree: “This segment has its own separate logic,” says Holm. Or in Fischer’s word’s: “Price just plays less of a role at this level.” But is the über-posh market in danger of overheating? The Bundesbank and international press have been murmuring about a German property bubble for a couple of years now. Both Fischer and Telford believe fears of a Berlin bubble are unjustified. Fischer says, “Properties at the top end are usually very well-financed, with at least 50 percent capital,” meaning they won’t be overburdened by debt if prices fall again. Telford agrees that there’s no cause for bubble-talk: “Price increases are rarely the result of speculative purchases. They are driven primarily by the enormous demand for flats, especially in central areas.”

From an international perspective, Berlin still has some catching up to do when it comes to luxury living. Last year in May, a new penthouse in London’s Knightsbridge was sold to a Ukrainian oligarch for 140 million pounds (€178 million), making it the world’s most expensive apartment – next to which the Yoo Berlin penthouse appears quaintly affordable. Dream on, Berlin.

Originally published in issue #134, January 2015.