Returns on Real Estate Investments in Eastern Germany in the 1990s

After a peak in the demand for housing which led to rising property prices at the time of the German reunification in 1990, the subsequent construction boom in the mid 1990s resulted in declining prices for residential real estate, seemingly above all in Eastern Germany. An interesting question in this respect is how heavily potential investments in separately-owned flats undertaken at the beginning of the 1990s might be impaired by this drop in rentals and property prices. Since, at that time, these investments were promoted by high tax benefits, a special focus of this book lies on considering the tax effects of such investments. After-tax calculations for Magdeburg, Leipzig, and Erfurt, and also for two cities in the former federal area were performed by using data on average rentals and property prices of typified flats. It is shown that even despite falling rentals and decreasing property values it was still possible to generate profits over the period from 1992-2002 due to generous tax subsidies. The case study might not only be interesting for investors in residential real property but also for professionals in real estate industry and consulting firms.