New builds could be exempt from German rental cap – reaction

Plans to exempt new constructions from Germany’s rental cap have received a mixed reaction from the country’s real estate industry.

With political discussions on the rental cap (mietpreisbremse) ongoing, politicians have called for a complete exemption for new construction.

The initial government draft of the measure – which is supposed to help provide affordable housing in major cities – had included new buildings after their initial rental agreements expire. A modification to allow for new-build properties to avoid the measure, however, has had a muted reaction.

Marcus Cieleback, head of research at German real estate company Patrizia Immobilien, stressed that despite the planned changes, the firm has ”fundamental reservations against the rental cap”.

Cieleback noted the legal draft still contained several vague passages, citing the definition of a “tense rental market” as an example, when not all cities will be subject to the rental cap.

Cieleback also stressed it remained unclear how local comparable rents were to be determined.

“The real problem – a lack of rental space – will not be solved by a rental cap,” Cieleback added.

Axel von Goldbeck, managing director of German property federation ZIA (Zentraler Immobilien Ausschuss), told IP Real Estate that the latest change “could be a reasonable line of compromise”.

Von Goldbeck, who has been heavily involved in lobbying on mietpreisbremse, said the political procedure was moving forwards.

Strong rising rents in prime markets prompted the German government to introduce a rental brake in some neighbourhoods. When in place, the cap is expected to mitigate excessive rent uplift, according to a report by CBRE Global Investors.

The fund manager said there was concern that the rental caps in some areas would affect existing investors’ portfolios – as well as deter future investors from entering Germany. However, the environment for rental growth will remain positive, CBRE Global Investors added.

The report said residential rents in major German residential markets were forecast to increase, while rents in prosperous medium-sized cities would “continue to benefit”.