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Diversification potential of residential real estate investments

Profitability, stability and portfolio contribution of German residential real estate in the European context

For many years now private and institutional investors have focused on residential real estate. In this respect there is considerable interest in a stable and sustainable capital investment that can be planned easily. Real estate values have risen considerably in virtually every European country since the beginning of the new millennium. The underpinning of these values with real economic factors such as rents, incomes, economic strength and new construction costs varies greatly in a cross country comparison. This results in considerable diversification potential for investors, with the effect that they can optimize the yield and risk profile in line with their own requirements.

In this respect a relative assessment of the real estate values compared to the macroeconomic and market-related environments is important. On the basis of suitable reference parameters it is possible for investors, banks and analysts to draw conclusions on any other potential (and also catching-up potential) or on possible price bubbles. Thus it is possible to select locations with less risk and combine these in an optimum manner with locations that offer the opportunity for higher yields. To this end this study analyses the price development in 14 European countries and the contribution made by German residential real estate for portfolios with an international orientation.

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