People in this Euro Nation don’t own their own homes… but you can…

Updated on

From the early 1990s, my trips abroad (as the Asia head of equity research and regional strategist at Morgan Stanley) to share Asia’s financial secrets and opportunities with fund managers around the world often took me to Germany.

Despite leaving the banking world many years ago, I’ve continued to visit the country over the years as a hedge fund manager and in my role with private equity real estate in Hong Kong.

Back in the day, one particular trip was different. I had been invited to speak at a large investment conference in Cologne and was to go to Frankfurt from there. My colleague met me on the platform of Cologne railway station, telling me that time was tight and a car was waiting to whisk us to the conference venue. Scuttling out of the station into the bright summer sunlight, I looked up. My jaw dropped. I stopped in my tracks in outright amazement. I had never in my life seen a building of such awe-inspiring beauty.

Get The Timeless Reading eBook in PDF

Get the entire 10-part series on Timeless Reading in PDF. Save it to your desktop, read it on your tablet, or email to your colleagues.

It was Cologne Cathedral. I pleaded with my colleague to stop, and let me go and pay my respects inside. He indicated that we were already running late, and any further delay might mean missing my slot on the conference podium. I had to relent. And I spent many years thinking about going back to take a deeper look around.

Since then, I have marvelled at how that cathedral survived the devastation of World War Two. All of the buildings surrounding the cathedral are “new” – built in the 1950s and later, the originals having been bombed by the British during the war.

After many years of visits to the country, its fund managers, and some of its immensely wealthy and powerful family offices, I’ve also been impressed by how Germany has managed its economy and finances over the past 30 years.

But the story of Germany’s real estate market is equally intriguing…

Leading the Eurozone pack

When it comes to economic growth, Germany is the leading light in the Eurozone economic sphere.

Its per capita gross domestic product (GDP) has grown faster that its peers. At €34,500 per capita, it stands head and shoulders above neighbours France (€31,700), Italy (€25,900) and the Eurozone average of €29,600. Incidentally, the UK’s numbers lag significantly behind Germany at €31,400 per capita.

At 5.5 percent, the country’s unemployment rate is right at the bottom of the Eurozone heap. For comparison, France runs at 9.5 percent and Spain at 17.6 percent.

Germany also runs a huge current account surplus (it exports far more than it imports), driven by relentless exports of high-quality cars, trucks, household equipment, machinery, machine tools, chemicals and more.

(This surplus is a source of criticism from many outside the country. Germany benefits more than anyone from a ”cheap” euro, so the European Central Bank’s  money-printing largesse, by weakening the euro, has helped make Germany’s exports extremely competitive.)

And the country runs what many would regard as an enlightened and fair social welfare system, where worker rights are protected, with a well-functioning public health system.

So what’s not to like?

Well, Germany in not the haven of equality, fairness and social stability that some people on the outside might think.

While Germany’s overall economy is doing particularly well, the spoils are being shared very unevenly.


First, income distribution in Germany, as measured by the Gini coefficient, has widened by more than just about any country in Europe since 2007, and certainly more than the U.S., Canada and Japan.

The Gini coefficient measures the income distribution within a given population. A Gini coefficient of “0” would mean that everyone in the country earns the same. A Gini coefficient of “1” would mean that one person earned everything and the rest of the population earned nothing. The lower the number, the more equal the income distribution… the higher the number, the more unequal.

It is common knowledge that Gini coefficients around the world have generally been growing over the past decade. This reflects growing global income inequality, both in the developed world and the developing world.

Germany’s Gini coefficient is still significantly lower than other developed European countries, and certainly lower than the U.S. and UK. But the speed at which it has grown in the past decade tells us that income inequality in Germany is growing at a rapid clip. (This is shown by the big gap between the orange dot and the top of the blue column.)


That looks at income, but what about wealth?

Here is where the rubber really meets the road. Germany has the second-highest concentration of wealth in the hands of the top 10 percent of the population in all of Europe. Some 60 percent of wealth is held by just 10 percent of the people.


But even more telling is the fact that 40 percent of people have no wealth at all. No savings in bank accounts, no stocks, bonds, no assets at all. Nothing.

How can this be in a country as economically successful as Germany?

Germany is not a nation of home owners

Unlike Anglo Saxon and Asian cultures, there seems to be little pressure to own a home in Germany.

People are perfectly happy to rent a home for life. And given that rent controls (which limit the speed at which a landlord can increase rents) are prevalent in most parts of Germany, families have some kind of protection with respect to their future rental obligations.

Globally, Germany’s homeownership rate is one of the world’s lowest at just over 50 percent.

By contrast, the U.S., UK, Canada, Australia, Ireland and France all have homeownership rates of over 60 percent. And Italy, Spain, Portugal, Norway and Russia all boast rates of over 70 percent.

This is a big reason why 40 percent of Germans have zero personal wealth. If you own your own home and have been paying off a mortgage for a while, then you have some wealth to your name. Even if the value of the home does not go up much, over the years, as the mortgage is paid down, the homeowner has a stash of wealth tied up in the home.

At some point down the road, when a homeowner’s debt is cleared, he or she owns an asset that may be worth several hundred thousand euros. That asset can be monetised through a sale and used to fund a lifestyle.

That is why we keep pounding the table on owning real estate for future long-term financial security and independence.

Paying rent all your life to someone else boosts his wealth but diminishes yours.

Germans, more than any other European nation, do not seem to take this lesson to heart.

But their reluctance to own homes provides good opportunities for those who do wish to own homes and rent them out.

As I showed you, the home rental market in Germany is huge. And many companies are already profiting from this trend.

Companies like LEG Immobilien AG (Exchange: Xetra; Ticker: LEG), Vonovia SE (Exchange: Xetra; Ticker: VNR) and Ado Properties (Exchange: Xetra; Ticker; ADJ) all own portfolios of residential real estate that they rent out.

The easiest way to be a German residential landlord yourself – without all the hassle – is to buy stocks like these.

Leave a Comment