The Privatisation of Housing Space: Market Potential and Market Participants in Germany

In connection with financial difficulties of the federal government, the federal states and the local authorities as well as the need for private and public companies to restructure due to economic restraints, the privatisation of housing space has gained great importance in Germany. Privatisation can create significant perspectives, because the capital freed up is available for new investments in the more profitable core business of private companies and for other duties and responsibilities of the public authorities. Privatisation can take place by selling separate apartments, larger portfolios or whole housing companies. Privatisation models are the sale of apartments to tenants or other private persons, the portfolio sale to investors or going public. Because the privatisation to tenants is often difficult, many sales to investors are being conducted. For investors the purchase of residential portfolios offers a multitude of chances to achieve acceptable profits. Possible measures are the reorganization of housing companies, the activation of unrealised gains and the realisation of potential to raise rents. The privatisation through sales to investors is an emotionalized topic. Reports in the media concerning this subject are mostly affected by negative headlines. But the largest part of the sales proceeds smoothly and unnoticed by the public. As explained, the up-to-dateness of the topic housing privatisation is primarily given because of the difficult economic situation in Germany, which affects both the public authorities and the economy. Since this situation is not going to ease up in the foreseeable future, the tendency towards privatisation is probably going to continue. On the other hand the legislator is planning a couple of changes, especially regarding tax legislation. This could have significant influence on the process of housing space privatisation. Objective of the paper is to determine the current housing privatisation potential of the public authorities and the nonproperty- companies in Germany. This includes an analysis of the different market participants involved on the demand and supply side and their goals. Furthermore, it is evaluated in how far the privatisation potential is going to be realised. The considerations are made against the background of the probable introduction of REITs in Germany.