Concrete gold (colloquial)

Concrete Gold - “Concrete Gold” is a colloquial term for real estate as an investment and a store of value. The expression reflects the belief that real estate-much like gold-represents a durable, inflation-protected tangible asset. Especially in times of low interest rates, high inflation, or uncertain capital markets, “concrete gold” is considered a safe investment.

Why Real Estate Is Considered an Investment

The term “concrete gold” stems from several characteristics of real estate as an asset class:

• Inflation protection: Real estate values and rents tend to rise in line with general inflation over the long term-unlike savings accounts, which gradually lose purchasing power when real interest rates are negative. Indexed rents and graduated rents also allow rental income to be directly linked to inflation trends.
• Tangible asset: A property is a physical asset that does not become worthless due to bank insolvency, stock market crises, or currency reforms-Germany’s historical experience with currency devaluations has deeply rooted trust in “concrete gold.”
• Recurring income: Rented properties generate regular rental income-comparable to dividends on stocks, but more predictable and less volatile.
• Tax advantages: Depreciation (AfA), deduction of income-related expenses for rental properties, and tax-free sale after a ten-year holding period (Section 23 EStG) make real estate attractive from a tax perspective-a privilege that securities investments do not offer.
• Leverage: Through debt financing, a high investment value can be acquired with relatively little equity-with a debt-to-equity ratio of 70% and a 5% increase in property value, the equity investment theoretically achieves a return on equity of over 15%.

Risks and Limitations

The term “concrete gold” suggests a level of security that is not guaranteed:

• Concentration risk: A single property ties up a significant amount of capital in one location-a local economic downturn, structural vacancy, or a quality issue in the neighborhood can significantly reduce its value.
• Illiquidity: Unlike stocks or gold, a property cannot be sold quickly and without a loss-the sales process typically takes three to six months, and even longer for properties in B and C locations.
• Ongoing costs: Maintenance, management, property taxes, building insurance, and the risk of rent loss significantly reduce the actual net return compared to the gross rental yield.
• Interest rate risk: Rising interest rates increase financing costs and can put downward pressure on real estate prices-as the period since 2022 has shown, price declines of 15-25% can occur in certain segments.
• Regulatory risks: Rent control, energy-efficiency renovation requirements under the GEG, and rising property taxes can permanently weigh on the returns and attractiveness of rental properties.

Concrete Gold and Long-Term Asset Strategy

In a long-term asset plan, real estate often plays a useful role as a stabilizing anchor. Financial experts generally recommend keeping the real estate portion of the portfolio at a maximum of 40-50% of total assets and investing the rest in liquid asset classes (stocks, bonds, money market funds). Anyone who relies exclusively on “concrete gold” and concentrates their entire assets in one or a few properties is taking on a significant concentration risk-even with an excellent location.

Practical Tip for Owners in Nuremberg and Franconia

We recommend that investors in the Nuremberg metropolitan region make a sober calculation when purchasing “concrete gold”: The gross rental yield (annual base rent ÷ purchase price) should be at least 4-5% to ensure that, after deducting management costs (approx. 20-25% of the gross rent), non-pass-through maintenance, administration, and taxes, an adequate net return remains. In prime Nuremberg locations such as Erlenstegen, the Old Town, or St. Johannis, gross yields are often below 3%, which makes the success of the investment primarily dependent on future appreciation. In up-and-coming neighborhoods such as Eberhardshof, Gibitzenhof, or outlying areas of the Nuremberg region (Lauf, Hersbruck), significantly better initial yields combined with appreciation potential can be achieved-provided that the infrastructure and demographic trends are favorable.

Frequently Asked Questions

Is “concrete gold” really safer than other forms of investment?

Real estate offers long-term asset security and protection against inflation, but it is not risk-free. Regional price declines-such as those observed in German medium-sized and small towns with shrinking populations or in cities with a one-sided industrial structure-can significantly reduce value. Added to this are vacancy rates, lost rent, and rising interest rates as risks to returns. A realistic calculation of returns before purchasing is therefore essential. A sensible investment strategy combines real estate with other asset classes to diversify risk-in line with Markowitz’s portfolio theory.

What is the minimum budget required for real estate to be a worthwhile investment?

In Nuremberg, condominiums can be purchased as investments starting at approximately 120,000-180,000 euros (smaller apartments in less desirable locations such as Langwasser, Reichelsdorf, or Schreibersdorf). You should have at least 20-30% of the purchase price available as equity, plus ancillary purchase costs of approximately 8-9% (real estate transfer tax, notary, land registry, real estate agent)-totaling around 28-39% of the purchase price. Those who wish to invest less capital can invest indirectly in real estate through open- or closed-end real estate funds, REITs (Real Estate Investment Trusts), or crowdinvesting platforms without assuming direct management responsibilities.

When is the right time to buy “concrete gold”?

There is no perfect entry point-and those who wait for it often run the risk of remaining permanently on the sidelines. Individual factors are decisive: personal equity, current financing terms, the specific property yield, and the planned investment horizon. Those who plan for the long term (at least 10 to 15 years), have a solid equity base, and find a property in a location with structural demand can achieve a reasonable return in most market phases. Corrections such as those beginning in 2022 have shown that overvaluations are corrected-but also that well-located properties experienced significantly smaller price declines than properties in B and C locations.

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