Sep 30, 2010 
Unshackled Saxony Rises to Become East Germany's Brightest Star 
Two decades ago, Saxony was as beaten down as the rest of East Germany. In Dresden, its capital, fire- bombed Baroque palaces and museums had been partially rebuilt, but raw sewage still poured into the Elbe River. Telephones were rare. Young people longed to move West to escape shortages and censorship.

There was some manufacturing: Saxons made East Germany’s flimsy Trabant, but the sedan was so unloved, people joked that it doubled in value when filled with gasoline.

Today, Saxony is one of the brightest stars in the East. Saxons build BMW cars, Porsches, and Volkswagens, chips, and watches from A. Lange & Soehne that cost up to $500,000 apiece, reports Bloomberg Businessweek in its Oct. 4 issue. Gross domestic product has grown 11.2 percent since 2000, a higher rate than any of Germany’s other 15 federal states, according to data from the state’s Economy Ministry.

Saxony’s dramatic gains owe much to pro-business government policies that unleashed the famous Saxon work ethic, inventiveness, and attention to detail. “Our companies have been very good at carving out niches and customizing products,” says Saxon Economy Minister Sven Morlok.

Two key figures in the transformation were Kurt Biedenkopf, now 80, the Christian Democrat who served as premier from 1990 to 2002, and the late Kajo Schommer, who served as economy minister during the same formative period. Together they developed a “lighthouse principle” in which industries with high potential -- especially autos and microelectronics -- got most of the state aid.


“The state’s political and business leaders boosted the self-confidence of the Saxon people and convinced them their fate was in their own hands,” says Joachim Ragnitz, managing director of the Ifo Institute for Economic Research in Dresden. “It was like nation-building, and it worked. They got people to believe that they really had to be best at whatever they were doing.”

The Saxon government threw its support behind Volkswagen AG, the first big West German company to make a major investment in the region. In 1990, the company decided to produce the VW Polo compact car in Zwickau and since then has built some 3 million cars and 8 million motors at factories in the state.

Saxony had three things going for it at the time: Volkswagen’s chief executive officer, Carl Hahn, was a Saxon native. It had carmaking experience, in spite of the Trabant. And VW got big subsidies, half from the federal government and half from the state. VW’s investment attracted parts suppliers and ultimately other automakers to the state.


The other breakthrough investment, in 1995, was by German manufacturing giant Siemens AG, which was also drawn to Saxony’s pro-business climate and skilled workforce -- a legacy of the communist-era, Saxony-based computer-maker VEB Kombinat Robotron.

As with VW, Siemens opened the floodgates to other investments in the sector. In the late 1990s, Advanced Micro Devices Inc. began building computer chip factories in Dresden. The Dresden manufacturing campus, now owned by an AMD-Abu Dhabi joint venture called Globalfoundries Inc., is the largest chip- making center in Europe and one of the most advanced in the world.

“AMD was set to go to Ireland, and that investment was diverted to Saxony because of Prime Minister Biedenkopf and his team,” says Jens Drews, Globalfoundries’ director of government relations. “They were visionaries.”


With 4.2 million people, Saxony sits in an eastern nook of Germany, with the Czech Republic to the south and Poland to the east. Twenty years after reunification, about 6,000 companies have invested 27 billion euros ($37 billion) in the state, which is smaller than New Jersey.

East Germany’s anti-communist mass protests had their genesis in the Saxon city of Leipzig in 1989, paving the way for demonstrations that swept the hard-line state before it imploded that year. As a result, Saxon voters have not elected any former East German communist to power as part of any coalition government.

The local government has taken market-friendly steps that would be unthinkable in other parts of Germany. In 2006, for example, Dresden’s municipal government sold 48,000 apartments to U.S. buyout firm Fortress Investment Group LLC for 1.75 billion euros.

This was a year after Franz Muentefering, then leader of the Social Democratic Party, compared such investors to the biblical plague of locusts that descended on Egypt.

Debt-Free Dresden

Dresden, which was the first German city to sell all the housing it owned, used the proceeds to pay back debt of more than 700 million euros, and it remains debt-free. “The Saxons have been clever business people for centuries,” says Carl Graf von Hohenthal, a management adviser at the Brunswick Group in Berlin and former deputy editor-in-chief of Die Welt.

“The typical Saxon is constantly thinking about how he can do business. When you drive across the border from Brandenburg into Saxony, you immediately see the difference. The villages are cleaner and more prosperous, the church towers bigger and higher.”

Porsche’s plant is a symbol of the new Saxony, employing 640 people on the site of a former Soviet military training base. It churns out 250 Cayennes and 100 Panameras a day. The meticulous attention to detail that makes Saxons good at building Porsches is also an asset for producing luxury products such as watches and fine wine.

Luxury Watchmaker

A. Lange & Soehne, the watchmaker established in 1845 in the village of Glashuette near the Czech border, was expropriated by the communists in 1945 and reestablished in December 1990 by Walter Lange, a direct descendant of the founder. Jerzy Schaper, Lange’s CEO, says watches made from gold and platinum -- which range in price from 13,000 euros to 390,000 euros -- are selling especially well in Asia. Georg Prince zur Lippe, another Saxon who returned after unification, bought back his aristocratic family’s manor house and vineyards in Meissen, Weingut Schloss Proschwitz, that had been seized by the communists. The wines are now served on Deutsche Lufthansa AG flights.

Despite its progress, the state did experience its own version of the financial crisis, when state-owned Landesbank Sachsen, now known as Sachsen Bank, became a casualty of the U.S. housing meltdown in 2007 and lost 641.6 million euros.

The Saxony Prime Minister at the time, Georg Milbradt, resigned in 2008 after the bank’s near failure, saying he wanted “to prevent further damage both to myself and to others.”


There are also concerns that aging and depopulation of rural areas could lead to worker shortages, and automobile thefts have skyrocketed. Dresden has also been the scene of the largest neo-Nazi marches in Germany since the 1960s. Eight members of the far-right National Democratic Party of Germany won seats in the 2009 election to the state’s 132-member assembly.

Despite these challenges, though, Saxony is a success story, especially when compared to where things stood in 1990. “The Saxons are really hardworking,” says Christian Schwinner- Strachwitz, 67, who returned to Saxony after reunification. “They never need a kick in the butt.” 
Jan 10, 2010 
Leipzig among New York Times “31 Places to Go in 2010″
In 2010, Leipzig, a small industrial city in the former East Germany with an illustrious past, will be marking the 325th anniversary of the birth of its former resident Johann Sebastian Bach and the 200th birthday of Robert Schumann with concerts, festivals and a reopened Bach Museum (

But the city’s cultural high note is likely to be the Neo Rauch retrospective opening in April at the Leipzig Museum of Fine Arts (, a show devoted to the father of the New Leipzig School of artists, a scene that for the past decade has been the toast of the contemporary art world. The art cognoscenti will also make their way to the Spinnerei (, a former cotton mill that is home to 11 galleries, a cafe and a quirky new pension called the Meisterzimmer (, with rooms starting at 50 euros, or $70 at $1.40 to the euro.

The city is also making a splash on the musical front. Moon Harbour Recordings and Kann Records, two indie labels producing innovative electronica from D.J.’s, are based here. Sevensol and Matthias Tanzmann will undoubtedly be lugging their laptops to Leipzig Pop Up (, a trade fair and music festival taking place in May. Otherwise, gigs can be heard year-round in the city’s underbelly of abandoned factories and squats that look a lot like Berlin — maybe 10 years ago. — Gisela Williams
Nov 05, 2010

BMW to invest $561 million in Leipzig for Megacity EV production

BMW Group announced today that it is expanding its plant in Leipzig to make it the first location in Germany to hold large-scale production of electric-vehicles. Up until 2013, BMW will invest €400 million ($561 million USD) in new buildings and machinery for the production of the Megacity Vehicle, which will enter production in 2013.

“By producing the Megacity Vehicle in Germany the BMW Group is demonstrating a clear commitment to Germany as a high-tech location. With this vehicle we are revolutionising automotive design and production, and offering our customers the first purpose-built electric vehicle for urban areas. This will be the world”s first volume-produced car with a passenger compartment made from lightweight CFRP, as less weight enables a longer range,” said Dr Norbert Reithofer, Chairman of the Board of Management of BMW AG.  “We made a conscious decision to produce the car in Germany, at our plant in Leipzig ““ our newest and most cutting-edge facility with the most flexible structures,” he added.

Click here for more news on the BMW Megacity Vehicle.

Including BMW’s joint venture with SGL Group to manufacture carbon fiber components for the Megacity Vehicle in Wackersdorf and Moses Lake (Washington state, USA), the German automaker is investing a total of €530 million ($744 USD) in the project.

BMW said that a total of over 1,000 jobs will be created as a result of the investment.


Real Estate in Leipzig

General market development

The financial crisis left its marks on real estate markets all over the world. Leipzig’s real estate market is no exception, having experienced difficulties especially during 2008, prior to the onset of the financial crisis. Yet following the severe downturn, the market is slowly recovering and offers interesting opportunities, which are worth investigating.

After massive growth in the years 2006 and 2007, transaction volume in the Leipzig Real Estate market decreased to approx. €936 million in 2009 (from €1,751 billion in 2007 and €1,098 billion in 2008). Particularly the market for existing buildings suffered a dramatic breakdown of minus 64% since 2007.

4,954 property sales were registered in 2009. This represents a decrease of 564 sales as opposed to the previous year, but in comparison to the years before the crisis hit, the number of property sales is still rising (2004: 3,600; 2005: 4,400).

At approx. €437 million, the share of existing properties still amounts to 47% of total transaction volume on the Leipzig real estate market. Overall, the market has stabilised and offers premium properties at compelling price points relative to comparable national and international objects, affording an excellent resale value. Price retrenchments because of overheated conditions impacting the market up to the mid-90s had already set in around the turn of the millennium and opened up the market for resellers.

Investment market

 The current situation in Leipzig’s real estate market is quite favourable for the typical investor on account of the dynamic developments over the last two decades. At the time following German reunification, Leipzig showed herself to be a metropolitan area with bright prospects due to her outstanding educational, working and living environment. In the wake of erratic changes lasting through the end of the 90s and marked by strong upgrading and rehabbing activities prior to the expiration of long-term depreciation rules, the environment for re-sales has substantially improved. Typical multi-family dwellings and vintage buildings of the type are perfectly suited for development and/or a leveraging of existing or future real estate portfolios.

The market in Leipzig remains fairly steady despite the collapse of the international markets. The population base is still growing, the unemployment rate is on a downward trajectory and rents are demand-driven, accordingly. Furthermore, the process of renovation/rehabbing continues so that as of today, most of the properties have been thoroughly upgraded. The financial return on a property is predicated on its degree of refurbishment and desirability – a fully let and managed building is a secure source for long term returns and has above-average appreciation potential.

Because of those developments, Leipzig will be a significant and pre-eminent city for appreciation potential to the domestic and foreign investor. In conjunction with the currently low interest rates carrying over from the crisis, investors are presented with a magnificent opportunity for high returns in an ideal investment climate.

Because of the stable and slightly rising rents, investors can expect high returns in the Leipzig property market. Flat and commercial real estate in preferred locations yield returns between 7% and 8%. Even higher returns (8% to 9%) are achieved in individual prime locations. Secondary locations still bring returns between 9% and 11%.

In 2008, 453 multiple-family dwellings were sold. This represents a decline to the level of 2005, following the noticeable up-tick over the last two years. Especially the number of renovated multiple-family dwellings dropped 45% to 158 transactions. This market is especially interesting since the quality represented by the properties is offered at a discount far below acquisition costs. The once ample inventory is still replenished by newly available properties in the face of static sales prices since 2005, only to strengthen somewhat of late. With current rents likely to firm in the near future, an investment will find itself on a sound financial footing.

Amongst others, the average purchase price for renovated multiple-family dwellings rose 7% since 2007 and reached €657.00 per m² in 2009.

Sales of flats owned outright or in partnership are constantly increasing. In 2005, the turnover was approx. €265 million, whereas in 2009 it had reached already €442 million.

Renovated flats in older buildings had an average purchase price of €2,147 per m² in 2009 (original purchase). This represents a rise of 11% (2007: €1,932 per m²).

In 2009, dwellings in new housing developments sold for on average for €2,241,00 per m² (2007: €1,819,00 per m²).

The purchase of pre-owned flats is subject to similar contingencies as those of entire buildings. These flats are usually sold for reasons of discontinued tax breaks or personal circumstances. The prices asked are usually discounted between 30–50% of their original, providing a sure-fire rental income. It especially applies to multi-flat transactions.

The rental market

The rents for flats increased slightly during the last few years, but still are stuck on a comparatively low level relative to the quality of life a prime building offers. Letting poses no problems in sought-after neighbourhoods or for well-appointed flats. There is an increasing demand by students, singles and young families, not the least for premium flats with extensive amenities.

Net rents for unheated dwellings in new housing developments narrowly range between €5.50 and 5.60 per m². This is considerably higher than the net rents for flats in older buildings, ranging between €4.70 and 4.80 per m² in 2009. Since in 2002, the average net rent in unheated older buildings had averaged €4.35 per m², an appreciable uptrend is noticeable long-term.

Urban development

Over the last decade, Leipzig’s population has been steadily growing. Since 2000, the population increased from 493,208 to 519,325. It implies that the demand for properties in Leipzig is still growing in times of an overall decline in property values.

Although the number of people living in Leipzig is increasing, the rate of unemployment decreased from 20.8% in 2006 to 13.6% in 2009.

The people of Leipzig prefer areas with older buildings, in particular Wilhelminian style houses. These districts see an influx of new residents, predominantly of a younger age. Amongst others, the downtown area of Leipzig, Gohlis-Süd, the southern suburbs, the eastern city centre and Schleußig and Plagwitz in western Leipzig noticeably gained in population over recent years.

The main focus of Leipzig’s urban development remains on the eastern and western parts of the city. Those districts have become more attractive because of their high-quality renovation efforts, in essence representing an indirect subsidy that brings about positive changes in terms of infrastructure and expansion.

Improvements for the less affluent parts of town are to be achieved by the demolition of old, run-down buildings. Furthermore, new parks, together with plenty of plant life and open spaces, are going to be created. The initiatives are designed to encourage private investors and to support home ownership.




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