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He's among a wave of foreign buyers lured by some of the lowest property prices in Europe and signs of an economic revival in Germany. Real-estate pages of U.K. newspapers including the Times and the Telegraph have labeled Berlin a good market for buying a second home.

``It's really cheap,'' Fredheim said of his four-room residence, which measures 112 square meters (1,200 square feet) and has been renovated for the first time since the reign of Kaiser Wilhelm II. ``It's a metropolis. It has something similar to Paris and London, so if the Germans get the economy going, it'll be a good investment.''

Berlin, a city of 3.4 million people, is an anomaly among European capitals: It has the country's biggest population but isn't the financial or industrial center. After hopes of becoming the hub for European trade and politics after the collapse of the Berlin Wall 17 years ago weren't realized, residential real estate prices dropped every year from 1996 to 2004. Real estate values in London climbed 80 percent during that time.
The tide may be turning. A total of 6.33 billion euros was spent on Berlin properties in the first nine months of 2006, up from 2.95 billion euros a year earlier, according to the local government's Web site. By the end of the year, the figure may reach a record of more than 10.8 billion euros, the Tagesspiegel newspaper said Dec. 18, citing a member of the government's survey board.

For foreign investors who rent out their apartments, the low prices may bring higher returns. Berlin landlords are able to charge annual rents that yield 6.5 percent to 7 percent of the purchase price, said Frank Schollenberger, an analyst at Chicago- based Jones Lang LaSalle Inc. Yields in London and Dublin are half that, he said.
``You couldn't even imagine such a thing in London,'' Schollenberger said. Germany's economy is also helping, as rising consumer confidence drives demand for housing. The country's gross domestic product is expected to increase 2.3 percent this year, the best performance since 2000. Unemployment fell to the lowest in four years in November, and business confidence surged last month to match a 15-year high.

Private equity funds such as Cerberus Capital Management LLP and Goldman Sachs Group Inc.'s Whitehall investment fund have jumped on board. In 2004, Whitehall and Cerberus bought 65,700 units of Berlin's public housing, mostly in lower-rent districts, for 2.1 billion euros, an early bet on climbing prices.

Such purchases have started to affect prices, according to Allianz Dresdner Economic Research's Milleker. He expects the trend to continue nationwide, with rental yields already up 2 percent since 1995 because of stagnant prices. In the U.K., yields are 40 percent of their 1995 level, Milleker said.