LONDON-Prudential Real Estate Investors intends to boost its German housing investment strategy, and it has raised some $140 million to do it. The institutional capital will allow the firm to expand its involvement in its German vehicle, DeWAG Deutsche. Investors include Belgian, Dutch, Irish, UK and US clients.

Jonathan Short, managing director of Pru Real Estate, says the team is "excited" about "the underlying market dynamics for the German residential sector."

Prudential is not the only overseas fund to recognize the potential of the sector. Earlier this year Cerberus and Goldman Sachs's Whitehall property fund agreed to pay euro 2 billion ($2.4 billion) for a Berlin property portfolio comprising 65,700 flats. Terra Firma, the UK-based private equity group, paid euros 7 billion (£8.9 billion) for 150,000 German flats. And HSH Nordbank, the Hamburg-based Landesbank, sold Oaktree Capital 21,000 homes for euros 1 billion (£1.3 billion).

US and UK investors, which have bought up an estimated 600,000 of Germany's flats, have never achieved high rental returns. Typically, their portfolios have delivered yields of only 4% to 5%. Few expect capital values in the German market to rise much, even if the country's economy recovers from its current plight.

While low property yields have deterred domestic investors, overseas buyers have been attracted by the large-scale of the German pipeline and moves by the German government toward REIT legislation.