Germany is undervalued because property prices haven't risen there in ten years, a lot of which is to do with overseas investors' money has been flowing into risky emerging which simply do not have the economic fundamentals to support the investment. It also because Germans haven't opened their market enough to overseas investors, and rightly so as they have wanted to avoid the hype that is causing problems in emerging markets. However, the aging population there and low level of home ownership has led to Chancellor Merkel to open up the market there so that home ownership can help ease the country's pension burden, in doing so she has been compared to what Thatcher did in the Uk in the 1980s.
When thinking of Germany you should view east and west as very different animals. The former East Germany, including Berlin, is more risky and akin to an emerging market; the capital doesn not have the corporate markets that cities like Frankfurt, Hamburg and Munich have, because when the country was split the major financial services and industry grew up in these cities. Berlin is €60bn in bebt and as such as been selling of its assets including housing, however, major investors there such as Goldman Sachs and other US hedge funds have started to pull out of Berlin because they are not making the returns thex expected. Elsewhere in the east of the country there is huge levels of depopulation happening due to high levels of unemployment. It's true yields of 10% are possible in places like Dresden becuause property is cheap, but to me this is a false prophet because people fail to remember that yields are only temporary and if a tenant moves out in these locations then the property is going to be harder to fill than in cities in the west that have large numbers of young professionals due to the corporate employers based there. Thankfuly the west of Germany hasn't suffered from the hype and bull that has surrounded less mature markets. Go for property that is fully tenanted to reduce your risk.
Geordie