Country Guide to Germany

WHY INVEST IN GERMAN PROPERTY?

  •  Europe’s largest and world’s 3rd largest economy
  •  World’s largest exporter
  •  Gateway between the West and the East
  •  World’s most undervalued property market
  •  Best capital growth potential of any developed economy (5-10 year term)
  •  Strong rental market, high yields
  •  Highly developed, reliable legal and land registry system
  •  Economic recovery now underway

Germany is one of the very few countries that haven’t benefited from the world’s property boom in the last 15 years and, according to OECD, one of only two severely undervalued property markets (Germany by 26%, Japan by 21%).

This is even more true in the capital, with Berlin property prices below the construction cost and more than 30% lower than in other larger German cities.

Not surprisingly BERLIN is the main target for the smart investor:

  • Centre of the enlarged EU
  •  Capital of Europe’s largest economy
  •  Seat of the federal government and numerous organizations
  •  Largest German city (3.4 million; nearly as much as Hamburg, Frankfurt and Munich combined) and second largest EU capital after London
  •  Base of countless multinational companies
  •  One of Europe’s most competitive and attractive locations for international firms - in particular in media, high-tech and IT sectors (Berlin has become Germany’s centre of creative industries)
  •  3rd biggest - and growing - tourist destination in Europe
  •  Recipient of enormous investments in the last decade (over 75 billion euros invested by the German government into Berlin’s infrastructure since 1998 alone)
  •  Excellent public transport infrastructure (including new Main Rail Station - the largest and most modern railway junction in Europe), 3 international airports serving numerous low cost operators, massive new Berlin Brandenburg airport to open 2011 with an initial 22 million passenger capacity to later increase to 40 million
  •  Cultural centre of Europe
  •  Germany’s only truly international city (Berlin has succeeded in attracting artists, young people, students, intellectuals from all over the world)
  •  Low cost of living & high quality of life (40% of the city’s area are parks)

Berlin’s property market has received massive, multi-billion euro investments in the last 18 months, from international property and pension funds and private equity firms. Smaller investors are now starting to follow, recognizing the market’s extraordinary potential based on:

  • Historically low prices (properties being sold at less than their construction cost)
  • Excellent value for money
  • Very strong rental market (86% of Berliners live in rented accommodation)
  • Rental yields among the highest in Europe
  • Very low building activity over last decade coupled with increasing 
  • number of households expected to create a serious shortage of properties  in coming 5 years
  • Strongest population growth in coming 20-30 years (highest net immigration of any European city)
  • Remarkable affordability (Berlin prices are lower than even those in Central Eastern European cities, yet incomes many times higher)
  • Increasing interest of local population to purchase own home
  • Planned introduction of German REITs to give a massive boost to the property market (expected 130 billion euro investments)
  • Extremely high capital growth potential (medium to long term)

No other property market in Europe offers such severely undervalued property prices, solid rental market and attractive rental returns as does Berlin. After a decade of sharply declining property prices (down by up to 60%), evidence suggests the market has now bottomed out. 
 
In 2005, for the first time in over 11 years, property prices started rising again. At the same time, Germany’s long awaited economic recovery now seems underway.

Shrewd investors recognize that time to invest in the re-emerging German property market is Now. You now have the opportunity to be one of the early investors, hence maximizing your investment potential. With increasing awareness more and more buyers will be entering the market, resulting in higher prices and compressed yields.

Don’t miss this rare opportunity to invest in prime property at bargain prices, in an established Western European market with enormous growth potential!

Can a foreign citizen purchase German property?
Yes, all foreign nationals can acquire land and property in Germany, both directly in their individual name or in a company or partnership structure.

What are the transaction costs?
Transaction costs typically amount to 12-14% of the purchase price:

  • transfer tax (stamp duty) 3.5% - 4.5% (depending on state; since 1 Jan 2007 it’s 4.5% in Berlin)
  • agent fee 6% + VAT (agent fee structure varies state by state, in Berlin the fee is payable by the buyer, in some states it is split between buyer and seller)
  • notary and land registry 1.5 - 2%
  • Other associated cost – translations, mortgage (if required; approx. 1% arrangement fees)

What is the purchase process like?
Purchasing a Germany property is a straightforward process. After the purchase is agreed a contract is drawn up by the notary. A notary is impartial to the buyer and seller and is responsible for the tasks that, in the UK, are performed by a solicitor (title/land registry checks, preparing purchase contracts and ensuring fair contract conditions, etc). Both parties need to be present at the notary at contract signing or, alternatively, can be represented by another party with a power-of-attorney. Upon payment settlement the notary requests ownership changes at the land registry.

Are mortgages available?
Yes, mortgages are available for German property depending on the applicant’s financial status as well as the property. However, German banks have been extremely cautious in recent years, after having suffered heavy losses on property loans in the last decade. Obtaining a mortgage can, especially in case of foreigners, be a lengthy and bureaucratic process. Depending on property and applicant’s status, loans of up to 60-70% LTV are possible (in very rare cases up to 80%). German nationals can, in some cases, obtain a higher LTV. All applicants must provide last three years of tax returns, employment contract and pay slips, bank statements, proof of assets/liabilities, etc. While German banks tend to view self-employed applicants less favourably, mortgages are typically available provided all required documents are supplied.

What are the running costs?
This will depend on the provisions of the rental contract agreed with the tenant. For residential properties, all costs except property management, maintenance and repairs can generally be passed onto the tenant. Costs for property management are typically 25-35 euro per unit per month. Rental management is a separate service from property (house) management and can be provided by the same or another company (as house management). The fee for rental management is generally 25-30 euro per apartment per month. (In case of entire blocks only one management fee applies and usually covers both house and rental management services.)

What about taxation?
German tax law is among the most complex in the world. It is therefore a must for any investor to consult a German tax advisor and/or accountant, in order to determine the most tax efficient structure. In general, foreigners with no other German income but rental income on property will usually be subject to the lower tax rates (though this will depend on the size of investments - income is subject to a progressive tax).