Owning a property in Germany offers overseas property investors an ideal opportunity to benefit from low prices, a strong rental market particularly in cities such as Berlin a city centre location that is beginning to show all the signs of delivering good equity growth.
The German property market has been very popular recently with investors piling in to cities such as Berlin, Munich, Hamburg and many others. Indeed, over the last 12 months Berlin has seen its busiest period for investors buying property since World War II. And 70% of the buyers were from overseas, including many British investors.
Rental income yields plus equity growth are the driver
Key among the reasons investors have been so interested in German property is the fact that the country has a low proportion of owner-occupiers - below 50% (only around 42% across the country). As such, the German property market offers attractive long-term rental streams from stable tennants with full-time employment.
This, coupled with the fact that German property price inflation has been low in the recent past (in real terms it has hardly grown at all since 1970), means that relatively low investment sums can buy attractive city-centre properties with sitting tennants and a robust financing model based on the reliable rental income. Indeed, if one compares the increase in home ownership in the UK in the 1990's from 50% to 74% and how that impacted on the price of property here one can see the German market has a lot of scope for property price inflation.
Property prices in Germany are still comparably low and Berlin represents the lowest prices in any European City. The reason for this stems from unification process and will not last for ever; Berlin is fast becoming “The next big thing” in the eyes of many investors.
Berlin is also a very popular tourist location, like most major cities it plays host to a large variety of attractions examples of which can be found on the Berlin Tourist Board's web site
Berlin property has been particularly attracting the investors in 2006-2007 but many are now casting their nets much farther afield to cities such as Hamburg, Munich, Stuttgart and even the smaller ones such as Heidelberg or Mannheim. The former East German states are still being avoided for good reason but canny investors will keep a careful watch on these too - places such as Leipzig, Magdeburg and many others merit a place in the list of longer-term prospects.
Berlin will, however, remain popular for some time due to the fact that home ownership here has been considerably lower than even in the rest of Germany at only 13%.
Buying process for German Property – Freehold property
When buying a property in Germany there are some aspects of the transaction that will be unfamiliar to buyers from overseas. A good place to start is understanding the cost of buying a property in Germany
Cost of Purchase
In addition to the agreed purchase price of the property, you will need to budget for the following expenses
- Legal Fees – the maximum cost of employing a Lawyer to handle the purchase price of a property in Germany is 1.5% of the purchase price
- Notary Fees – the Notary fee should be around 1.5% (plus VAT at 19%) of the purchase price.
- Stamp Duty – or Land Transfer Tax is 4.5% of the purchase price.
Overall, it is recommended that you should budget for up to 8% of the purchase price when buying a freehold property in Germany.
The Legal Process
Whilst the legal process for conveyance of property is different from some other countries it is not particularly complex, at the heart of the process is the Land Register.
The Land Register
The purpose of the Land Register is to record the legal relationships that apply to a specific property, including the ownership and any third party rights. This a comprehensive document and contains details that may commonly be expected to be revealed in title deeds and searches, such as easements, heritable building rights, pledges or charges conveying rights to recurrent payments or services, life estates, beneficial interests, priority notices, the owners limitations of the right to dispose of his title and protests against the registration.
The Register is also where any charges, where the property has been used as collateral are recorded.
The information recorded on the Land Register is core to the conveyance process. In German Law ownership passes to the buyer at the point that the transfer of the title to property has been entered into the Land Register.
The Purchase Contract
The purchase contract is usually drawn up by the Seller's Legal advisors, therefore it is important to get independent advice before signing this document, as once signed it is legally binding and cannot be broken without penalties.
As a minimum the Purchase Contract must include:
- The names of the parties, the seller and buyer
- A description and/or inventory to which the purchase agreement relates
- The conveyance of property and priority notice of conveyance
- The purchase price
- Change of possession notices
- Any Warranties given by the seller
- The costs of the purchase fees and their distribution
When the contracts are prepared, and agreed both parties are required to present themselves at the Notary's office. Power of Attorney may given by either party if unable to attend in person. When attending the Notary's office proof of identity will be required. Both parties will sign the Purchase Contract in the presence of the Notary who will also sign the contract.
A German public notary is a qualified lawyer and may well offer independent advice to the parties where there is any ambiguity in the contract and seek to get them mutually resolved before the contract is entered in to.
Once the contract is signed the Notary is responsible for making the necessary entries in the Land Register, which may take up to 6 Months. The consideration for the purchase will be held in escrow with the notary until this is completed.
Renting out a property in Berlin
If you're looking to find tenants for your Berlin apartment avoiding using agencies and saving the fees, then going direct is not as difficult as it may seem.
Advertising in the classified sections is the best route, local people use the following papers Die Berliner Morgenpost, which boasts the largest property listings in Berlin and Der Tagesspiegel and Zitty which have web sites for advertisers which are free to people placing classifieds.
Also, people looking for a place in a particular location will often place online and printed adverts in a publication called Zweite Hand
Most private advertisers ensure they cover the following points in their advert;
- "mobiliert" means furnished, as many German apartments come without things like light fixtures, cabinets, and if yours does it is good idea to emphasise this.
- "1MM Kaution" means 1 month deposit, quoting this can imply it is negotiable, Germans prefer a situation where they pay monthly in advance.
- "Warm" or ("WM") means the price includes the cost of utilities, "kalt" means the price is without utilities.
- "OH" means "Ofenheizung" or "oven heating", which is an open fire. Generally in Germany these are not popular and will lessen the amount of rent you can charge.
- "absofort" means "available immediately"
- "WaMa" means "Washing machine" and "spulmaschin" is a dishwasher, if your apartment has these included it well worth emphasising them.
What rental to charge?
Armed with the above information, it is simply matter of looking at the online classifieds in the publications quoted above to see what similar apartments let for. Also useful in identifying the rental charges being levied in various districts of Berlin for example is the Mietspiegel (literaly the rent mirror). This allows you to identify the area where your property is located, select what type of property it is and how old and from that gain an idea of the likely rent that can be charged.
Overseas Property Centres ROI calculator is also a useful tool you can use to see how competitive you can be and make a return.
German Mortgages, rates from approx 5.70% in Euros
If you are purchasing a property in Germany, German Mortgages are available for UK & Irish based Employed Residents (who appear on that Country's Electoral Roll) or non-German Nationals living and working in Germany for House Purchase - other purposes on a case by case basis.
The type of German Mortgage is Repayment Mortgage only Minimum: € 40,000, Maximum € 1,000,000, but must not exceed 70% of the purchase price. In practice it is unusual for banks to lend on home purchases below €65,000 as they tend not to like providing small loans against properties so most purchases at this level will need to be made in cash.
Proof of Income: required in all cases (can be made up of Earned or Pension Income and up to 80% of any Rental Income from the new property, if there is an existing Rental Contract in place).
Term: Minimum 3 years; Maximum 30 years
Currency: Euros only
Current Variable Interest Rate is from approx 5.70%.
Example German Mortgage: Repayment Mortgage of approx €70,000 over a period of 25 years at an Interest Rate of approx 5.70% variable = approx €444.00 capital and interest per month = a total approximate amount payable over the term of €135,900 including capital, interest, arrangement and survey fees.
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