TOP 10 RULES YOU NEED TO KNOW ABOUT BUYING PROPERTY IN GERMANY

Often overlooked by investors, German property in fact can give good returns especially in city centres like Berlin and Frankfurt where rental accommodations are in high demand.

1. Are there any restrictions on foreigners buying property in Germany?

No, there are no such restrictions. Any private person or corporation can buy real estate in Germany regardless of their nationality.

2. Apart from the purchase price, what are the other expenses when buying property in Germany?

a.) The Stamp Duty varies between 3.5% and 6.5 %, in the different federal states. In Berlin and Hessen (e.g. Frankfurt am Main), it is 6 %.

b.) Costs of notary and land registration depend on the value of the property. A purchaser should calculate between 1.2 and 2.5 % of the purchase price.

c.) Legal fees for accompanying the purchase are 1 % (+19 %VAT when applicable).

3. What are the holding costs and taxes as a foreign property owner in Germany?

German property is subject to real estate tax (Grundsteuer). It is basically a payment to the respective city, where the apartment or house is located, for providing the infrastructure. The tax base is the ‘assessed value’ (Einheitswert). This annually levied tax depends on several factors including location, size and use. It also depends on the German State (Bundesland) in which the property is located and is approximately 5 – 7 EUR/sqm/year. For a 1-bedroom apartment in Berlin, this will usually amount to about 100-250 Euro.

The owner also has to pay for his share in the costs of the building, namely an upfront payment on these costs called “commonhold contribution”. The majority of these costs (usually about 70-80%) can also be recovered from the tenant, if the apartment is rented out.

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4. What are the usual terms and interest rate structures for financing a purchase in Germany?

The interest rates on bank loans vary in Germany, depending on the banks and their assessment of the client. Usually the interest rate in Germany is fixed for a 5, 10 or 15-year period. Currently, the interest rates are between 1 % and 3.5 % per year. Please note, however, if a buyer does not have financial ties to Germany, the choice of banks that give out loans to non-resident foreigners is limited and therefore the interest rate is often higher (3-3.5 %). Quite often, it is also necessary to open a German bank account for a loan to be granted.

5. What tax do I have to pay when selling a property in Germany?

For private investors, there are no property gains tax as such; profits from selling the apartment are part of the normal income.

The profits from the sale of properties held as a private asset (held by private person who has sold fewer than 3 properties in the last 5 years) are currently not taxed if the property was owned for over 10 years. Special exemptions apply if the apartment was used by the owners themselves.

This tax exemption is only applicable for privately owned and sold properties, not for those sold by commercial companies like a GmbH.

6. How long will it take until I officially own the property after signing the Sale & Purchase Agreement?

That depends on whether you invest in a building that still needs to be constructed or whether it is already built. The construction period is usually around 2.5 years. If you buy a pre-existing building, a change in ownership usually takes 3-6 months, after the signing of the Sale & Purchase contract. However, the buyer is already treated like an owner immediately after paying the full purchase price. This can be immediately after notarization if the parties choose a notary trust account. The reason for the long duration of the transfer of ownership lies in the registration procedure which takes a while.

7. What is the property purchase procedure in Germany?

When we represent a client, we contact the vendor and obtain all documents, produce a comprehensive explanation with legal due diligence and after the deal has been approved by the client, we sign the contract on his behalf so that he does not have to come to Germany for the signing.

In Germany, contracts by which a party undertakes to sell or buy real estate must be notarized. This formal obligation applies to property purchase agreements as well as property development agreements alike. The notarization means that the contract is read out in full by the notary in the presence of both contractual parties (or their representatives). Through representation, the legal requirement that contracts need to be notarized in the presence of both parties can be avoided.

Following that, we undertake the implementation of the contract. This includes handling payments through a client’s account, organizing the handover, ensuring that you are registered as the owner in the land registry and—if applicable—dealing with the mortgage registration, etc.

It is possible to purchase property without ever visiting Berlin. You only need to go once to a German Consulate or Embassy in your home country to sign the Power of Attorney. You must also be in e-mail contact with us.

8. What is the difference between freehold and leasehold ownership in Germany?

Leasehold is very rare in Germany. Full freehold title is the most common form of real estate ownership, including condominium ownership. Of course, owners still need to follow the rules of the condominium.

9. What rental yields can I expect of the property? How easy is it to get new tenants? How can rent be increased in Germany?

The yield that can be expected very much depends on the individual property and how you equip/furnish it.

When one acquires an apartment in Germany that has an existing tenancy, the buyer automatically enters into the lease as landlord. All prior agreements remain in force only between the new owner and the tenant.

As a general rule, an amendment to the rental agreement is only possible by mutual consent, i.e. if the tenant and the landlord, i.e. the new owner, reach an agreement. In general, apartment rentals in Germany have unlimited duration; they do not end automatically.

It is common that rental contracts include rules on rent increases. Unless the contract specifies the increases or opts for an increase by consumer price index (CPI), the German Civil Code provides that the landlord may request rent increase under the following conditions:

a) The last increase in rent was at least 15 months ago;

b) The new rent is not above the local reference rent, which in most cities is determined by an official Rent Index, e. g. in Berlin, the so-called “Berlin Rent Index” (“Berliner Mietspiegel”). The rent index determines the reference rent on the basis of location, age, size and the apartment’s equipment and amenities; and

c) The rent does not increase in total by more than 20 % within 3 years. In some areas, like Berlin, the cap is 15 % within 3 years.

If these conditions are met, the tenant is obliged to consent to the landlord’s rent increase request. If the tenant does not do so, the landlord may sue to obtain consent.

It is very easy to get a new tenant in the cities of Frankfurt and Berlin. Housing there is in high demand due to their popularity. Online platforms make the posting of advertisement easy.

10. Where is the best place to find a buy-to-rent

for students?

The best locations are in the cities due to their biggest increase in population. But because of the extensive public transportation system in Germany, the property doesn’t need to be directly near the universities. They can be located in other parts of the city. German universities do not offer a large amount of student housing accommodation, therefore, students have to look for rental accommodation themselves. Consequently, investing in a flat for students makes sense in most cosmopolitan settings.[/ihc-hide-content]

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