Located in central Europe, Germany is the EU’s largest economy and most populous country. Divided into 16 states, each with its own distinct cultures, and an impressive landscape that varies from wind-swept hills and coastline in the north, through picturesque valleys down to the Black Forest and the Alps in the south.
While the beautiful landscape and variety make it a nice place to live, a high percentage of Germans renting rather than buying makes it an interesting investment option – latest available data shows a home ownership rate of only 42 per cent, while in Hamburg for example it is just 20 per cent, meaning there is a big rentals market.
The property market did not suffer the recent financial crisis and prices do not tend to change fast creating a stable environment in which to invest.
Moreover, house prices are set to steadily rise 4.2 per cent by 2015 across the country, 6 per cent for residential housing in the five major cities.
As in every country there are certain procedures for finding an apartment or house and closing the sale. It makes little sense in Germany to look for a “For Sale” sign in front of the house. This is not a common way of offering property. Many offers are published in newspapers. In the last few years various websites have sprung up that provide extensive listings on apartments and houses for sale as well as rental units. These websites also have extensive information on financing and other topics related to buying and renting property.
House-hunting is time consuming. In most cases newspaper ads don’t give addresses, meaning you must make an appointment with a go-between or agent. Many website listings however include full addresses as well as maps.
As a buyer, it is generally advised not to sign an “exclusivity contract” with any one agent. You may wish to peruse a wider range of offers from several agents. And ask the agent at the outset who is paying his commission and what the percentage is.
For those who wish to buy or rent an old, but well-refurbished apartment, Berlin is still more affordable than Frankfurt or (especially) Munich.
Munich is Germany’s high-cost leader, of course. To buy a 120 square metre (sq. m.) apartment in Munich costs around EUR 8,100 per sq. m., while in Berlin it costs around EUR 4,200 per sq. m., and in Frankfurt, the same sized apartment costs around EUR5,300 per sq. m.. Rents are correspondingly pricey.
Wherever you buy, you are unlikely to have much problem letting your apartment. Especially at the lower end there is an acute shortage of affordable apartments as the German boom continues, sucking in workers from all over Europe.
The higher yields in all three cities come on the smallest apartments, and are caused by the fact that very small apartments are relatively cheap to buy.
Over the last two years the yields gap between Berlin and the other two cities has narrowed as rents have risen significantly in Frankfurt. Berlin remains much less expensive, but in terms of rental return-on-investment, there is no longer much difference between Berlin and Frankfurt, while Munich´s yields are still a little lower.
Currently except with rental contracts, there is no law regulating commissions. This may change in the near future. It can be negotiated, and in most cases can be between 3 and 7 percent of the purchase price. In some cases the buyer pays the commission in full, in many others it’s split between buyer and seller and in some instances agents receive their commission exclusively from the seller.
An agent may submit an invoice only when he has clearly arranged the contact between buyer and seller. That means that he has given the buyer the full address, the full name of the seller and a purchase price.
It is also advisable to ask the seller whether he has a contract with an agent. Asking the commission from the seller seems logical, since he is the one who can judge what the agent has done to sell the house. The buyer in most cases only sees the agent once or twice and can fairly ask what the agent has done to earn the big fee he is charging.
If a potential buyer gets an offer from one agent for a house that another agent has already offered, it is often advisable to tell the second agent immediately. Otherwise the customer may wind up paying a double commission.
Once a property has been found there will be additional costs that can be conservatively estimated at about 10 percent of the purchase price. In addition to the agent’s commission already mentioned, there will be a property transfer tax, a notary fee and additional small administrative costs, perhaps including the hiring of an interpreter.
The property transfer tax can range from 3.5 – 6 percent of the purchase price and is paid by the purchaser. The more the purchase price, the more this tax will be, so there is a temptation to make an “arrangement” with the seller, under which a lower price is shown on the contract. This is a very dangerous practice. If it’s found out it could result not only in the payment of the tax, but a severe penalty fee as well.
Another cost for the buyer in Germany is the notary fee. Once the buyer and seller have agreed on a purchase price, the property sales contract must be signed in the presence of a notary. This is to the advantage of both parties, and particularly the buyer, since it provides assurance that the entire transaction is carried out in accordance with the law. The notary fee, of about 1.5 to 2 percent, covers preparation of the contract, negotiations, the signing ceremony and entry in the land register.