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The most important thing to know is that Germany hates real estate bubbles. Consequently, Germany has not experienced the housing bubble that many Western countries have allowed since the 1980s.
Germany does not impose any foreign investment restrictions on property investment. As property rights are strongly protected, German property investment may be a very attractive option for many expatriates. However, round-trip property transaction costs are moderately high by international standards (around 12%).
The Germans don’t really view their homes as an investment asset. A home is rather perceived as something functional, like a car. This partly explains why Germany is a nation of renters (with a home ownership rate below 45%).
Home prices in Germany
Property prices in Germany are quite moderate, especially if you compare them to Britain or France. A flat in Frankfurt sells for €3,800 per sqm, which is not even half the price you would pay in Paris (€8,200 per sqm). Berlin is known to be even cheaper, with home prices below €3,000 per sqm.
Munich, Bavaria’s capital, is by far the most expensive town. You would expect to pay €6,000 per sqm for a flat in central Munich. These higher prices are surely helped by Bavarian economic resilience.
German lenders are known to be very patient, and to accept ultra-low yields by European standards, i.e. below 3%.
Get your documentation right before applying for a mortgage, and do it early to avoid disappointment.
From a financial point of view, remember that:
For more information on mortgages in Germany, see ACCOMMODATION – Mortgages for Expats in Germany.
Land value taxes (Grundsteuern) are levied by municipalities. The assessable amount is the property’s rental value in 1964, which is then multiplied by a factor between 3 and 8. Land value tax is then charged on 0.35% of the assessable amount.
Higher property taxes mechanically shrink property values and rental yields. Prior to purchasing property, it is essential that you check how much property taxes you can expect to pay.
Letting your property
Do check the applicable landlord and tenant law prior to leasing property. As a general rule, German law provides for a strong security of tenure, so do expect a tenant to stay for a long time. Do not attempt to evict a tenant illegally, as illegal eviction may be a criminal offence.
In Germany, rents may be freely negotiated unless you attempt to charge abnormally high rents. However, they are not allowed to increase by more than 20% over three consecutive years. Rents may rise further in the future, not only because of inflation but also because of a supply of higher quality homes.
Typically, you could expect a gross rental yield of between 3.5 and 5%. This is, obviously, before taxes and any interest or maintenance expenses. In Munich, the gross rental yield is more likely to be between 2.5 and 3.5%.
You might wish to consider landlord insurance (Haus- und Grundbesitzerhaftpflichtversicherung).
From a financial point of view, the return on property investment comprises of:
If rents are to rise (e.g. because of inflation), you are more likely to make capital gains over the long run, i.e. without taking into account medium-term fluctuations, such as mortgage availability.
If you earn rental income from property located outside Germany, this is likely to be treaty-exempt in Germany but taxable in the foreign country. Otherwise, it is fully taxable in Germany.
Sarah is a UK expat in Germany. She owns a flat in London, of which she makes £15,000 per year, net of all allowable expenses. A personal allowance of £9,440 is available in the UK against any UK income.
Sarah will have a UK tax liability of (15,000 – 9,440) * 20% = £1,112 (effective tax rate: 7.4%). There is no further tax due in Germany, as UK rental is treaty-exempt in Germany.
Had she made any German-source rental income, it would have been taxed at the progressive rates (up to 45% plus solidarity surtax).
Rental income received by an individual is generally taxed at the progressive rates of income tax. Capital gains are taxed only if property is held for less than 10 years.
Mortgage interest is not tax-deductible, unless it is part of a buy-to-let arrangement. This is compensated by an exemption for capital gains on the sale of your principal residence.
For more information on tax in Germany, see TAXATION – Investment Taxation for Expats in Germany.
Sections in FINANCIAL CONSIDERATIONS IN GERMANY:
» Money Transfers for Expats in Germany
» Foreign Exchange for Expats in Germany
» Banking for Expats in Germany
» Pensions for Expats in Germany
» Investment for Expats in Germany
» Wealth Management for Expats in Germany
» Property Investment for Expats in Germany
» Insurance for Expats in Germany
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If you are considering moving to Germany or are soon to depart, you can find helpful information and advice in the Expat Briefing dedicated German section including; details of immigration and visas, German forums, German event listings and service providers in Germany.
From your safety to shopping, living in Germany can yield great benefits as well as occasional drawbacks. Find your feet and stay abreast of the latest developments affecting expats in Germany with relevant news and up-to-date information.
Working in Germany can be rewarding as well as stressful, if you don't plan ahead and fulfill any legal requirements. Find out about visas and passports, owning and operating a company in Germany, and general German culture of the labour market.
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