Buying A German Property

by Expatica

Dreaming of a settling in a Bavarian farmhouse or a renovated warehouse studio in Berlin? Our guide to buying property in Germany explains how to make those dreams come true, from the legal requirements to the fees, and where to search for your new German home.

From finding a house in Germany to signing the contract, Hypofriend, a financial company that advises expats on German mortgages, takes you through the process of buying a home in Germany.

While most countries swing strongly in favour of either renting or buying your home, the options are balanced in Germany, with just under half of the population owning their own homes, the second lowest rate in Europe after Switzerland.

Should you rent or buy in Germany?

The German property market

Since the financial crash, house prices in Germany have increased considerably, and have now reached the point that some commentators have warned of the possibility of a bubble emerging in major cities. For example, the property consultancy Knight Frank claimed that prices in Berlin increased by a fifth (20.5%) in 2017, making it the fastest moving city market in the world.

It remains to be seen how sustainable these increases are – data released in early 2018 by the Bundesbank suggested that properties in towns and cities could be overpriced by as much as 15-20%.

This doesn’t mean that you should be put off from purchasing a home, as some places do remain affordable. Data published by the German consumer organisation Stiftung Warentest in 2017 showed that buyers in Magdeburg and Cottbus could buy a 130 square metre family homes for €200,000, but that for the same money they’d get a small two-room apartment in Cologne or Dusseldorf, and only a dorm in Munich.

House prices in German cities

The below figures from the Global Property Guide give an indication of house prices per square metre in each city (based on data from the third quarter of 2017).

Munich: €5,839 (apartment), €4,233 (family home)Hamburg: €3,669 (apartment), €2,529 (family home)Berlin: €3,593 (apartment), €2,321 (family home)Frankfurt: €3,167 (apartment), €2,500 (family Home)Cologne: €2,671 (apartment), €2,240 (family home)Hanover: €2,257 (apartment), €2,007 (family home).

One of the factors behind this growth in prices is an imbalance between supply and demand, with some experts claiming that while 280,000 new homes that are built in Germany each year, this figure isn’t high enough.

German property has been seen as a stable, reliable investment by both local and overseas investors, though yields can be low in some areas.

In addition, some of the tax breaks available to investors have now been removed. In addition, a capital gains tax (abgeltungsteuer) of 25% (plus a solidarity charge) applies to any property owned for less than 10 years, meaning that for many expats buying property in Germany is only attractive for longer stays. Transaction costs can also range from 7–12% for buyers (around 2–4% for sellers) on top of the purchase price.

Renting in Germany

Renting in Germany is very popular, with a little over half of Germans living in rented accommodation. This is most common in the major cities, with Berlin having a remarkably low homeownership rate of just 15%.

According to data from the Bundesbank, rent prices increased by 7.2% in Germany during 2017. Data from Global Property Guide shows the average rents and yields on a 120 square metre apartment in three major cities:

Munich: €2,250 a month, yield of 2.9%Berlin: €1,500 a month, yield of 3%Frankfurt: €1,500 a month, yield of 3.7%

Find out more about the rented sector in Germany in Expatica’s guide to renting a home in Germany.

Are foreigners allowed to buy property in Germany?

There are no restrictions to foreigners buying property in Germany. You may buy property in Germany even if you are a non-resident and not an EU national.

How to find a German property

Properties may be sold either privately or through an estate agent (Immobilienmakler). In either case, the onus is usually on the buyer to find a property they are interested in and then approach the owner or their agent.

This also means that estate agents are usually paid by the seller, but this is not always the case. As agents’ fees are typically 3–7% of the purchase price, it’s important to check who is paying them. You can find an estate agent through their national organisation, the IVD.

As in most European countries, you can find adverts in newspapers or search for homes on estate agency websites or  online property portals. Properties for sale may have a sign in the window or notice board in the garden advertising their status, but this is relatively rare in Germany so don’t count on spotting every house for sale, even on a street you walk down every day.

Online property portals

Choosing a property

Germans typically expect to buy a property and live in it for an extended period, or for life, so it’s important to take time when making your decision and not rush in. In attractive or competitive areas turnover can be low, so in an ideal world you should give yourself a year or more to find and buy the perfect home.

Houses in Germany have to meet certain minimum legal requirements regarding roofing, windows, heating and other utilities. You should be given some information on this before you buy, but there’s no guarantee you’ll get the full picture. With this in mind, it makes sense to pay for a full structural survey, which will outline any problems with the home. You can hire an architect or a surveyor (amtlich vereidigter sachverständiger) to do a survey.

Mortgage Calculators

Online mortgage calculators for Germany can help you determine how much you can borrow and estimate your monthly rate:

Buying a property in Germany

Expect to spend a significant period house hunting, but once you’ve found a property it can take just over a month to complete the deal. The steps are typically as follows:

  1. Investigate mortgages and get an offer in principle.

  2. Find a suitable property.

  3. Make an offer.

  4. The notary (notar) will draw up the sale contract.

  5. Finalise the mortgage.

  6. Sign the contract.

  7. Notary registers the sale.

  8. Four weeks later, you must pay the property sale tax.

Registering a property purchase in Germany

It’s important to note that signing the contract isn’t enough to transfer the property. The property must also be registered, a process that your notary should take care of. At this point, the government will check that there are no outstanding issues regarding the sale.

The notary will already have made a check, so there’s  rarely an issue, but if there is a problem, the property transfer will not be completed until the knots are untangled. For this reason, many people choose to use the notary as an escrow. In this case, the money is transferred to the notary’s account (notaranderkonto) before being released to the seller.

Appointing a notary in Germany

You are legally required to use a public notary (notar) to complete the sale of a property. The notary will act as a middleman or arbitrator, and should be impartial.

Your notary will check the records to ensure that there is no reason why the sale cannot go ahead, though it’s important to remember that they will not inspect the property or demand information on its condition from the seller. The notary’s job is to ensure that all the paperwork is completed correctly, and the deed of sale will be witnessed in their presence.

You have the opportunity to choose your own notary, and if you can find one who speaks your language, do so. Otherwise, your embassy will often have a list of translators they can recommend. The British embassy provides a list of English-speaking lawyers and translators.

Deposits and mortgages in Germany

You should expect to put down a significant deposit when you buy a home in Germany. A minimum deposit of 20% is standard, and in some cases expats have been asked for deposits of 30-40% as they are seen as higher risk. When applying for a mortgage, you  may also be asked to provide evidence of regular savings over the last several years.

A mortgage (Hypothek) is offered by most banks. The major and national banks typically have a mortgage advisor on their staff, who will be able to discuss your needs with you. Some advisers even speak English, but this is not guaranteed. It’s best to get an idea of how much you might be able to borrow using an online mortgage calculator before your appointment, or hiring the services of an expat-friendly mortgage advisor such as Hypofriend.

Most German banks have an online section where you can work through the paperwork to apply for a mortgage in your own time. They will then follow this up with a phone call and an in person meeting before agreeing a mortgage in principle, which you can use to put in an offer on a property.

Mortgages typically last for a 25 or 30 year period, with interest rates fixed for the first five years or so. Variable interest rates and other loan periods are available, but Germany does not have some of the riskier mortgage types that have been available in the USA and UK. You will not find, for example, an interest-only mortgage for the full value of a property.

As a benefit, part of your mortgage interest may be tax deductible depending on your situation. However, this benefit is unlikely to offset the capital gains tax mentioned above, so is typically only an advantage for those who stay put for a long period.

You can learn more about how this works in our full guide to getting a mortgage in Germany.

The cost of buying a home in Germany

When buying a property in Germany, you can expect to pay most of the costs. Typically, the seller will pay the estate agent, but if you have used a buyer’s agent or the agent splits their fee, you may still have to pay something.

The total cost to the buyer of purchasing a property is usually around 10% of the purchase price. This covers:

Property transfer tax (grunderwerbssteue) of 3.5–6.5%;

Notary’s fees 1.2–1.5%;

Registration fees 0.8–1.2%;

Estate agent’s fees, if shared, of 1.5–3%, plus VAT at 19%.

Property transfer tax/real estate transfer tax:

When you buy a home in Germany, you’ll need to pay transfer tax (Grunderwebsteur). This is levied from 3.5% of the purchase price, but is higher in some areas.

Currently, the prices are set as follows for each region:

  • 3.5% – Bavaria, Saxony

  • 4.5% – Hamburg

  • 5% – Baden-Wurttemberg, Brandenburg, Hesse, Mecklenburg-Pomerania, North Rhine-Westphalia, Rhineland-Pfalz, Saxony-Anhalt, Thuringia

  • 5.5% – Saarland

  • 6% – Berlin

  • 6.5% – Schleswig-Holstein

Contracts in Germany

Contracts are in German and signed in the presence of a notary. You should ensure you fully understand the contract before signing, and bring an interpreter with you if necessary. You have the right to have a translator with you, but you will have to supply (and pay) them yourself. In some areas, you may be able to find a notary who is bilingual.

As you will be arranging financing for the property at the same time as you are arranging the sale, it’s important to include an exit clause in the sale agreement that gives you a way out if you can’t arrange a mortgage.

Selling a property in Germany

It’s important to consider how you will dispose of your property, particularly if you anticipate a sudden relocation. As most of the costs of the transaction are paid by the buyer, selling a property in Germany is relatively cheap.

However, once the property is sold, you will have to pay capital gains tax of 25% if you have owned the property for less than 10 years.

In addition, properties can be slow to move, unless you’ve managed to choose a particularly popular area, and this may tie up a significant amount of your capital. The rental market is strong and you are allowed to own property in Germany even if you are a non-national non-resident, so you may be able to continue to profit from your investment long after you leave the area.