Property Buying in Germany

In the following, we would like to give you an introduction into buying property in Germany, with respect to the most common legal as well as other requirements of the purchase process and your overall rights as a property owner in Germany.

 

Which property?

 

The main kinds of property available in Germany are as in all major cities around the globe new apartment buildings, rental homes, single family homes as well as office buildings and supermarkets. Super markets and malls as well as office buildings are however of lesser interest especially for investors at the moment as this market is oversaturated as too much office space was build during the last decades. Further are these properties very pricey if in good locations and often only sold in “packages” of 3.5 million Euros upwards, mostly to large foreign companies.

 

Similar is the case in the segment of single family homes both off-plans as well as existing properties. These are if in a good location such as for example in Berlin’s “Grunewald” extremely pricy to acquire but yield little rental income in comparison. This is also the case for newly build “off-plan” properties which are mostly too expensive or simply not in the best areas, as these do in German cities rather consist of early 20th century houses which are under protection by German “monument preservation laws”.

 

Examples of houses and areas

(Please click to enlarge)

 

The most interesting properties to buy are hence at present existing properties as they are in comparison to other European cities quite low-priced. These properties lie most often in good quality turn-of-the-century stone architecture houses often in tree-lined avenues surrounded by parks and near to the rivers or central attractions. Please see here also our Location guide for further details of the best areas to invest in Berlin and Potsdam.

 

These so called "Altbau" (historical); buildings that were constructed at the beginning of last century and so are between 80-100 years old, are if modernized, unique with their high rooms and special atmosphere. The ceiling level is about 3.20 to 4.00 meters (buildings since about 1950 have around a 2.50 meters room height). A modernized “Altbau” is also a very good rental property as these flats experience the highest demand. Please see here also our Location guide for further details of area prices per city.

 

Examples of modernized projects

(Please click to enlarge)

 

“Altbau” flats can be bought in two versions either off-plan or already modernized. Where off-plan means in this instance that the property is already there but needs to be modernized, the “plan” does in this case then refer to the modernization actions taken for a fixed price. The prices for this kind property is then including the whole modernization such as floors, ceiling, piping and pluming as well as all electrical installations etc.

 

The whole list of the specific actions of the modernization is given in a Document which is part of the contract called “Baubeschreibung” (building-work-description). The advantage is thereby that you can acquire a newly developed property in an old shell, which is probably situated in a more attractive location then most completely new build off-plan properties, as the monument protection laws that protect these properties preserve them in the best housing situations of interesting real estate locations.

 

They are characterised by a special Atmosphere. The living value in such “monument protection” real estates is hardly attainable with another real estate. The demand to live in this kind of property actually already exceeds supply in good locations, a trend which can be expected to continue, hence projecting the possiblity of substantial price rises over the next decade.

 

 

Taxes

 

Another valid reason for this kind of property is the tax situation concerning the property investment as a foreign investor in Germany. Normally you would be liable to pay 25% income tax even as a foreigner on the profit you make when selling the property within the fist ten years after the purchase. But as the properties under the monument protection laws incur tax benefits you can account these against the tax you would have to pay. In the case of already modernized buildings you will however be liable for the income tax of 25% of your capital gain if you sell it within the first ten years after the purchase.

 

The tax benefit of the property is calculated after a certain key where the costs of the modernization incurred in your contract are the base for the tax benefit. In the case of Berlin these are normally accounting for 55% to, at the highest, 70% of the buying price. These costs can be used as a loss against your German income tax where you can account 9% of the total sum in the first eight years and 7% in the following four years. If you have no other income than the capital gain of your property in Germany you can carry these tax deductions from year to year, so that at the time you sell the property no taxes arise even if it is within the first ten years.

 

Further taxes included are a single-time tax for each single property purchase called “Grunderwerbssteuer” (ground-purchase-tax) best translated into “tax on real estate transactions”. The tax on real estate transactions in Berlin amounts to at present 4.5% of the purchase price in all other locations in Germany to 3.5%.

 

Important: You can if you are a resident of the European Union not be taxed in your home country again if purchasing a property in Germany due to existing “double tax treaties” between Germany and most European countries as well as the USA and others.

 

 

Legal

 

The main legal provisions to keep in mind when purchasing properties in Germany are the legal provisions as dealt with in the following paragraphs. However one aspect to keep in mind is that most properties in Germany are freehold properties which represents a difference to for example the UK market where leasehold properties are more common. There are certain exceptions and minor offerings of leasehold properties in Germany but there are not very common yet. The remainder of this buying guide will therefore now deal with the main provisions and processes involved in buying a freehold property in Germany.

 

 

Process of real estate acquisition in Germany

 

The acquisition of a real estate is legally regulated in Germany in the smallest detail. The resolution to buy and/or sell a real estate is for both sides of enormous economic importance. So that here nothing goes inclined, the German legislator prescribed the engagement of a notary for the protection of both participants for all real estate transactions.

 

Tasks of the notary

 

A German notary represents the state and is thus carrier of a public office. He or She will be appointed by the Ministry of law and is obligated to be strictly impartial. A purchase of land contract closed, without the assistance of a German notary is ineffective in Germany. Seller and buyer must appear in person at the notary’s office. The notary reads out the sales contract in presence of the parties and describes individual clauses. In addition the notary is available for questions of the parties. The notary is obligated to instruct seller and buyer about the legal details of the closed contract and refer to risks. Only then will the seller and the buyer together with the notary sign the sales contract. By the signature of the notary the sales contract is recorded, and only the rules met there apply. Seller and buyers must not worry about anything more on the procedure level, after they carried their signature out. Starting from the signing the notary alone is legitimized to accomplish the in each case necessary bureaucratic measures.

 

The notary’s sales contract

 

Contents of a property sales contract depend on the desires of the involved parties and the type of  property, e.g. a field, a building site, a free-hold flat or an in or a multi-family house is to be bought. In Germany legally seen each case sold or bought is treated as “land”. To this land belong then all substantial components such as connected buildings in particular and any other firmly and/or other structural facilities as well as the planting according to the German legal regulations. The soil of a property as well as any firmly associated parts of this soil form thus a material and legal unit. A real estate is in Germany thus always a property inclusive itself and the buildings present on its soil.

All properties are in Germany registered in a public register, the “Grundbuch” which each city keeps. The “Grundbuch” is an official public listing of properties, which can be led in written or electronic form. It is led with the district court. In this land register the most important legal characteristics of each property are registered. From the land register the geographical situation and size of property results. One can determine there, who the owner is (department I of the land register) and which mortgages or other deeds exist (department II and III). All entries in the land register can be arranged only by a notary.

 

In any case contains any German notarial “purchase of land contract” the most important securities for both the buyer and the seller. The notarial sales contract regularly includes as a safety device for the buyer that the purchase price is to be paid only after the future property of the buyer is secured by entry in the land register, and further all documents concerning the load exemption of property are presented as well as all necessary permissions are given. Whether these conditions are given, the notary supervises. Likewise the notary supervises the security of the seller. The notary lets the property describe on the buyer only if it is guaranteed that the seller also receives the purchase price.

 

The notary and registration fees depend on the purchase price and amount to altogether about 1.5% of the purchase price. Notary and registration fees are non-negotiatable, as they are legally fixed.

 

Purchase of a free-hold flat

 

Residential property is in the German right a form of property at an individual private residence. The legal construction is based on the fact that the property is divided by the number of existing dwellings (individual flats or apartments) and each owner receives a co-ownership portion of this property. Each co-ownership portion (Miteigentumsanteil) becomes its own real estate, which is independently led separately in the land register and legally independent of the other existing residential ownerships on the property. The owner can decree freely over this individual owned real estate. It can be sold at any time without agreement of the other owners, be used for load letting and for financing.

 

With the purchase of a free-hold flat the buyer does not only acquire the “Miteigentumsanteil“ part of the  property at the dwelling, but at the same time also a portion of the entire building and of the soil, on which the house stands. The ownership of the Flat is called “Sondereigentum” (Special-owned) and the owned part of the whole house and soil is called “Gemeinschftaeigentum” (community-owned). The proportion of the community-owned part of the building is depending on the size of the owned flat.

All residential property owners of a specific real estate form an owner community. The rights and obligations among them are specified in the “Teilungserklärung” (partiality agreement). It is the legal basis for the relationship of the owners. The “Teilungserklärung” becomes leaglly binding a component of the notary’s sales contract. It specifies, how large the portion of the “Gemeinschaftseigentum” of each individual owner is, and how costs are to be distributed. It basically regulates all  things, which are in a community of importance and require regulation.  The “Teilungserklärung” also contains an allocation plan and each free-hold flats plans and layouts, clearly stating which part belongs to the separate estate or to the community.

 

The German residential property law requires that the owner community orders a manager. This is the implementing and acting on their behalf organ of the owner community. The manager represents the respective owner and the owner community opposite all authorities and the tenants. He leads the management and tenant accounts. On the administration of their joint property the residential properties decide together in the owner meeting. This meeting is „the parliament“, or the highest resolution organ of the community, which is to be invited annually at least once from the manager. On the owner meeting the residential properties with majority decide all measures, in order to guarantee the current management of the property.

 

Purchase of a free-hold flat in a modernization project

 

Here all rules formerly described do also apply. However exist here in comparison to a „normal purchase of land contract“ as formerly described, some special characteristics which have to be to be considered. With the purchase of one free-hold flat for modernization one additionally signs with the seller a “Bauträgervertrag“ a notarial builder contract. The seller herein commits himself in addition to the overall contract to deliver certain construction works to a fixed date.

Therefore technical information play an important role here apart from the other legal regulations. These include one hand the “Baubeschreibung” (construction specifications) and on the other hand the structural drawings of the building. In the building specification one accurately specifies, which work and construction activities will have to be delivered. These documents are either attached as an Appendix to the notarial sales contract or have already been laid down as preparation of the sales contract in a separate notarial document.

 

For the protection of the buyers the legislator specified strict regulations for a builder contract. It prescribes that the purchase price in individual rates must be paid only according to actual building progress. The builder is responsible to the buyer to deliver a perfect execution and must ensure that all deficiencies which may arise during the construction period and the following guarantee period are eliminated. The guarantee time as defined by German law has to be five years.

 

Summary: Differently than in many states of the world and even in comparison to other European countries is buying real estate legally comprehensively regulated and offers an unusual high level of security in Germany.