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Below is information for buyers who are not familiar with the system.
Overview:
- there are no restrictions on international investors buying into the German property market
- the process is similar to the Uk and Ireland where an offer is made but only binding when both parties sign a legal agreement
- as with many continental countires both parties use a local notary, a independent state official who forms an agreement that all parties understand and agree on
- fees for property agents are paid by the buyer therefore working for the buyer rather than the vendor.
- allow up to 12% on top of the purchase price to cover stamp duty, legal fees, our agency fee etc.
What to expect
As you may have noticed form our offers, property prices are far below that of comparable industrialised nations. As a guide, it is realistic to find low risk rental properties in Berlin that offer net yields of 6%, the average sale price in the city of Berlin is currently €1400m², an unprecidented low relative to personal incomes and are considered at there most affordable level since 1964.
Not surprisingly prices vary considerably depending on the location, quality and desirability of the object. As anywhere, the market demands the price. It is possible to find properties for as low as 500€ per m² and more than 3000€ per m². The outlook for rental increases and capital gain are looking very positive for the Berlin area, some agents reported 15% price rises in 2006, by far the highest rises in over a decade.
There is a large choice of apartments available in Berlin and in the centres of the surrounding region. There are few houses to choose from in the urban areas and those that are, are more expensive per sq metre than apartments. It is much harder to get a high yield with houses, and their maintenance is more difficult. Houses are much more common in the region of Brandenburg where there is an abundance at low prices and in various state of repair. Forecasts for this region are generally less favorable except near the expanding airport and around the affluent town of Potsdam. The region could offer great opportunities, the main attraction is a lot of space, in an accessible region for little money. We tend not to pursue houses except on request.
Our general advice would be to steer away from properties at the very bottom of the market. Bottom fishing is fine but vacuuming the sand can be too risky, especially with rental objects. Prospective tenants will generally prefer to pay a bit extra so you could be left with an empty property for a long time. These themes are covered in more detail in the research section.
An big advantage of buying in Germany is the legal system is very secure and the purchasing process is similar to that in the UK and Ireland.
Reason for a purchase
Clear reasons for a purchase will determine the location and price range. One or a combination of the following reasons are the most typical:
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Main residence
- Portfolio expansion
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Part of a long term investment, e.g. towards a pension provision.
For many, the current appeal of the Berlin market is the low purchase price, unbeatable for a Western European capital, and cheaper than many developing nations in Eastern Europe.
How to do it
Setting a budget
Having a clear idea of why you would like to puchase, the next step is to calculate your anticipated budget range. You will need to allow for 10-12% on top of the asking price to cover costs, these are explained in detail below. If this is through finance decide on an acceptable monthly repayment sum. If the property is to be rented out calculate the minimal rental return needed to cover costs and if this is acheivable which we can advise you on.
It is possible to find propetrties that are 100% self financing but such a deal will have little margin for change and may not necessarily be the best properties over an extended period of time. It is wiser and necessary to raise finance to pay a deposit and get a better finance deal. Financing can often be renegotiated within a short period to release start capital.
Finding the right object(s)
There isnt a tradition of high street estate agents as in the UK and Ireland where you can browse dozens of shop windows. Some banks have limited offers on display as do a few agents, but these are the exceptions and tend to have more expensive objects. The internet and newspapers are now the most common forms of finding property, where individuals or brokers place ads.
One of the advantages for the consumer over the UK and Ireland system is that most objects are available via many agents as the seller rarely signs up for exclusive marketing rights. The purchase will go to those who make and have an offer accepted first.
Our main service is to find you the best offers available that suit your needs. As a guiding principle we only offer properties that we beleive are good value and will not become a liability.
The buying process
The process is similar to the UK and is generally straight forward and trustworthy. Once a property is found:
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An official offer is made, usually after negotiations with the seller, which is either accepted or rejected.
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All parties involved need to agree on the terms of a notary contract* and a date of signing with a public notary. (It is possible to get a wrtten agreement to reserve the property for a stated length of time. This is usually avoided as the costs can be prohibitive, the legal fee is the same as the sales fees, ca.1.5%)
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Signing the deeds. Up to this point there is no commitment on either side.The notary checks that all parties agree with and understand what they are signing. Once this is signed by both parties it is irrevocable unless one of the parties does not fulfil their commitment as agreed, in which case all costs will be reimbursed to the damaged party.
There are some off plan developments available where it is common practice to pay an inital deposit of 10%, and pre-agreed installments as progress is made.
The phenomena of having a chain of buyers and gazumping, (the owner accepting a higher offer to one already accepted) is virtually unheard of. Sellers will often rent accomodation for an interim period whilst looking for a new home if theirs is sold first.
The notary contract* will agree the terms of sale, such as the sales price, when this is to be paid and the date the property can be accessed. Note however, that the actual date the new owner is written on to the new deeds can take months. This is due to beaurocratic back logs in local administrative offices, and each purchase needs to be checked against state interests. The state has first refusal on all purchases (such as to enable road building etc) however this rarely happens as the authorities register intentions publically and well in advance.
The auction process is relatively straight forward and can be as low risk as direct purchase if well researched. Theoretically it is possible to obtain property at a fraction of what would be paid on the open market. In 2006 approximately one tenth of all property sold in the Berlin More realistic however is to expect to pay between 10 and 30 percent below the market price, this will depend on the desirability of the object on offer, the location and local/national market conditions. region sold at auction for 50% of the market value or less.
- There are no restrictions on who can make a purchase. For legal reasons, those bidding in person must be able to speak German, or be accompanied by a German speaker.
- If a bidder can not be present, we can be appointed as a representative through the authorisation of a lawyer. This will incur a lawyers fee regardless if the bid is successful or not, such delegated powers may not be older than two weeks at the time of auction
- A caution of 10% of the valuation has to be paid on the day of the auction by all those making a bid
Click here to find out more about the auction process and how it works.
The language barrier
Most people in Germany can speak at least some English, this is especially true of younger generations where statistically 92% can converse. When it comes to legal and financial matters you will need to be sure that you understand everything. Part of the public notarys purpose is to ensure all parties agree to what they are signing. Part of our service is to be a mediator for you through the search, negotiating and purchasing process. Once the transaction is complete we will still be available to help you. We suggest that major documents are officially translated.
Costs involved in purchasing
As a rule of thumb buyers expenses amount to ca.12% of the purchase price. This breaks down to:
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4.5% stamp duty (3.5% outside Berlin)
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1.5% notary/ legal fees
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1-2% surveys and translations
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5% our brokerage fee which includes VAT
There are some all in `packages`available on the market to entice investors, these costs will have been calculated in somewhere. The disadvantage is not knowing what the exact purchase price is and also having to pay stamp duty
on top of agency fees.
Running costs for owner occupiers
- A variable ground tax is charged by the local authority but is low at around €300 per annum for an average apartment of 70 m² (0.8 and 1.5% of the rateable value per year).
- Service charges which covers local services such as waste disposal, street cleaning as well as building maintenance, averages €2 per month per metre sq. There is no additional council tax equivalent as in the UK.
- If the property is used as a second home, an anual charge is to be paid to the local authority. This is set at 5% of the estimated monthly gross rent.
Running costs for buy to let investments
As a guide line, allow between 15 and 20% of the rental income from buy to let income to cover total running costs. This will include building and rental management fees and repair work. The cost will vary depending on the condition of the property and the type of use.
Financing
Financing within Germany is usually via a bank or building society (Bausparkasse). The amount that can be financed tends to be limited to 70% to 80% of the purchase price. The rest must be paid up front or secured against another investment. Many international investors secure this against property equity that they already own. Some banks now offer up to 100% mortgages, with a higher base rate on money over the 70% limit. A mortgage from Germany has the advantage of offering a fixed rate over an extended period of time if required. A Euro based mortgage would buffer against currency fluctuation. It is unlikely that none resident foreigners not earning their income in Germany would get financing above 60% of the purchase price. It is anticipated that current practice will become more dynamic as the restricted financial market is opened up to more competition.
Banks, building societies and increasingly mortgage brokers via the internet facilitate foreign purchases. Though many still focus on the traditional markets of France and Spain, lenders have become much more flexible as competition and interest in other markets has expanded. Please ask us for referrals if you require them as we are continually receiving recommendations.
Cash purchases
Cash is still king and you will be in a good negotiating position. If this is your case it may be possible to search for property via the auction process. Further information is available in our auction document which is available on request.
Large scale investors
Larger purchases cost less on average per square meter and there are potential savings on running costs. It is possible to buy a whole apartment block in many districts at a relatively low starting cost, the floor area price has averaged 80% of the usual individual market price up to 2006. The volume of sale has been squeezing this price. Such an investment could then be wisely managed using a local agent. It is advised to get a lawyer to undertake a due diligence check which covers a land register check, verifies rents, proofs rental contracts and any financial obligations secured against the building as collateral i.e. bank loans etc. There are also more options on how to purchase for tax return purposes as this could be as an individual, a company or a limited partnership.
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