home Home Improvement Investing in the German property market

Investing in the German property market

Germany is rated as one of the countries with the most stable property market globally. It can be described as a sellers’ market, where there are fewer properties than investors ready to invest in the properties. The easiest option for property investment in Germany is buying to let residential property, which on average can yield 2 to 3% annually. Properties in Germany are characterised by high liquidity, offset by a low yield rate. Property can thus be sold quickly, easily and on short notice in Germany. However, it is important that an investor is careful when investing in property in Germany. Investors should always seek to work with reputable companies. Review sites such as reviewsbird.de will be very beneficial in helping an investor to find reputable German real estate services. Below are some important tips that an investor should equip themselves with before investing in German’s real estate.

Tax Optimisation

The German government imposes taxes on the income of real estate owners who are renting their properties out. Such persons are obligated to a personal income tax, calculated at a 14.77% to 47.475% progressive rate. On the other hand, legal entities are entitled to a corporate tax at a 15.825% fixed rate. Income tax is typically imposed on the margin between the total generated profits and all the incurred expenses. The expenses include utility bills, purchase costs, property tax, company management fees, land tax, building depreciation expenses, loan interest and many others. An important point worth noting is that the depreciation expenses of the building are calculated from the initial purchase value of the property. For foreigners, depending on their country of origin, if they lease property in Germany, their rental income will not be taxed in their home country when the home country has a double taxation agreement with Germany.

Have the correct financing plan

Investing in multiple properties can be challenging, especially if you lack enough equity to buy the property without a mortgage. Investors with plans of purchasing, expensive properties including multifamily complexes, should ensure they have a comprehensive financial plan. Ensure that you are aware of issues affecting the market. For example, a rise in inflation will result in a reduced value of loans. On the other hand, a rise in interest rates results in higher costs of borrowing. It is common for people to tend to go for 10–20-year fixed mortgage interest rates. Usually, a fixed interest rate property loan offers the benefit of stability. Currently, the country has a low mortgage interest rate of about 1.7%. However, indicators show that this rate is subject to an upward trend. Thus, any investor wishing to invest in the German property market should consider this while calculating their numbers.

Always inspect the property carefully to ensure it doesn’t have any defects

To ensure you minimise repair expenses on the property, it is important to thoroughly check any defects the house may have before buying the property. For some properties, the architectural plan could differ highly from the real property explaining why inspecting is important.

However good the condition of a used property is, it is always important that when purchasing such a property, your account for maintenance costs as they will require some maintenance. Some of the frequent defects you can expect on a used property are listed in the table below.

Age of the property in years The type of defect
Up to 10 years ·         Flaking of plaster

·         Damage by moisture

·         Settlement of masonry cracks

·         Growth of moulds

Up to 20 years ·         Covering of textile

·         Railing and Staircase painting

·         Windows and Doors painting

Up to 30 years ·         Sanitary and plumbing

·         Zinc gutters

·         Repair of balcony

Up to 40 years ·         Replacement of the roof

·         Issues on the flooring

·         The network of the heating pipe

·         Issues on electrical fittings and wiring installation

Be aware that a properties age isn’t always reflective of the real structure’s appearance. Having a real estate expert when taking a tour around the whole building will help you have the house’s real value and calculate the actual refurbishment and modernisation costs.

Ensure you understand German tax laws

Before investing in property, always ensure that you are well versed with the countries tax laws as they could significantly vary with that of your home country. For example, while selling real estate property, you must pay the German corporate or individuals income tax. If also, when selling your German property, you make any gain, even if you are not a German resident and have owned the property for less than a decade, you are liable to pay the German Capital Gains tax.

In conclusion, it may be challenging, especially for a new person to the German property market, to know how to navigate through it. This article helps the reader understand the country’s property market.