There is no better location for international property investment than the German capital of Berlin, which was recently named the number one European city for investment and development by international consulting and auditing firm PricewaterhouseCoopers (PwC).
Not only does the city enjoy a stable political landscape, fantastic legal protections, and a booming economy but home ownership is quite low compared with the European average so most residents are renters.
In order to benefit from the Berlin property market, there are some things you must know regarding German real estate.
The German Real Estate
The German legal system can be complex as laws can vary depending on your location. There are 16 federal states or Bundesländer in Germany and building codes, tax rates and other legal issues related to property can vary widely from state to state.
The German legal system is designed to give an incredible amount of security to property buyers. For instance, payment for new-build properties is made in several instalments (under the Real Estate and Developers law), so that buyers will not have paid the full property price until they can use or rent it. The purchase contracts will be in German and all legal contracts surrounding real estate require notarization. Your real estate agent in Berlin will guide you through the legal documentation and you can also be assisted by an English-speaking lawyer.
Even if German is your native tongue, you may find it difficult to traverse the legal system without representation. If you’d like expert help to buy an apartment in Berlin, real estate agency First Citiz Berlin can help you with everything from finding a property and getting financing to legal contracts and managing the property for you.
The most important German property laws
If you want to buy residential property in Germany, these are some of the most important laws you need to know about:
- Full freehold title: The most common form of real estate ownership. When you purchase a property in this way, ownership is not transferred until it is entered into the land register. Your rights are protected by a priority notice during this time.
- German tenancy law: This applies if you purchase a rental property with tenants in situ. It means that their current rental terms (as agreed with the previous owner) will continue with you as the landlord/landlady. As most rental contracts were entered into for an unlimited time, rent adjustments are expected as the contract goes on. Any changes to the lease arrangement must be made with the consent of both the tenant and owner of the property.
- Right of termination: If you decide to terminate a rental agreement, you’ll need to give your tenants a notice period of at least three months, or as according to their lease agreement. You’ll also need to give a reason or just cause, such as needing to move into the property yourself or a breach of contract by the tenant. For closed-term contracts, such terms as the termination right and rent, are stipulated in the contract. A local real estate agent will help you to rent out your property and advise you on rent terms.
The German property tax system
An investor in a Berlin property should know that in Germany buy-to-let properties are subject to an annual real estate tax of the rental income of the property based on a progressive scale with the first tax bracket of 14%. Depending on your personal circumstances, you may also be subject to income tax on the rental income, and capital gains tax.
A German accountant will be able to advise on how to keep your books up-to-date and how you can benefit from tax advantages and save money. For example, for a buy-to-let property if you sell a property after nine years, you will have to pay tax on the profit you’ve made in increased property values, but if you sell after ten years, that tax will not apply.
Hopefully this article has given those of you considering buying a property in Berlin, something to think about. If you’ve purchased property in Berlin, which of these do you think is most important to know? Alternatively, what is missing from the list? Let us know in the comments.