Berlin property: What you need to know before you invest
Your guide to property investments in Europe's biggest residential market – Berlin.
If you're looking to invest in international property, you couldn't do better than Germany.
Europe's largest economy is also its biggest residential buy-to-let market, where the popularity of renting has led to one of the world’s lowest home ownership rates.
The country's stable political and economic environment also make it a safe prospect for investment. Germany's two largest cities, Berlin and Hamburg, were recently named by international consulting and auditing firm PricewaterhouseCoopers as the top two cities in Europe for investment and development in 2017.
Buying property in Germany means you'll benefit from the full protection of German law. But that can also mean a lot of paperwork and new rules to learn.
Do you need a lawyer?
German law is highly developed and complex, especially as laws can change depending on where you are in the Federal Republic.
Building codes, tax rates and other protocols can vary across the 16 Bundesländer (federal states), but it's not just understanding these laws that makes legal assistance necessary.
"German law provides an immense amount of security when buying German property," says Allyce Kluver, Head of Relationship Management at Zabel Property AG.
"According to the Real Estate and Developers law, for new-build properties, payments are paid in up to seven installments during the construction period.
"Purchase contracts are in German, hence legal representation is required for the purchase."
The legal system also makes extensive use of notarisation. All contracts to buy and sell real estate in Germany need to be notarised, whether you're buying property or signing a development agreement.
What laws do you need to know?
If you're buying residential property in Germany, these are some of the most important rules to be aware of.
- Full freehold title – this is the most common form of real estate ownership, which includes condominiums (Wohnungseigentum). After you purchase a property, its ownership won't be transferred until it's entered into the land register. This process can be lengthy, during which your rights will be protected by a priority notice.
- German tenancy law – if you buy a rental property that has existing tenants, their current lease arrangement will continue, with you as the landlord. Most rental contracts are entered into for an unlimited time, meaning rent adjustments are expected after an acceptable period. However, any changes to the lease arrangement need to have common consent between the landlord and the tenant.
- Rights of termination – if you choose to terminate an apartment contract, you need to provide tenants with a notice period of at least three months, depending on the length of your rental relationship. You also need to cite good cause, which can include you or a family member moving into the property or the tenant having breached their contract.
What taxes do you need to pay?
Property in Germany is subject to real estate tax, which is levied annually. Depending on your circumstances, you may also be subject to income tax earned from the property, capital gains tax or real estate transfer tax.
"A tax return will need to be filed on an annual basis and tax paid on the rental income of the property. Rates range between 14 and 42 percent,” Kluver explains. "Re-selling a property after ownership for over 10 years allows the purchaser to avoid paying tax on the profit made on the property. This is not applicable if the property has been bought in a company name."
It's recommended you seek professional tax advice before purchasing real estate in Germany, especially as tax rates vary between states.
Looking for a condominium in Berlin?
If you're eager to take your first step on the German property ladder, apartments are now available to purchase in Fritz Tower – a new residential tower in the heart of Berlin's newest neighbourhood. Close to central station and the upcoming business district Europa City.
Another project available to purchase is Luisenpark – located on the border of Mitte and Kreuzberg within minutes of the IT Tech hub of Berlin and universities.