There’s plenty you need to know about buying real estate in Germany. Whether it’s house prices, locations, taxes or pitfalls, making sure you’re fully informed is essential.
In this article, we’re taking you through all you need to know about purchasing German property.
Before you buy property in Germany from abroad, ensure you’re familiar with the country. Our guide on moving to Germany from the UK will take you through what to expect as an expat.
House prices in Germany
The financial crisis in 2008 shocked property markets around the world. And the market in Germany was no exception. Since the crash, the cost of buying property in Germany has increased significantly with house prices continuing to rise.
Much like many other European nations, Germany is going through a bit of a housing problem. Put simply, there are not enough homes being built to match the surging demand.
However, although property in Germany is more expensive than it once was, you shouldn’t let it put you off from signing your dream home.
The cost of buying property varies massively depending on where you are. Germany’s major cities are the most expensive places to purchase real estate, with Munich topping the list.
The average price per square metre of an apartment outside the city centre in Munich will set you back around €8,593. This is more than four times the cost of the same type of property in Dortmund.
Interestingly, Berlin, the capital, isn’t as pricey as some other German cities. The average price of real estate will do you more financial damage in Frankfurt and Hamburg than it will in Berlin.
The map below shows some more German cities and the cost of property.
Property taxes in Germany
When purchasing property in Germany, buyers can expect to face around 10% of the property’s purchase price in additional costs.
This includes a property transfer tax (grunderwerbssteue) of 3.5% to 6.5% of the purchase price. The amount you pay differs depending on where the property is. For instance, the property transfer tax on real estate in Berlin is 6%. In the states of Bavaria and Saxony, this tax is only 3.5%.
Other costs you’ll need to factor in are notary fees of 1.2% to 1.5%, registration fees of 0.8% to 1.2%, and estate agent fees (if using one) of 1.5% to 3%, plus VAT (19%).
It’s also worth noting that a capital gains tax (abgeltungsteuer) is applied to properties sold within 10 years of the purchase date. So, if you were to sell your property having lived in it for less than a decade, you must pay a 25% capital gains tax on any profits from the sale.
This means investors looking to buy real estate in Germany tend to keep hold of property for longer than in other countries.
Where to buy in Germany
Deciding where to purchase real estate in Germany depends largely on what you’re looking for. If you’re interested in living the German city life, but are restricted by a tight budget, you may want to consider some of Germany’s less well-known locations.
Cities like Fürth, Lüneburg and Pforzheim, may present a great opportunity to get a slice of the city experience without the hefty fee. Destinations such as these could be of interest to investors, too.
As mentioned earlier, sellers of property in Germany must pay a 25% capital gains tax if they have owned the property for less than 10 years. With prices of property rising in major cities like Munich, Frankfurt and Stuttgart, investment in these alternative locations may be attractive to long-term investors.
Buying real estate in Germany pitfalls
Buying property abroad can be tricky. You have to deal with language barriers, a new property market and a different purchasing process. There’s plenty to catch you out, so you need to be wary. Here are a few examples of the pitfalls of buying real estate in Germany,
1.) Poor preparation for a bidding war situation
As previously mentioned, housing shortages in some areas of Germany make competition fierce. Unless you come fully prepared, you might find yourself constantly losing out to other bidders.
To counteract this, you’ll need to make yourself stand out to the seller. The best way of doing so is by showing that you have your finances in order and are ready to pay.
Get yourself a pre-approval mortgage letter before you view any properties. These are given out by lenders once you’ve confirmed some key financial documentation with them. Typically, this includes proof of income, monthly expenses and proof of deposit and can take up to three weeks.
Now, when you submit your offer, you can attach your pre-approval letter and show the seller you’re ready to go.
2.) Shaky purchase contracts
Property purchase contracts can be long and confusing. And in Germany, you’ll find few tasks more difficult than going back on a signed sale agreement.
Before you put pen to paper, get a neutral, third-party lawyer to read through the contract. That way, you can be sure nothing has slipped the net and will come back to bite you in the future.
3.) Misleading listings
Be careful when reading property listings in Germany. Occasionally, sellers use terminology that may be misleading.
For example, look out for phrases such as ‘für Schnellentschlossene’. This term meaning ‘for quick decision makers’ is sometimes used by sellers to encourage you to snap a property up before it’s gone.
Often, however, it means the property has been available for some time without any interest. The seller is trying to entice you into a quick decision on a property that might not be that great.
Similarly, phrases like ‘grosszügige Räume’ are used in descriptions to mean ‘spacious room’ or ‘large room’. Occasionally, sellers choose to describe rooms in this way because they are hard to heat. By simply referring to them as ‘spacious’ the seller is diverting away from the issue with a term that appears positive.
To avoid getting caught out by this, always ask for the energy efficiency rating of the house. This should give you a good indication of how tough the rooms are to heat and how much you’re likely to spend on energy.
Send money to buy property in Germany
Once you’ve found your dream property in Germany, you’ll now have to think about payment. If you’re purchasing German real estate from abroad, we can help.
At Privalgo, foreign exchange is what we do. Our fantastic rates mean you’ll get as many euros as possible for your currency.
Also, our Currency Specialists get to know your FX requirements. They can offer guidance on ways to manage your payments in response to market fluctuations, minimising the risks.
To find out more, book a free chat with a Privalgo Currency Specialist today.Book a chat with a Currency Specialist