Buying a House or Apartment in Germany
For those who plan to stay in Germany longer than several years, purchasing a house or apartment is an option not to be overlooked.
Thanks to Helmut Berg, General Manager of RSB Relocation Service Deutschland, Frankfurt, for the information in this article.
Since many expats these days are here for three to five years, it is understandable that few have considered buying a home. For those who plan to stay longer, however, purchasing a house or apartment is an option not to be overlooked. RSB has gained valuable experience in this field and wishes to share it.
These are only guidelines and basics and shouldn't be regarded as binding legal or financial advice. In all instances, RSB strongly advises consultation with attorneys (Rechtsanwalte) or tax consultants (Steuerberäter).
The overall situation
Basically, this is a good time to purchase a house or apartment. Mortgage rates are low. There might be moderate increases, but the present tendency of low rates is expected to endure. The purchase prices of houses also remain moderate, though they have begun to rise in some places, such as Munich.
The prospects for real estate speculation are not favorable. There is little chance for substantial increases in property values over the next few years, precluding any significant profit-taking. Further, any such earnings would be taxable if the re-sale occurred within 10 years of purchase.
Unlike Anglo-Americans, Germans tend to buy houses for life. They don't often see the more typical, non-European practice of buying now and continuously upgrading. This explains why there are fewer real-estate market price fluctuations, though the demand for choice locations remains high. It is not unusual for would-be homeowners to take up to two years to find their home. Bearing this in mind, it is wise to invest in prime properties in the "better" areas of town; the ones with a good infrastructure. The initial price may be higher, but the investment will be worth more in the long run.
The percentage of Germans owning their homes is surprisingly low compared with elsewhere. At about 42 percent, it is the lowest in the entire European Union. As in other countries, the ratio differs according to income levels. The more affluent the people are the more likely it is that they will own their homes.
It could be that extensive expatriate home purchases could cause this rate to rise in the future. There are no legal restrictions on non-Germans owning property, and many expats have significantly higher income levels and housing aspirations. The only bar to foreign ownership of property might lie in the financial institutions that offer mortgages. They might require a higher down payment because of the lack of a long-term financial track record.
What's it going to cost?
Before going into the typical cost of German homes, it must be taken into consideration that homes in Germany, and all other European countries, tend to be smaller than American or Canadian ones. Bear in mind that the more than 80 million people in Germany live on a land surface only 1/35th that of the U.S., which has a population of about 300 million. That means that the Germany has only 1/9th as much living space. And much of that land is heavily developed. So prices are much higher.
Take the example of a typical detached, one family house of average size; one with about 125 square meters (ca. 1,345 sq. ft) of living space, including garage. Such a place in the former West Germany cost about €255,000. But prices varied considerably by region. Such a house in the north cost only about €185,000. In the west the price was about €235,000, and in the south it was significantly more, coming in at just under €310,000. In cities of more than 500,000 population the price was about €300,000.
The city-state of Bremen was the least expensive of the larger cities. The house described would cost a mere €185,000. At the other end of the scale the Bavarian capital of Munich was far and away the most expensive. The house described could cost €635,000! The price per square meter for privately owned property was only €975 in Bremen and around €2,050 in Munich.
How to find a home
As in every country there are certain procedures for finding an apartment or home and closing the sale. It makes little sense in Germany to look for a "For Sale" sign in front of the house. This is not a common way of offering property. Many offers are published in the newspapers. In the last few years various websites have sprung up that provide extensive listings on apartments and houses for sale as well as rental units. These websites also have extensive information on financing and other topics related to buying and renting property.
Some ads state that the property is von privat, which means that no real estate agent is involved. Most offers, though, are made through such agents (Immobilienmakler). A potential buyer should carefully research the property when buying a house in Germany. Many of the "inexpensive" homes advertised may require renovation investments well beyond the purchase price.
Another "warning signal" can be: grosszügige Räume, meaning "large rooms" or "very spacious." What that really means is "very expensive to heat." And watch out for the property that is für Schnellentschlossene (for quick decision-makers). That probably means the home has been on the market for a long time and may not be very desirable.
House-hunting is time consuming. In most cases newspaper ads don't give addresses, meaning you must make an appointment with a go-between or agent. Many website listings however include full addresses as well as maps.
As a buyer, RSB advises you not to sign an "exclusivity contract" with any one agent. You may wish to peruse a wider range of offers from several agents. And ask the agent at the outset who is paying his commission and what the percentage is.
Except with rental contracts, there is no law regulating commissions. It can be negotiated, and in most cases is between 5 and 7 percent of the purchase price. In some cases the buyer pays the commission in full, in many others it's split between buyer and seller and in some instances agents receive their commission exclusively from the seller.
An agent may submit an invoice only when he has clearly arranged the contact between buyer and seller. That means that he has given the buyer the full address, the full name of the seller and a purchase price.
It is also advisable to ask the seller whether he has a contract with an agent. Asking the commission from the seller seems logical, since he is the one who can judge what the agent has done to sell the house. The buyer in most cases only sees the agent once or twice and can fairly ask what the agent has done to earn the big fee he is charging.
If a potential buyer gets an offer from one agent for a house that another agent has already offered, RSB advises its customers to tell the second agent immediately. Otherwise the customer may wind up paying a double commission.
Once a property has been found there will be additional costs that can be conservatively estimated at about 10 percent of the purchase price. In addition to the agent's commission already mentioned, there will be a property transfer tax, a notary fee and additional small administrative costs, perhaps including the hiring of an interpreter.
The property transfer tax is 3.5 percent of the purchase price and is paid by the purchaser. The more the purchase price, the more this tax will be, so there is a temptation to make an "arrangement" with the seller, under which a lower price is shown on the contract. This is a very dangerous practice. If it's found out it could result not only in the payment of the tax, but a severe penalty fee as well.
Another cost for the buyer in Germany is the notary fee. Once the buyer and seller have agreed on a purchase price, the property sales contract must be signed in the presence of a notary. This is to the advantage of both parties, and particularly the buyer, since it provides assurance that the entire transaction is carried out in accordance with the law. The notary fee, of about 1.5 to 2 percent, covers preparation of the contract, negotiations, the signing ceremony and entry in the land register.
Notary duties and responsibilities
The notary is legally bound to act as an impartial middleman between buyer and seller. He or she checks the land register to see whether the property can be sold at all; and if it can be, whether there are any restrictions on its use. The contract spells out the obligations of each party and the measures to be taken in the event of default. Once it is signed, the notary registers the change of ownership with the municipal government and enters the property in the land register.
It isn't widely known that the buyer may choose his or her own notary, and RSB strongly recommends that expatriates exercise this option, choosing a notary who speaks English.
Always ask for a copy of the purchase contract before going to the notary, reviewing it carefully and having it translated if necessary. Prepare any questions you have in advance, don't hesitate to ask them and allow sufficient time for getting full answers.
At the actual signing ceremony the notary reads the contract of sale verbatim and is required to be certain that both parties fully understand its content. The buyer may ask questions and interrupt the proceedings if a clause isn't completely understood. Since the reading must be in the German language, the buyer has the right to have a professional interpreter present, though this will be an additional cost.
In most cases, buyers and sellers are not single persons but couples or even groups of owners. All persons involved must be present at the signing ceremony. All must bring their passports in order to identify themselves.
Among the most important things a contract must show are:
- Whether the names and addresses of the parties and the details of the property are correctly noted. This is crucial as an error, especially in the property details, could at least partially invalidate the contract.
- The agreed upon purchase price and terms and conditions of payment.
- Stipulations as to what happens in the event either party fails to live up to the terms of the contract.
The parties have complete freedom to decide on payment terms. In most cases the buyer has to obtain financing. Therefore the seller agrees to a priority notice in the land register which protects the buyer from other, unexpected sales activities on the part of the seller, such as trying to sell the property to somebody else for a better price.
The land register is located at the district courthouse and is the central document for a piece of property, with all necessary information on its ownership. An actual change in ownership can occur only when an entry has been made in this land register, and only when previous mortgages have been taken care of and the tax office has certified that the seller has no property taxes outstanding.
Very often the purchase price is first paid into an account maintained by the notary (Notaranderkonto) and transferred to the seller only with the land register entry is complete.
The notary is not responsible the correctness of the owner's property description. That is the buyer's job. The seller isn't obliged to point out any major defects that should have been obvious to the buyer, though he should be required to describe any hidden defects.
A copy of the most current land register entries can be obtained on application to the district court. However, only persons with a legitimate need to know, such as the owner or the notary, are eligible to make this application.
The register also spells out the rights of any third parties; those, for example, of tenants. Such tenants can't bar the sale of the property, but the new owner is bound by any lease arrangements to which the previous owner agreed. Hence, the new owner can't evict a tenant before the lease expires.
Financing your home
It usually happens that the prospective buyer can't pay the full purchase price immediately, and needs financing. RSB warns against committing to financial plans that are beyond the buyer's resources. It recommends having at least 20 percent of the total cost for a down payment.
Interest rates for mortgages are presently below the long time average, ranging between 2.97 percent and 4.65 percent, depending to some degree on the duration of the financing plan. Most mortgages are for 10 or 20 years.
Prognoses by banks and other parties see long term stability in interest rates, perhaps with slight up or down fluctuations. It is possible to decrease the total amount of interest paid by paying interest up front. The greater this payment (Disagio) is, the less will be the interest costs in the long run.
In some situations the seller will want to transfer his mortgage to the buyer, and the buyer may find this to his advantage. The mortgage may have been obtained when rates were lower.
As mentioned before, financing is a matter that requires individual, specialized advice. RSB therefore recommend getting professional advice from a bank specialist and/or a tax consultant.
The purchase or construction of housing for your own use can, under certain circumstances, be subsidized by the government in Germany. There may also be some tax advantages involved. Basically, the persons most likely to benefit from these subsidies are those of modest income with minor children who are buying or building moderately priced housing. Here it is especially important to get personalized counsel from a bank or tax consultant.
Of course there are further regulations covering many more details. It is therefore advisable to check each individual situation with a bank.