Buying Property in Germany

Practical Information for Buying Property in Germany

• Top 10 Tips
• Key Phrases
• The German Property Market
• How to Find a Property Agent
• Legal Issues
• Tax
• Regional Guide to Germany

Top 10 Tips

• Property prices vary across the country with those in the East still cheaper generally than the West
• After years of stagnation, the German property market is starting to grow again
• German tax and planning laws can be quite bureaucratic
• Germany has the lowest rate of home ownership in the European Union, approximately 43%
• Check out all aspects of the apartment complex if you are buying into one
• Find out about agents’ commission rates
• 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
• A public notary is responsible for completing the sale
• Total costs (fees and taxes) amount to about 10 – 12 % of the property purchase price
• You are likely to need the services of a German lawyer or one in Ireland with a good knowledge of German property

Key Phrases
English : German

• Purchase Tax : Grunderwerbsteuer
• Estate Agent : Immobilienmakler
• Notary’s Bank Account : Notaranderkonto

The German Property Market
After a long period of slow growth if any at all, the German economy recovered in 2006 and is set to grow strongly. This is very much reflected in consumer confidence and rising house prices. Significantly, much of the growth in the property sector is being driven by international investors. For example, investment in German commercial property amounted to €50 billion in 2006, representing a 4.4% increase on the previous year. 80% of these transactions were cross-border, originating from international investors drawn by the attractive yield spreads of the German property market. Investment in residential property increased by approximately 4 %, again, this was driven mainly by foreign financial investors investing approximately €30 billion.

An increase in the VAT rate from 16% to 19% at the start of January 2007 has had some impact on building and refurbishing this year but the growth trend continues to be strong.

Germany has the lowest rate of home ownership in the European Union, approximately 43% (Ireland is almost double that). Much of this is due to the flexible rental market and strong social housing policies that existed in both East and West Germany since the Second World War.

Before buying in Germany, determine your budget and if you are obtaining a mortgage from an Irish financial institution, make yourself aware of the sum available to you and any terms and conditions applying.

How to Find a Property Agent
There are some agents in Ireland who assist in buying German property (not as many as for France, Spain or Portugal, however) and of course, some German agents advertise on the web and in magazines and supplements in Ireland. It makes sense to contact such agents before you travel to an area to look at property. Exclusively German property exhibitions are not as common in Ireland as for other destinations.

You will need to decide on the type of property for which you are looking. Is it a holiday home to be used a few weeks in the year, a more permanent residence or a rental investment? A holiday home ideally will require little maintenance.

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. Most offers are published in the newspapers or increasingly, on the web.

Some ads state that the property is von privat, which means that no 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 in the local papers may require renovation investments well beyond the purchase price.

You should not sign an "exclusivity contract" with any one German agent. You may wish to peruse a wider range of offers from several agents. Ask the agent at the outset who is paying the commission and the percentage. 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 is split between buyer and seller. In rare instances, agents receive their commission exclusively from the seller.

An agent may submit an invoice only when they have has arranged the contact between the two parties.

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 they 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 they are charging.

Give the estate agent a clear understanding of what you seek in a property. Be prepared for the types of property you are viewing i.e. wear appropriate clothing. Take a good local map and have a list of questions prepared.

• Find a Property Agent
   

The Legal Issues
Half of the world’s literature on taxes is published in German and doing business can sometimes be extremely bureaucratic. It is advisable that you use the services of a German lawyer or an Irish solicitor who has a good knowledge of the German property market.

Before buying, carry out a full examination of the location and price of the property.

• Most important is to have the house inspected carefully, if not by oneself, then by a knowledgeable person in the area. This can be a broker or someone with relevant expertise.
• If in an apartment, a useful point to study is minutes of the annual meetings of all apartment owners in the house. The importance of these minutes cannot be underestimated. Any and all problems relating to the house community and the house itself which may incur future costs will be discussed in these meetings and will be reflected in the annual meeting report which needs to be done by the management company responsible for holding these meetings.
• Any renovations or repairs of damages need to be checked.
• The roof should be examined by an expert or a good eye before buying.
• Age of the heating system is a very important point. Lots of restrictions and new laws have been passed over the last few years. It might be necessary to renew the whole heating system if it is older than ten years.

When you have agreed a deal with the seller, a contract is drawn up and this is taken to the office of the local notary. Always ask for a copy of the contract before going to the notary, review it carefully and have 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.

Amongst other details, the contract must include property details, agreed prices and payment conditions and clauses specifying what will happen should either party fail to complete the contract.

The notary is a State official and 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. Ideally, you should look for a notary that can speak English.

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.

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 they 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, for example, tenants at the property. 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.

The purchase or construction of housing for your own use can, under certain circumstances, be subsidised by the government in Germany. 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. Seek advice from your lawyer, bank or tax consultant.

Tax
Like in most countries, transfer tax is payable when purchasing a property in Germany. The tax treatment of rental income and capital gains will depend on whether you buy the property in your own name, through a German company (Gmbh) or through a German Partnership (KG).

• For further details on German Tax, check out DG International Tax.ie

Regional Guide to Germany
Most of us are familiar with the main cities of Germany - Berlin, Munich and Hamburg, but placing them within a region can require remembering our text book geography lessons from school. Here we provide a brief breakdown of each of the key regions in Germany to help you when making your decision about where you would like to buy property in Germany.

Baden-Württemberg
Baden-Württemberg is in the south western part of Germany at the foothills of the Swiss Alps. The capital of the region is the city of Stuttgart, which for a city, has many open green areas that make the place seem less populated and more relaxed.
 
Bavaria
Bavaria forms the southernmost area of Germany. The most well known cities in this region are Munich and Nuremberg. Bavaria has a wealth of cultural reminders of Germany’s turbulent history and overwhelming scenic beauty. The region is near the Mediterranean and is open to the influences of Mediterranean culture. Munich or Munchen as the Germans call it, is a haven for foreign nationals with a strong Irish population enjoying the benefits of living in the centre of Europe providing easy access to its neighbouring countries. The Munich October Fest if famous the world over and attracts hundreds of thousands of tourists annually.
 
Berlin
Berlin is the capital city of Germany. The region is covered with numerous lakes and vast woodland making it an unlikely home for the countries largest city. With Berlin's unique history comes an array of architectural splendors and sights. Berlin is subdivided into twelve boroughs.

Brandenburg
Brandenburg lies in the east of the country. This region has one of the largest intact natural environments and is the leading supporter for nature conservation. Brandenburg is steeped in history due to its close proximity to the city of Berlin.

Hamburg
Hamburg is the second largest city is Europe. In the centre of the city is a large lake which is known as the ‘Heart of Hamburg’ and built around this is Hamburg’s shopping and cultural metropolis. The surrounding region is covered with many historic old towns with farms that grow fruit.

Hesse
Hesse situated in western-central Germany. Here you will find idyllic villages and houses surrounded by hilly countryside. Life here is easy going making this area a prime location for investment.

Lower Saxony
Lower Saxony lies in north-western Germany. This region is in contrast to other areas of Germany, mainly because of its huge agricultural background. Lower Saxony has a beautiful landscape dotted with churches, castles and historic gardens.

Mecklenburg
Mecklenburg is a particularly attractive area with more than 2,000 lakes, numerous waterways and lush green forests and fields. The surrounding countryside is mostly flat, providing good agricultural land to support the main source of employment.

North Rhine
North Rhine is the westernmost part of Germany. The main city of North Rhine is Düsseldorf. Düsseldorf has one of the most elegant commercial streets of Europe. The region has 57 towns and villages all with their own unique style and culture. The 2007 Mercer HR Consulting survey ranks Düsseldorf on place 5 of the cities with highest quality of life worldwide and number 1 in Germany.

Rhineland
The Rhineland is in the western part of Germany. The Rhine Valley is a fascinating landscape surrounded by mountains and contains some of the most historically significant places in Germany. The region is also famed for its wine making.

Saar
Saarland is a hilly region mainly covered in forest. There are, however, hidden lakes and river valleys situated in amongst the thick trees. Idyllic sleepy villages and old town centers make this area on of true romantic beauty. Saarland also has many monuments and vineyards to be discovered.

Saxony
Saxony is the easternmost state of Germany. The countryside rises gradually from north to south, culminating in the mountain ranges along the Czech border. Saxony offers an above-average number of very well preserved historic little towns and shares its attractive areas with the Czech Republic.

Saxony-Anhalt
Saxony-Anhalt is most famous for being the Arts region of Germany. With Bauhaus at its centre, it has produced stunning architecture and fine arts for the whole world. Along with Brandenburg, Saxony-Anhalt is big on conservation and has an extensive wildlife sanctuary. All of this, as well as many other beautiful places of interest make this region well worth a look.

Schleswig-Holstein
Schleswig-Holstein is the northernmost part of Germany. With rolling hills, cliffs, scenic lakes and beautiful bays Schleswig-Holstein has a remarkably diverse natural landscape. The region has taken its influences from both German and Danish culture.

Thuringia
Thuringia is the central part of Germany and is a low land basin of rolling plains nearly surrounded by mountains. The region is dotted with medieval fortresses and castles with many of the houses dating from the Renaissance. The cities of Thuringia are full of historical sites and they pulsate with atmosphere and culture.

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