Purchase of real estate in Germany, especially in Berlin

The biggest challenges when buying real estate, a house or an apartment in Italy

It is advantageous to buy real estate in Germany at this time. The simple reason for this is the very low prices and the low interest rate. More and more Danes have noticed these advantages, and where the Danes previously primarily invested in Southern Europe, it is now the German property market that has become attractive.

It is possible to buy real estate in Berlin and East Germany, the former GDR, at very favorable prices – in contrast to West Germany, where property prices are generally considerably higher.

This is mainly because demand for property in the former GDR has stagnated due to the economic downturn and high unemployment, and many new homes were built after reunification in Berlin in the belief that many Germans would move to the new capital. However, it turned out that the Germans’ interest in moving to Berlin was very limited, and this has meant that today there are approx. 140,000 empty apartments in Berlin and approx. 1,000,000 in the former GDR.

As a result of the large supply, prices are rock bottom. As an example, it is still possible to acquire an apartment in the center of Berlin for approx. half a million kroner, while a newly refurbished 3-bedroom can be acquired for approx. 1 million kroner. A large penthouse apartment with a view over the roofs of Berlin can be acquired for less than half the price of a similar apartment in Copenhagen.

The purchase of an entire rental property is also very attractive. If you compare the square meter price, the purchase of this type of property is even more favorable than the purchase of individual apartments. When buying rental properties, you can easily achieve a return of between 5% and 8%.

If you look at the positive price development in Berlin, a significant increase in value can be expected over the next 10 years. As an example, we have seen price increases of 30-40% in the last 12 months. But even properties in this price range must be described as extremely cheap when compared with the prices on both the Danish and the rest of the European property market. If you buy a rental property and then subdivide it into individual condominiums, very large gains can be made.

Since today’s interest rate is low and the prices are favorable, the conditions are favorable for Danes who want to invest in real estate in Germany as a form of retirement savings or simply as a home for vacation, study or work. The most interesting investment for most Danes is probably an apartment in Berlin or a holiday home on the Baltic coast.

As for Berlin, it counts that you can fly to Berlin at very low prices, and that the actual flight from Copenhagen only lasts 45 minutes. Berlin is a big city that can offer a wide range of opportunities in shopping, museums, theaters, variety shows, concerts, etc. Berlin is the city in Europe with the most canals and waterways, and the city is also one of the greenest in Europe.

After reunification, Berlin has become Europe’s new capital of culture and more and more artists, including many Danes, flock to the city and set up their studio or art workshop there.

The surroundings are just as exciting as the city itself and the many canals, waterways and lakes provide opportunities for rowing, canoeing and sailing.

As for the Baltic coast, there are many holiday homes in addition to quite a few holiday apartments. The area on the coast of Mecklenburg-Western Pomerania is within reasonable transport distance with good ferry connections between Gedser and Rostock or Trelleborg and Sassnitz.

Choosing the right property

It is important that you make it clear where in Berlin you want to buy a home. Berlin is a city that has grown together from many villages (so-called Kieze) that are close to each other. Each of these Kieze has its characteristics in terms of both infrastructure and population composition, as well as its own cultural and architectural distinctiveness. The cityscape can change completely from district (Bezirk) to district, sometimes even from street to street.

It is a matter of taste which district you like best, and therefore our advice is that you go around on your own and look at the houses and feel the atmosphere in the area.

You can find a property online at the following address:
www.immobilienscout24.de., where both real estate agents and private individuals offer properties for sale. You can also approach a local estate agent directly who has houses for sale in the preferred area. In both cases, it is recommended that you look at many subjects before making a decision. At the moment, there is a real rush for property sales in Berlin, but you should not let yourself be pressured by that – even if you risk missing out on the property. It is better to buy another property than to decide too quickly and regret later.

Of course, we are also able to help you find the right property. In connection with the many real estate transactions we have completed in recent years, we have gained access to a wide network of experienced real estate agents and property administrators.

There are two Danish brokers who specialize in selling properties in Berlin: www.berlinmaegleren.dk and www.boligberlin.dk.

Seek legal advice

Once the property has been found, it is advisable to contact a lawyer who can assist with the purchase, a solution that more and more Germans choose. When it is advisable, it is because it is often difficult to grasp the legal, linguistic and practical problems that arise from trading in a foreign market.

This also includes the fact that a real estate agent in Germany does not automatically provide a condition report, printout of land registers, copies of priorities, easements and information about houses or apartments such as insurance conditions. When buying flats, the brokers do not usually obtain articles of association, accounts and minutes from the owner’s association either.

These various pieces of information can be helped by a lawyer, and in addition, he will also review the purchase agreement and all documents to ensure that everything is in order.

The broker’s task in Germany is basically only to present the apartment and mediate the contact between buyer and seller. In many cases, it is appropriate to contact a Danish lawyer who, with the help of a German lawyer, can solve the task. Ret og Råd København has an office in Berlin, which can offer qualified advice on the purchase of real estate, not only in Berlin, but throughout Germany.

The price of the property

The prices are generally very favorable and often negotiable. If the kitchen needs to be replaced or the bathroom is older, you can try to offer a lower price.

It is worth remembering that in Germany you only measure the actual living area, while in Denmark you also take the outer walls into account. This means that the price per square meter in Germany is even lower than it first appears.

Is the property in order?

If you buy an old property, it is advisable that you examine the property thoroughly for faults and defects, and that you possibly seek assistance from an architect or a construction expert. If the property has been renovated, you must remember that it is often only the interior that has been modernized and covered by the contractor’s warranty. The old part, which forms the “skeleton” of the property, is taken over as occupied.

It can turn out to be expensive to save the cost of a construction expert/architect, because if it later turns out that there are defects and deficiencies in the property, you may be forced to start a case abroad. This often entails great difficulty, time consumption and costs.

Purchase of property in Germany by foreigners

A foreigner can buy real estate in Germany without special permits or restrictions. There is no residence requirement.

Purchase agreement

In order to transfer real estate in Germany, it is necessary that a notary participates. Many potential buyers sign a so-called “Reservierungsvertrag” (reservation agreement), but here it is important to point out that such an agreement does not transfer ownership of the property to the buyer, but only gives that person the right to reserve the property for a while. When the time has expired, the owner is free to offer the property to someone else.

When the lawyer has gone through all the documents and approved them, a notary is chosen. It is typically the buyer who takes care of it, as he also pays the notary’s fee. The notary is responsible for carrying out the transaction and registering the purchase agreement, but is otherwise party-neutral and therefore cannot provide the kind of advice that a lawyer gives. The purchase agreement itself is drawn up by the notary, if this is chosen by the buyer. If the notary is chosen by the seller, the buyer’s lawyer will review the purchase agreement.

The notary business itself takes place in such a way that the notary reads the purchase agreement and any other documents that must be registered at the same time (such as mortgage deeds) in German, which is the legal language for all legal proceedings in Germany. If you are not fluent in the German language, the assistance of an interpreter is required, as the notary cannot carry out the transaction unless everyone understands the content of the documents.

if you do not wish to personally travel to Berlin in connection with the notary business, you can choose to have the documents signed by a proxy or by the notary’s employees without a power of attorney.

In the latter case, the signature must be confirmed at the German embassy in Copenhagen against payment of a small fee, which is calculated in relation to the purchase price.

After the notarial transaction, the notary informs the buyer of the account number of the so-called “Notary’s account”, to which the purchase price must be transferred. Likewise, the notary will specify another account to which his fee must be transferred.

When the purchase price has been paid, the notary ensures the registration of the purchase agreement in the land register (Grundbuch) and from the time of registration, ownership passes to the buyer.

Content of the purchase agreement

A valid purchase agreement must contain the following elements:

• Name, date of birth and address of the parties, marital status
• Possibly. name and address of the attorney who represents the parties at the notarial transaction
• Property description and address
• A promise by the seller to sell and a promise by the buyer to buy
• The purchase price
• Method of payment, including whether a mortgage is placed on the property
• The takeover date
• Any other special agreements between the parties
• Only the content of the registered purchase agreement applies between the parties

Costs

Costs for the purchase of real estate for the buyer are as follows:

• Notary fees are between 1 and 2% of the purchase price
• Estate agent costs (unless assumed by the seller) can vary between 4 and 6% of the purchase price
• The costs for the lawyer and interpreter/translator
• Smaller fee for land registration
• Land tax (Grunderwerbssteuer) amounts to 4.5% of the purchase price

As a general rule, each property purchase incurs other costs, corresponding to approx. 10% of the purchase price.

Purchase of a project/renovated property

When buying a project, you have to be extra careful, as the purchase price is typically paid in several installments, which fall due before the project (property) is completed.

This entails a risk for the buyer, since, in the event that the contractor goes bankrupt, he loses the amounts already paid and can only report his claims to the bankruptcy estate – often with little prospect of getting coverage.

In this case, it is important to investigate the construction company’s liquidity and any previous history via a local lawyer. It is particularly important to review the contract carefully with a view to the buyer’s position, whether the buyer e.g. right of withdrawal is guaranteed, or whether a bank guarantee is provided to secure the buyer’s claims, etc.

Tax matters

A double taxation agreement has been concluded between Germany and Denmark to avoid citizens being taxed twice. The basic principle is that if you have paid tax, e.g. in Germany, you do not pay tax on the same income in Denmark.

• Property tax (Grundsteuer) is paid in Germany, as the obligation to pay applies in the country where the property is located.
• Common expenses (Hausgeld) for the property in which the apartment is located are also paid in Germany.
• Property value tax, on the other hand, is paid in Denmark, as this tax does not exist in Germany. It is therefore important that you remember to state in your tax return that you own real estate in Germany.
• If you sell the property within the first 10 years, capital gains tax is charged in Germany, unless the property has been used exclusively for personal use. After 10 years, any profit is tax-free, but only for private individuals. Companies must always pay capital gains tax.

Financing

It is possible to obtain a loan in Germany, but it is difficult, and you can borrow between 60% and 70% of the property’s value at most. Even if the bank gets security in the property, this is still not enough to obtain the same financing as you can obtain if you live in Germany and have a fixed income in the country.

The best solution is therefore to obtain financing in Denmark. A Danish bank can easily secure its loan by taking a mortgage on the relevant German property (owner’s mortgage, priority).

Lawyer Sandra Moll Dirscherl advises on the purchase of real estate in Germany and Berlin. She answers questions about this, and you are welcome to contact her.