Foreigners consider real estate in Germany as a reliable "harbor" in terms of investment and capital preservation, because the country has a stable annual price growth in its key cities and their environs in Berlin, Munich, Frankfurt am Main, Hamburg, Dusseldorf, Cologne and Stuttgart. In the period from 2015 to 2018, the cost of housing in these cities increased by more than 30% and, according to experts, this indicator will continue to grow.
And if earlier Germans, due to high mobility in Europe, bought a house closer to retirement, now they buy it for rent at these low interest rates. According to statistics, in recent years, Germans have spent more than 160 billion euros a year on buying real estate - and experts predict that this trend will continue. Thus, foreign investors have to compete in fairly tough conditions in the struggle for a good object with local investors. Therefore, at this stage it is customary to say that Germany is the market of the object, not the buyer.
Affordable mortgage is the secret to the success of the German real estate market
According to the latest report by PwC and the Urban Land Institute, it is Berlin that offers investors maximum liquidity and stability in Europe, leaving London and Paris behind. And the reasons for this state of affairs are quite obvious - demand is several times higher than supply due to the large influx of the working population to the major cities of West Germany. At the same time, not only residential, but also commercial real estate is in high demand, because the income from it is on average from 5% to 8%, while the profit from renting an apartment will be about 3.8%. It is also worth noting that Germany has become the largest mortgage market in the European Union after the British Brexit.
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The reason for the country's success is simple - low loan rates ranging from 0.8% to 1.8%. That is, on average, German banks now issue mortgages for ten years to Germans for 0.75% per annum, for 15 years - for 1.04%. This has become a key factor ensuring the continued high demand for residential real estate and rising prices. For example, in Germany, ten-year loan rates were near their historical lows in August 2020, and the lowest point was reached last March - at the time of the rapid increase in the pandemic - when the rate dropped to an unprecedented 0.68%. Whereas five years ago its indicator was 1.8%, and ten years ago it exceeded 4%.
At the same time, loans with a floating interest rate are quite unpopular in the country: their total is no more than 1%, whereas in the UK - 72%, and in Spain - 75%. A floating interest rate is beneficial to the borrower when it starts to decline - the longer, the better. In Germany, the floating rate is changed based on fluctuations in the European Interbank Offer Rate (EURIBOR). But at the moment it is at a very low level, and the floating rate has nowhere much to fall – only to grow. And it may start to grow, but the question is when exactly.
Experts believe that no further rate cuts are expected over the next year, therefore, while such unprecedented favorable lending conditions remain, high demand for residential properties is virtually guaranteed. Moreover, those who buy an apartment or a house for their own living can also use the system of preferential loans in the amount of up to 100,000 euros from the state bank KfW.
How to get a mortgage and how much it will cost
All German banks provide mortgage loans to both citizens of the country and representatives of other countries, but with a number of necessary conditions. In addition, if the rates for German citizens are 1–2%, then for foreigners they will be higher, on average from 3% per annum. Each candidate for a loan in this country is considered individually. First of all, banks begin to check his credit history and solvency. According to the laws of Germany, a potential borrower needs to earn so much that no more than a third of his total monthly income goes to pay for a mortgage. An important role is played by the presence of a down payment, the amount of the transaction and the liquidity of the real estate itself. The borrower has to make an initial payment for foreign buyers, as a rule, it is 40-50% of the cost of the object.
But in the event that he already has property in this country and it appears in history that a foreigner has already managed to repay at least one mortgage loan in Germany, then you can already count on financing in the amount of 60-70% of the cost of the object. It is also important to understand that the German mortgage is most readily approved by wealthy clients for objects worth 300,000 euros, so the cheaper the property, the more difficult it is to get a loan for it.
As a rule, the bank provides a mortgage loan for a period of 5 to 30 years, but it is important to understand that by the end of the loan period, the applicant's age should not exceed 65 years. As for the lower age limit, it is 21 years old. The floating rate averages 3-4.5% per annum, while the fixed rate may exceed 5% per annum. As for payments, as in many countries, they should cover no more than 35% of the borrower's income per month. The procedure for obtaining a mortgage loan usually takes about a month and the costs that will be spent on it, including additional costs for a notary when concluding a purchase agreement, will amount to about 1% of the loan amount. But to start obtaining a loan, the buyer should usually have about 40% of the cost of the object.
Both a German citizen and a foreigner, in order to obtain a loan, it is necessary to provide the bank with proof of the availability of funds and a regular high income. For citizens of countries outside the European Union, the loan is issued upon granting a residence permit with unlimited validity, confirmation of a high-income workplace in Germany, and documents. Confirming its high creditworthiness. In some cases, long-term residence in Germany for more than 10 years also plays a big role.
Both for a resident and a non-resident of the country, a speculative tax applies: within 10 years after the purchase, the sale of real estate is taxed at 30%, after 10 years it is no longer. It will also be useful for the buyer of real estate in Germany through a mortgage to know that the amount of income tax will decrease due to the fact that interest expenses will be deducted from the investor's income, which, in turn, will reduce the amount of tax.
What kind of real estate is a mortgage issued for
The easiest way is to apply for mortgage loans in Germany for apartments that the owner will rent out or use for his own purpose. It is also relatively easy to get a loan for apartment buildings: the quality of the building, the location and the number of rented apartments (that is, the amount of income) will be taken into account here.Stores with long lease agreements exceeding 10 years have also become a popular option today. But banks are reluctant to give loans for hotels - this option is being considered, but only if there are more than 100 rooms of the fund.
Thank you for your help in preparing the material:
Elena Wacker, consultant of the company Leo Wacker Immobilien
Ekaterina Demidova, an expert of the companyDM Group