The abundance of offers of inexpensive real estate in Germany is typical for rural regions, where the liquidity of properties is extremely low. The reason for this is the demographic component of these regions and internal migration of the population to urban agglomerations and large cities. Most often, real estate in Germany is sold inexpensively due to its location, lack of jobs and insufficiently developed infrastructure of the area.
The cheapness of real estate for sale in large German cities or agglomerations close to them is explained by the existence of a number of not always obvious circumstances – the presence of encumbrances, dilapidated condition, low level of comfort and significant limitations in the possibilities of reconstruction, high costs of housing maintenance (often heating costs; many old houses have coal and wood heating, and engineering design and subsequent payment for a new system are very expensive for large areas), etc.
Therefore, the acquisition of inexpensive real estate in Germany as a tool for preserving and increasing funds should be treated with extreme caution. Consultations with an independent lawyer or a competent realtor can prevent unjustified risks when investing in housing.
German housing prices in 2018
Before understanding the reasons for low-cost housing offers and the potential risks of investors, we will provide a general overview of real estate prices in Germany. Annual analytical reports from reputable organizations confirm that the price level on the German real estate market remains high, with growth averaging 8–9% per year in Frankfurt am Main and Hamburg, 15% in Berlin and Munich.
Prices in euros per 1 square meter in condominiums (2018):
According to Deutsche Bank forecasts, the upward trend in prices will continue for several years, at least in most major cities in Germany. Berlin, Frankfurt and Munich are Europe’s leaders in rising real estate prices. In Stuttgart, Düsseldorf and Hamburg, prices are also increasing, but not at such a significant pace, but there is a significant increase in rental rates. Thus, in Stuttgart, rents have increased by 63% since 2009. In cities such as Bremen, Dresden, Hanover, price growth is moderate and amounts to approximately 4.5% per year.
Regional distribution by number of low-cost real estate offers in Germany
With the general trend of rising prices, the real estate market still leaves the opportunity to buy inexpensive real estate in Germany. In terms of the volume of offers in the low-budget segment, the former territory of the GDR (6 federal states – Mecklenburg, Brandenburg, Berlin, Saxony-Anhalt, Saxony, Thuringia) is in the lead. In this region, sales of real estate properties that were on the balance sheet of the city are often held.
Offers of inexpensive real estate in Germany are found in the regions of North Rhine-Westphalia, in the cities of Dresden and Leipzig. Pricing is primarily related to low demand for housing and population growth in these areas, and the absence of a problem of “shortage” of housing. The most budget options for the mass segment are found in the mountainous and rural areas of Germany.
Reasons for selling inexpensive real estate in Germany
As we have already said, before purchasing real estate in Germany, you should first of all analyze the geographical location of the property – the location of the house or apartment far “from civilization” can play a decisive role in the feasibility of the investment. Liquid lots in the low-budget segment of the market are in great short supply. But the reasons for the sale of low-quality properties in Germany are:
- location on the outskirts of cities or in remote areas;
- location in areas with low population growth;
- the need for major repairs;
- small area or living space in hotel complexes, hostel-type complexes;
- existence of encumbrances and outstanding obligations;
- tenants living in the property – in this case, the rights of tenants are protected by law;
- being at auction.
Auctions are conducted by regional courts. The price of auction objects can be 70% lower than the market average. In most cases, these are apartments of debtors or those without owners, i.e. illiquid objects that require serious restoration and significant investment in repairs. Lists of such objects are presented in regional courts.
A common reason for selling real estate at a low price is the type of construction (for example, half-timbered buildings) or the inclusion of the property in the register of architectural monuments that are protected by the state. In the latter case, serious restrictions are imposed on repairs and reconstruction. Redevelopment and repair of facades and heating systems can only be carried out with permission from the relevant authorities, and repair work must be carried out by certified specialists. However, despite the financial support of the state in the reconstruction of this sector, the cost of repairing the acquired “architectural monument” can be several times higher than the cost of the object itself.
Features of cheap real estate in Germany
The reasons for assigning a low price to a property for sale in Germany may include not only technical and geographical factors, but also other circumstances that the potential buyer may not be aware of.
- A tenant lives in the apartment offered for sale.
Often in the inexpensive real estate market in Germany you can find offers of apartments or houses occupied by tenants. It is quite difficult to evict a guest who has been living in an apartment or house for a long time and has an open-ended lease agreement. The rights of tenants in Germany in long-term rental situations are strictly protected by law. By law, it takes 1 year to evict a tenant, during which time he can find a new place to rent. In this case, the tenant may request a fairly large amount of “compensation” for the move. If the tenant is incompetent, he has the right to go to court, which often takes the tenant’s side and forces the landlord not to evict the tenant.
- Facilities are burdened with outstanding debts or payment obligations.
Sometimes the reason for low property values is due to outstanding debt obligations. To alienate such an object, it is necessary to obtain the consent of the bank and the employee conducting the bankruptcy procedure of the debtor (Insolvenzverwalter). After receiving the documents, the buyer is entered into the land register as the new owner of the property.
Examples of budget options
Several examples from existing proposals provide insight into the reasons for undervaluation of assets.
- Thuringia, Lichte village, house on 3 floors, 240 sq. m, €9000. After a fire, restoration is necessary.
- Saxony, Reichenbach im Vogtland, house on 2 floors, 85 sq. m, €24,000. Renovation required.
- Leipzig, 2-room apartment, 53.4 sq. m, €80,000. A tenant lives in the apartment.
- North Rhine-Westphalia, Duisburg, 3-room apartment, 59 sq.m. m, €42,000. Tenants live in the apartment.
- Dusseldorf, 1-room apartment in a new building, €72,000. Rented for an indefinite period.
Possible goals for purchasing real estate at a low price
Despite the not very optimistic assessment of the low-cost housing market in Germany at the moment, it can be assumed that the cost of the property will increase in the future, and thus, the purchase of an inexpensive apartment or house (after a carefully conducted preliminary examination) will help create a number of important and useful circumstances, including:
- the prestige of buying German real estate;
- protection of capital from inflation;
- advantage when requesting a German residence permit;
- obtaining a stable income if the property is rented out.