Germany is one of the most attractive EU countries for investment in real estate. This confirms the stable increase in housing prices in the central areas of large cities; positive growth has been observed since 2009. Over 10 years, apartments in Munich have more than doubled in price, in Hamburg – by 70%. In 2018 alone, prices in these cities increased by 13-15%, and in Berlin by 21%.
A developed labor market attracts specialists to large cities; the number of residents in them increases by approximately 1% per year, while the pace of construction does not keep pace with population growth.
According to analysts at Germany’s largest bank, Deutsche Bank, prices will continue to rise in the future, since the market is not yet saturated and demand for real estate exceeds supply. The European Commission’s forecasts also confirm that price growth, although it may slow down, will not stop in the coming years. By type of foreign investment assets, commercial and residential real estate, as well as development projects, dominate.
Investments in residential real estate in Germany
The simplest and most understandable way to invest for non-professionals is to buy real estate in Germany for rent. In the future, the apartments can be used for your own residence or resold at a profit, but not earlier than 10 years after purchase. Before this period expires, you will have to pay capital gains tax in the amount of 42% of the profit received.
Beginning investors should choose the most liquid assets – small and medium-sized apartments located in the central areas of large cities. The most popular cities among foreign property buyers are Berlin, Munich, Frankfurt, Hamburg, Cologne, Dusseldorf and Stuttgart. The G7 accounts for almost 70% of foreign investment.
In Germany, it is profitable to rent out real estate. Every second resident of the country rents an apartment; in Frankfurt and Munich the number of renters reaches 77%. Most tenants prefer long-term rentals and stay in one place for an average of 12 years. The rights of property owners in Germany are reliably protected by law. The lease agreement must specify its minimum term, the tenant leaves a deposit and provides income certificates confirming his ability to pay for housing.
The leading trend in investment in residential real estate is the purchase of micro-apartments with an area of 25-40 square meters. m. There is a very high demand for small furnished apartments from students, professionals, young couples who want to live in the center, close to universities and offices of large corporations.
About 40% of households in Germany consist of only one person, in large cities such as Hamburg, Berlin and Munich this figure is 55%. People are becoming more and more mobile, they move easily due to the emergence of new jobs and are often in no hurry to acquire spacious housing.
Already, the demand for small apartments exceeds supply. Micro apartments are a higher return investment than standard apartments. Long-term rental of a regular apartment brings 2-3% per annum, micro-apartments – up to 4.5%. At the same time, the entry threshold for this type of investment is quite low and starts from approximately 120 thousand euros.
Investments in commercial real estate in Germany and development
Investments in commercial real estate in Germany (apartment buildings, hotels, shops, offices, warehouses) bring greater profits than in residential real estate, but the investor needs to have more experience and professionalism than the buyer of an ordinary apartment.
Experience is especially important when purchasing a small hotel business, where the owner often has to solve management problems himself. Commercial real estate owners must be able to respond flexibly to market changes. Residential real estate, especially in large and developing cities, will always be in demand, while offices and retail may in the future move a significant part of their business to the online space.
The volume of investment in commercial real estate is significantly higher than in residential real estate. Buyers with a capital of up to 600-700 thousand euros should pay attention to classic residential properties, perhaps purchasing several apartments.
To purchase a hotel, shopping center or office building, investments from one to tens of millions of euros will be required. Moreover, despite the high cost of commercial properties, the investor does not necessarily have to have the entire amount on hand. Non-residents of Germany can take out a loan for 50% of the value of the property at 2% per annum.
Investments in development and redevelopment projects have the highest returns. Among large investors, investments in new construction or objects for reconstruction are common, where transactions are carried out both independently and in partnership with other investors.
The profitability from the resale of an apartment after renovation, including redevelopment, renovation, design, and purchase of furniture, can reach 15%. An investor can also take part in the renovation of an entire building or construction by providing his capital to the developer as a mezzanine loan and receive up to 8% profit per year without managing the project himself.
The main thing to remember when investing in commercial real estate and development is that high returns come with high risks. Construction times may be delayed, the project does not always pay off and sometimes brings a profit less than expected, so it is better for experienced investors to make risky investments.
The attractiveness of Germany for investment in real estate is clearly high, and you can choose a specific form of investment based on your preferences and capabilities, taking into account the characteristics of various types.
Comparative characteristics of investments in residential and commercial real estate
|Investments in residential properties
|Investments in commercial properties and development
|Short. From 100-120 thousand euros
|High. From 1 million euros
|High (up to 6-7% per year for existing and up to 15% for facilities under construction
|High. Apartments in the central areas of large cities are sold as soon as they appear on the market. You can also use the property for your own residence.
|Below average, except for category A offices, street retail on the central streets of the city.
|The role of the investor
|The need to have experience or professional skills in the field of investments