Should you buy or rent? Owning your own home is always an appealing option with a long period of economic stagnation having helped to keep German real estate prices down. Andrew McCathie takes you along the road to home ownership in the country.
A long period of economic stagnation has helped to open up some new opportunities in the German property market.
Indeed, a pickup in the economy and increased emphasis in the country on rolling back state pensions and encouraging people to provide more for their old age has made owning bricks and mortar a more interesting proposition for Germans, who for the most have been renters.
What is more, a somewhat fitful performance of the stock market has led many people to given looking at property as an alternative to shares.
That said, however, one of the few tax benefits for homeowners (the Eigenheimzulage) is facing an uncertain future.
But then officials in Berlin argue that Germany does not have a housing shortage which means that there government financial support to promote the housing market is not necessary.
Germany's economic recovery from a protracted period of stagnation has also meant property prices have remained subdued (and have fallen in some places, in particular the economically hard-pressed east). This combined with low interest rates; means buying could work in your favour.
One key factor behind any decision to buy is the length of time you intend to stay in the country. Apart from the somewhat hefty costs involved in buying, property prices in Germany do not tend to race ahead like other real markets so you should not expect a big quick return on your investment.
Considering that Germany's recent less-than-sparkling economic performance has also meant that rents have barely moved in recent years (and in cities like Berlin are low in comparison with other European cities) you should also weigh up whether it is financially more sensible for you to rent or to make monthly mortgage payments.
You don’t have to be German or even be a resident to buy what the real estate business in Germany call an ‘Objekt’. All you need is valid passport and enough money.
At the outset you should realise that total fees, including say for the agents and preparing the contract, can add up to between 10 and 12 percent of the purchase price.
But as you head off out onto the market, don’t forget the three rules of investing in a property also apply in Germany: ‘Lage’, ‘Lage’, ‘Lage’ (location, location, location).
Who you need to consult
Because a home-owning culture has not really developed in Germany, buying a property in the country can go along at a relatively leisurely pace without the tensions that arise in other markets around the world through auctions or in bidding wars.
But for really popular properties in Germany, you may find yourself competing in a quasi-auction with your agent (Makler) handling rival bids from prospective buyers.
Before you buy it is advisable to assemble a small team of advisers: a lawyer, Notar (notary), a tax accountant and if possible an architect.
OK, so you have found your dream home. Remember that normally you don’t have to sign anything committing you to the purchase until you are presented with the final contract. In general, you just have to reach an agreement with the owner on the price. But after that events can move fairly quickly.
This is when the team of advisers comes to the fore with that quaint continental European tradition of the Notar playing a key role in the process.
As the buyer you should be able to select the Notar to draw up the contract. Needless to say this is something that you should insist on from the start. No matter how chummy everything surrounding the sale has gone, it also goes without saying that you should not accept the Notar suggested by the owner.
Considering the size of the investment it is good to have as much control as possible, especially as the terms of the contract can vary.
Indeed, after the purchase has gone through, if the building is part of a modernisation project and the developer installs a firm to administer the property (Hausverwaltung) it is probably worthwhile to try an early point to link up with the other new owners and seek out a new Hausverwaltung.
You will need your tax accountant to help you through the purchase as the bank or mortgage company will want to see details of your recent tax returns. Depending on whether you want to live in it or rent it out as an investment you will need the tax accountant to fill you on exactly what the tax advantages are at present.
Some areas are, for example, zoned to regulate the rents that can be charged on the property. Besides, the tax office could also want details of how you have financed the purchase.
Mortgages and financing
In general, mortgage financing usually can be arranged up to about 60 or 70 percent of the purchase price.
Anything above that up will normally need to be secured possibly through insurance or another other form of financial security. This can sometimes be based on the income of the person or company making the purchase.
In the meantime, it wise to have an architect look through the property, especially if it is part of a building that has been renovated. There are all sorts of things to watch out for, including the age of the heating. New standards have to be met by 2005.
If everything goes to plan you will receive the contract to read through before you sit down to sign. Lawyers can be Notars as well. But just to be on the safe side, it is not a bad idea to have an independent lawyer read through the document first.
You should try and get as many of your wishes written into the contract as possible. This could include work on the property that the owner has agreed to undertake before you move in. Or even fittings that you want kept. This is especially the case if the property is part of a building which is being modernised. Valuable door handles, for example, have a habit of disappearing before you move in.
In setting out your wish-list, don’t forget the so-called common areas such as the stairwell (carpet?) and entrance area (in need of an update?).
The parties will then assemble on a specified date in the Notar’s office for signing the contract and to partake in the seemingly ancient ritual of the Notar reading out the contract word for word before you are called upon to put your signature to it. You will need to have your passport with you when the contract is signed.
The day of reckoning: handing over the property
The contract will also set out the date for the Uebergabe (handover) of the property. Because this is part of the contract, the failure of the owner or builder to meet the deadline for the Uebergabe could mean that you can make certain claims.
If the property is part of a complex that is undergoing renovation you can make instalments as the building work progresses. Once again these will be set out in the contract. You can also draw up a so-called ‘Maengelliste’ (list of faults) before you move in. This is when an architect on hand becomes very useful.
You should not pay the final payment until you are completely satisfied with the work and that all your wishes have been fulfilled.
The work carried out on modernised properties in Germany will normally have a five-year guarantee (Gewaehrleistung). But don’t be surprised if the building company responsible for carrying the costs of work under the guarantee suddenly declares itself to bankrupt once the project is completed.
Either way, battles over the ‘Gewaehrleistung’ will set you up for hours upon hours at the building’s annual ‘Eigentuemerversammlung’ (owners’ meeting).
What it all costs
The cost of the whole process depends who is involved. But in general you can expect to pay:
- Notar - about 1.5 percent of the purchase price
- Stamp Duty or Property Tax (Grundsteuer) - 3.5 percent of purchase price
- Makler - between 3.5 percent and about 6 percent of the buying price, including VAT. The commission charged, however, can depend on the state
- Registration of the property – between 0.8 and 1.2 percent
If the ‘Objekt’ is in the former east (where ownership claims are still been settled) you may find that a lot of the paperwork for the property has not been completed. This might even include the ‘Grundbuch’ (Land title register) for the property.
Any mortgage needs to be secured in the ‘Grundbuch’ and that can only be done by a Notar.
As a result, you find you stand to be hit with a bill every time a piece of paper concerning the property moves in the local administration.
Source : http://www.expatica.com
