Real estate investments in Berlin: how to make profit in 2020.
According to the 2018 survey of PWC real estate investors, the Berlin residential real estate market is listed among the major German and European cities as the top investment property sector in Europe. In the same survey, Copenhagen is ranked 6th, Barcelona is ranked 16th, Paris is ranked 17th, while London is only 27th (out of 30 major cities) due to the Rapkay cycle and its possible negative economic effect and risk on currency value.
Investing in Berlin makes it possible to benefit from a unique combination of attractive residential property prices, investment security, high return on capital and long-term growth prospects.
Berlin is the most multicultural city in Germany. The German capital has double-digit growth in a variety of industries. The city is also known worldwide for its distinctive lifestyle, business-friendly environment, good infrastructure, digital industry, cultural activities and as a major tourism destination.
In order to make a successful investment in real estate in Berlin, our staff will provide you with a high-quality consulting service and provide you with a full follow-up on purchase management in Germany.
Why Pick Berlin for Your Investment in Real Estate?
Security of residential real estate investments in Berlin
In addition to its political and historical significance, Berlin transformed into the start-up capital of Europe a few years ago and has remarkable industry growth levels in many industries, such as infrastructure, logistics, the digital economy and tourism. Investing in real estate in Berlin is, first of all, investing in Germany, the world’s second-largest manufacturing market and the Eurozone’s leading country. Today, it is literally the best country for business and investment in Europe.
Advantageous German Income Tax Regulation
Buying a home in Germany will benefit you due to the unique advantage of a complete tax exemption on the sale after a ten-year holding period. Mortgage interest charges, as well as all maintenance expenses, are completely relieved of rental income. A mortgage amortization policy costing up to 2.5 percent of the purchasing expense of properties (including brokerage fees, notary fees and filing fees) provides for direct tax exemptions from taxable income and, at the end of the day, a pay for the comparatively small rate of tax on rental income. If you buy 1-2 properties for leasing, you will usually have a tax rate of just 5 to 10%.
Big Increase in Land Price
Prices are growing rapidly in the region with an growth of 10% to 12% a year. This pattern is expected to continue due to the strong demand for rent and purchase in addition to the economic dynamism of the region. Even foreign investors, both individual and institutional investors, have shown a great deal of enthusiasm for purchasing property in the region, which has made Berlin ‘s investment volume triple in 2-3 years to meet the current pace of ca. EUR 10 billion a year.
Advantageous Conditions for Mortgage Financing
Berlin ‘s residential real estate market offers great investment opportunities and attractive mortgage financing conditions at low prices, including for foreign buyers. In general, German mortgages provide stability in the cost of maturity and the interest of the debt is deducted from the rental profits. Having a mortgage in Berlin is not necessary for a non-resident borrower. The percentage could be up to 70% of the selling price of the land.
Lowest Real Estate Costs for European Capitals and Cities
Berlin’s residential property prices are the lowest in all major European capitals. Apartments in the central districts are 2-3 times cheaper than Paris and 4 times cheaper than London for a similar property and location quality. With such a strong value for property, Berlin is now ranked as the second most active real estate sector in Europe in terms of overall transaction volume.
High demand & low rate of home ownership
German capital has the lowest ownership rate in Germany, with less than 20 percent of homeowners compared to the 52 percent average in Germany, which maintains a high long-term demand for housing. The population of the city is increasing with about 50 000 new residents a year, while the current housing supply is constrained with just about 10 000 new apartments every year. It further addresses the exceptionally low vacancy rate in the region of less than 2%.
Attractiveness of the City and Quality of Life
In terms of quality of life, Berlin was ranked 3rd best city in the world by Monocles’ Quality of Life survey. The most international German city is known for its health, environment, natural areas and parks (35% of the city consists of parks, lakes, rivers and gardens). Germany’s capital is also known internationally for its diverse cultural life and is a significant attraction for artists and business starters.
Today, German capital represents the new ‘El Dorado’ market for global property buyers, especially those who want to balance protection and productivity. Indeed, investment in real estate in the Berlin residential market offers a high premium for capital at double-digit rates of return.
The overall rate of return on a Berlin investment property will be higher 10% if you add the rental revenue with the price rise.
Are Foreigners Allowed to Buy German Property?
There are no limits on foreigners purchasing properties in Germany. You can purchase property in Germany even if you are a non-resident and not an EU national.
It is necessary to remember that signing the document is not enough to transfer the land. The property must also be registered, a procedure which the notary will take care of. At this point, the government will check that there are no outstanding sales issues.
The notary will have already made an offer, and there is rarely a problem, but if there is a problem, the transition of the property will not be done until the nodes are undangled. Due to this, many people prefer to use the notary as an escrow. In this situation, the money is credited to the account of the notary (notaranderkonto) before it is issued to the seller.
How Do You Pick the Best Investment Property in Berlin?
In order to invest in the capital of Germany, you will have the choice between three main categories of apartments:
A Purchase To Get Property in a Building From the Berliner era
Vacant apartment rates in the city vary from 4000€ to 6500€ for central locations. The most diverse and common areas are Prenzlauer Berg, Kreuzberg, Mitte, Neukölln, Friedrichshain and Charlottenburg.
For purposes of profit, you might opt for a buy-to-lease property in a potential area or neighborhood like Wedding or Neukölln, where the rental demand is as high as in the top spots, but the buying prices are marginally lower. Here, an investment in land may have a better return relative to a prime spot.
Our advice is that, no matter where you are, if you are buying a vacancy in Berlin, make a furnished rental that will allow you to have a good rental turnover and also to “follow” the market in terms of rent price rise.
A Real-Estate Investment in a New Build Property Development in Berlin
Buying a new-built apartment in Berlin gives a significant benefit of not needing to deal with the leasing rules and thus being able to rent the house without any price constraints. Unlike other big European cities, investment prospects can still be found at inexpensive rates in central areas such as the Mitte and Prenzlauer Berg districts. New-built structures have the advantage of having more practical designs than old-fashioned buildings (Altbau in German) and benefiting from high energy efficiency requirements such as KFW-50. New construction apartments also benefit from a strong demand for both rental and resale, particularly from international buyers. Additionally, if you buy an apartment off-plan, you can benefit from a discounted price of up to 25-30 percent relative to the price of a comparable location apartment that has already been built.
Eventually, if you buy an apartment off-plan, the price will be distributed over several transactions over the lifetime of the construction of the house.
Investment in an already rented Berlin property at a bargain price
This is the best option for an investor looking for a very stable investment and a good capital appreciation over the long term. Usually, an apartment in a central location that is priced at about €5000/m2 as a vacant property will be purchased at €3500/m2 if you purchase it from a resident.
In fact, a rental apartment in Berlin may have a deep price discount of up to 35% relative to the market price of the same apartment if it was sold as vacant. This disparity in quality is explained by the increase in rentals over the last 3-4 years and the difference between historical and new rents.
This investing strategy is much more attractive in the long run, which ensures that after 10 years of possession, one will benefit from a complete tax break on capital gains. Thus, already rented buy-to-let apartments are a perfect choice for purchasing bargains with low market prices.
For long-term buyers, purchasing a property that is already leased will make it easier to take advantage of three combined effects:
- Financial gain from the original reduced offer.
- General market price rise, now at about 10% a year.
- Full tax exemption for the selling of land in Germany after 10 years of possession.
Combining these aspects would lead to a 2-3-fold return on investment relative to the original capital invested.
If you are interested in buying a rented apartment, it would be a smart idea to obtain counsel on the legal issues and, in particular, the relevant rental laws.