Before Buying Property in Germany, Here are 10+ Things You Need to Know as an International

Germany has it all. From historic old towns to modern cities, wonderful castles, mountain views, and the wild Berlin nightlife.

Wunderbar! You’ve decided to make an exciting move in your life. Buying property in Germany is an excellent long-term investment, even though the thought of buying property as a foreigner can be daunting.

The good news is that it is a dream that expats can make come true, despite the challenges.

So fret not – in this guide, we will outline the essential things you need to know from the legal requirements to the fees before investing in one of Europe’s most cultural countries. 

 

Is buying property in Germany a good investment?

The German real estate market is extremely stable which makes it an attractive investment choice.

Demand for residential property is high, and supply is limited, implying that prices will only rise further. There has never been a better time to invest in real estate. 

 

What’s the property market like in Germany?

House prices in Germany have risen since the financial crash and the housing market is growing rapidly. 

In German towns and cities with more than 100,000 inhabitants, home prices increased by 5% last year according to the consulting firm bulwiengesa.

Prices rose most in the main urban areas, such as Munich, Hamburg, Berlin, Frankfurt, Düsseldorf, Cologne, Stuttgart, Dresden, and Leipzig. 

Despite that, due to the extremely low interest rates, more people are choosing to buy a home rather than see their savings eroded by inflation.

Long-term mortgage rates are ranging between 0.6 and 2.5 %.

2020 turned out to be an extraordinary year due to the coronavirus pandemic. Despite numerous challenges and changes, the real estate market as a whole is performing well, especially in the residential real estate segment.

 

Can I buy real estate in Germany as a foreigner?

Foreigners interested in buying property in Germany are not subject to any special conditions or paperwork, so you should have no problems.

Even non-EU citizens can purchase property for personal use or investment.

If you have not purchased a property in Germany before, ensure you know the 10-step process involved. If you’re curious about what your mortgage rates might look like here in Germany, I would advise you to use a German mortgage calculator like the one from Hypofriend which can help you plan your financing.

 

Who can get a mortgage in Germany?

German mortgage rates are among the lowest in the world due to a combination of the low default rate on German mortgages and historically low Euribor rates.

Foreigners are not restricted from purchasing property in Germany. The first step is to determine how much money you can borrow. You need to check the mortgages in different banks as deals can vary widely. 

A fixed-interest loan is the most common form of mortgage in Germany. You can set the terms for the rate of principal repayment (typically between 1% and 10% of the principal balance over the lifetime of the loan) and whether to make further principle-only installments (up to 10 % of the outstanding amount).

The maximum amount you can borrow is determined by your residency status. Residents in Germany can borrow up to 80% of the property’s value. Non-residents may be limited to 55–60% of the assessed value.

Mortgage lenders will assess the value of the property and also you as a borrower. How much they can lend you will depend on your income and all your outgoings. 

In most cases, you’ll be expected to pay 20% of the property’s cost out of your own pocket, but in some cases, even 100%+ mortgages are available. Payments should not exceed 35% of your monthly salary.

At the end of the loan period, any remaining principal must be paid in full, either with additional funding or in cash.

Check out Life in Düsseldorf’s top 5 tips to successfully landing a mortgage

 

Mortgage calculators for Germany

Online mortgage calculators can help you figure out how much you can borrow and what your monthly payment will be.

There could be issues if your employment status is temporary or unusual and if this is the case, you will need to discuss it with an independent mortgage advisor.

 

What’s the cost of getting a German mortgage?

Typical mortgage application fees range from 1% to 2% of the overall loan volume. If the property is worth more than €500,000, the buyer should pay for a property valuation. This typically costs between €300 and €600.

 

What are the requirements for a German mortgage?

Foreigners are not restricted from buying property in Germany. However, you will need to meet the following requirements, so that you can freely apply for a mortgage from a German bank: 

• you can pay for the closing costs with your own money (up to 15 % of the purchase price)
• you need a residence permit that gives you permission to work
• you are working in Germany
• your own business or your employer pays taxes in Germany

There are investors with German mortgages who do not live or work in Germany. You will have to discuss with your bank your personal circumstances and check their requirements.

Depending on your personal circumstances, different documents translated into German might be required.

Sometimes, you may need to provide some of these documents translated into German:

• evidence of sufficient capital;
• assessment of the property;
• those who work for themselves must have additional evidence of income, such as a business and economic appraisal,  two years of balance sheets, and tax returns from the previous year;
• foreigners will also be required to provide copies of passports and many others.

 

What types of closing costs are involved in buying a property (Notary, taxes, real estate agents, etc.)?

There are numerous other costs associated with buying property in Germany. You should expect to pay up to 15% more than the original selling price.

If you sell your home before you’ve owned it for ten years, you’ll be subject to a capital gains tax (CGT) of 25%, and on top of 25% of CGT, there is again a solidarity surcharge – 5.5%.

When you sign the deed, these fees will be due:

• the registration and notary fees are usually around 1.5%-2% of the real estate’s value, and the land transfer tax ranges between 3.5 and 5.6 % 
• The real estate agent’s fees are around 3-7% of the sale price. It’s negotiable if the buyer will be responsible for paying these fees or they will be split with the sellers.

Following that, the buyer has up to four weeks to pay the real estate sale fee. Depending on the state, these will vary from 3.5 to 6.5 % of the property’s valuation.

 

What are the tax deductions for Germany?

People who are renting out their property are able to deduct the mortgage interest paid. If the property is occupied by the owner, it is not deductible.

If you decide to rent your German property, some of the expenses for generating the income from the rental could be deducted from the tax bill. If you make some major home improvements, you can deduct some of the taxes you owe. 

Furthermore, as a foreigner, you are subject to capital gains tax if you decide to sell the real estate before the 10th year. So, if you sell the property after nine years, you will be taxed at a rate of 14-42%. 

 

How is rental income taxed in Germany?

There is no tax-free threshold for non-residents.

For those who are considered residents for tax purposes, income ranging from €9,408 (€18,816) to €57,051 (€114,110) is levied at a rate ranging from 14% to 42%; income ranging from €57,051 (€114,102) to €270,500 (€541,000) is taxed at a rate of 42%.

After the calculation of the rental income tax is above €16,956 (from 1st January 2021), a 5.5% solidarity surcharge is applied to the assessed tax.

Mortgage charges, depreciation, renovations, and house upgrades that cost less than 15% of the property’s worth are considered allowable expenses.

Rental income is charged at the ordinary progressive income tax rates in Germany. In 2020, the first €9,408 is tax-free for a single person (€18,816 for a married couple).

 

When is the deadline for filing an income tax return in Germany?

You are required to file your German income tax return by July 31 of the year after the year in which the income was generated. If a tax advisor files your tax return on your behalf, the deadline is extended to December 31.

 

What happens if I don’t file my rental income tax return?

Failure to meet deadlines will result in fines and penalties.

 

Who can help me file my German tax return?

Last year, Property Tax International filed more than 322,000 tax returns. 

They can take care of all the tricky tax paperwork for you. You will have a dedicated tax expert, someone who understands property taxes and who can remove those language barriers for you.

They will help you file your tax return and pay your property taxes online. 

PTI can help prevent your tax bills from getting out of control by applying for every international tax relief, tax treaty, allowable expense, and property tax deduction you are entitled to in Germany. 

If you are an overseas property investor looking to file your international property tax return, PTI has kindly offered 10% off for the first 10 Life in Düsseldorf readers who submit online with them. 

CODE: lifeinduesseldorf10

5 reasons why clients prefer online tax tools rather than local accountants:

• Save money – they often offer a more reasonable price than your local accountant
• All-in-one solution – Will you need to file tax returns in more than one jurisdiction? You can do it all online with tax tools like PTI 
• No language barrier – They often speak their client’s language and communicate with the local tax authorities on their behalf, ensuring their forms are filed correctly
• Local knowledge – they often have offices all over the world, including Germany. That’s why they have substantial local knowledge in every country and can help you maximize your investment profit potential