posted by in Germany forum
This is a pretty complicated question, so instead of running through all the details I just send you an article that I found on this subject:
In comparison to the US and the UK, the German real estate market is undervalued. It is characterised by a preference to rent, especially in cities, which makes long-term investments attractive for buyers who are willing to live off rental income. Germany on the whole has a good infrastructure and is almost tailor-made for buy-to-let investments. Investment, however, is long-term, as German law dictates that any property sold within 10 years attracts 15 percent capital gains tax.
Property may look cheap in Germany, especially in the capital Berlin, but the additional costs involved should be considered before treating the process as an investment for the future.
This page gives an overview of the processes involved in buying and selling a property, and the basics of property taxation, as well as an explanation roles of the main parties involved and advice for foreigners buying property in Germany.
Buying a property
The process of buying property in Germany starts with the housing listings. Property sections can be found in most daily newspapers on a weekly or bi-weekly basis as well as online and through specialist property publications. Offers may be made by private parties (von Privat), however, most transactions are made through estate agents (Immobilienmakler). In Germany, there is no requirement to work exclusively with any given agent.
After deciding on an area, find an property agency (Immobilienmakler). or go through a professional association. The German Real Estate Association (Immobilien Verband Deutschland, IVD) is an association of estate agents, property officials, and real estate tax advisors. The IVD is a clearing house for information on buying and selling property in Germany.
As in most countries, purchasing a property through a third party costs money. Commissions are negotiable and with the exception of rental contracts, non-regulated. Either the buyer or the seller pays the commission in full, or it is split between them.
Surveys and Regulations
By law, houses older than 25 years must have new roofing, new windows and a new heating system. A professional survey on the standard of the property in question will help avoid unforeseen costs. An official surveyor (amtlich vereidigter Sachverständiger) from the local building office (Bauamt) can be engaged for this task. The process of having a property surveyed may differ from state to state within Germany. It is also possible, and often cheaper, to hire an architect privately to survey the property.
A public notary will then check whether there are any restrictions on the sale and use of the property. If both parties agree to the terms of the contract, the notary submits the change of ownership to the government books and the transaction is noted in the land register.
Means of financing a property purchase
Real estate in Germany can either be financed through a mortgage bank (Kreditbank) or most other banking and financial institutions. In order to qualify for financing by a German bank or financial institution, it is (usually) necessary to show a history of regular monthly savings (up to six years). The maximum term on any finance is usually 30 years at a fixed interest rate.
Fees are high in Germany. As a buyer, one can expect to pay up to 12 percent of the purchase price in fees. This includes estate agent's fees of up to 7 percent, though these are negotiable. Fixed costs include variable estate agent commission fees, 1 percent for the notary, 0.5 percent for the housing registry office and 3.5 percent for purchase tax.
Note: For foreigners not residing or working in Germany, financing is possible, but the expected mortgage loan would not be as high and therefore cover less of the buying price of the property.
Signing the Contract
At the signing of the contract, the terms are read aloud in German. All parties must be present at the reading of the contract. The buyer has the right to interrupt the proceedings in order to clarify any part of the contract and a foreign buyer also has the right to have an interpreter present.
All buyers and sellers must be present at the signing of the contract. Official identification papers are also required and the property changes hands as soon as a notary submits the contract to the land register (Grundbuch) of the buyer.
If a company is the purchaser of the property, it must show the relevant documentation from the Chamber of Commerce, which proves the legality of the company.
* For an example of a real estate contract from Hamburg: Click here (PDF in German)
The Contractual Agreement
The rules governing the creation and execution of property contracts are covered by the federal property acquisition tax law (Grunderwerbsteuergesetzes). On the notarisation date, the seller agrees to transfer the property title and the buyer agrees to pay. All agreements concerning property must be notarised by a public notary in the land title registry (Grundbuch). The public notary oversees the transfer of the payments and titles so that neither party is exposed to any risk.
Between the finalisation of the contractual process and the exchange of property for payment, the public notary can secure the position of both buyer and seller by registering a notice of future property transfer in the land title registry. It is important to stipulate in the contract, who precisely is responsible for any potential encumbrances (Belastungen) connected to the property. The public notary is required to send a copy of the contract to the Finance Office (Finanzamt) and as soon as this has been done the buyer will be asked to pay the property purchase tax (Grunderwerbssteuer).
Selling a Property
Property may be sold privately or through estate agents. German estate agents do not share listings, meaning more freedom for both buyer and seller.
Understanding property taxes is important when selling property:
* If property is sold less than 10 years after the purchasing date, any profit made by owning the property will be taxed at a rate of 15 percent.
* After owning the property for more than 10 years, any profit made on the property is tax free for private individuals but taxed for businesses.
* If the same property owner sells more than three pieces of property within five years, the seller must also pay commercial tax.
Property acquisition tax (Grunderwerbsteuer)
Property acquisition tax (Grunderwerbsteuer) is a tax due from the purchase of property in Germany. This tax is regulated by the federal property acquisition tax law (Grunderwerbsteuergesetzes), and is currently 3.5 percent of the purchase price. Depending on the federal state in which the property was purchased, the property's purchase tax must be paid through the finance office within one month of the tax assessment notice.
Once this tax (including VAT) is paid, the tax office will issue a clearance certificate (Unbedenklichkeitsbescheinigung). The transfer of possession of the property from seller to buyer is impossible without this document.
Tax on rental income
If a property owner rents out property, tax must be paid on the rent received. Rental income tax is calculated on a sliding scale. On top of this, an additional rental income tax must be paid. This extra tax, based on the rental income tax, is known as "Soli", and goes toward rebuilding the former Eastern part of Germany. Advertising and management expenses as well as interest and depreciation costs can be deducted from this rental tax when filing tax returns.
Private owners who are not paying normal income tax in Germany, but who are earning rental income, must submit an annual tax declaration (Steuererklärung für beschränkt Steuerpflichtige) to the Finance Office. However, there is a tax-free profit of around €6,000 for EU citizens.
Explanation of the main parties involved in the process
The public notary
A real estate contract is only legally binding when conducted through a notary (Notar). Bound by law to act impartially for the buyer and seller, the notary checks out whether there are any restrictions on the sale and use of the property. If both parties agree to the terms of the contract, the notary submits the change of ownership form to the government and the transaction is noted in the land register. The choice of notary is left open to the buyer.
To find a public notary see:
* the Yellow Pages under "Notar"
* the German Real Estate Association
The German Real Estate Association
The German Real Estate Association (Immobilien Verband Deutschland, IVD) is a collection of three associations :
* The German Real Estate Association
* The Federal Association of Real Estate Advisors
* The Realtors, Administrators and Appraisers Association
Through this umbrella association, realtors, surveyors and public notaries can be found.
The Finance Office (Finanzamt)
The public notary registers the transfer of property with the finance office. The finance office checks the permit for the transfer of property order agreement (Grundstücksverkehrsordnung, GVO). Once this transfer is registered in the land registry, the property has officially changed hands.
Taxes are declared at the finance office in the municipality where the property is located. Tax consultants are available to guide the buyer or seller through the process. Consultants and tax lawyers can be found through the German Real Estate Association.
* To find a local municipal finance office in Germany: Click here (in German).
Foreigners Buying and Selling Property in Germany
Anyone with a valid passport and adequate funds may buy property in Germany. However, owning property does not give the purchaser the right to reside in Germany.
Foreigners not residing in Germany or paying German income taxes will find it difficult to get financing for property acquisition. If financing can be found, it will probably not exceed 60 percent of the sale price.