Buying A House In Germany As A Foreigner

The German real estate market is very different from other countries, particularly the US and Canada. While it’s not difficult to find house flipping shows and home reno shows where the goal is to do a house up and sell in North America, it really doesn’t work that way in Germany for several reasons.

I learned how the German real estate rental market works first hand when I moved to the Frankfurt area and lived there for several years with my family in a rental home. Then when we bought a house after a long search, I learned the ins and outs of the real estate market from an owner’s perspective, too. Here’s what I discovered.

The real estate market in Germany moves slowly and lenders can take weeks to approve a mortgage. It’s not unusual for homes to list for months before being sold. You may pay capital gains if you sell your home before owning it for 10 years so house flipping isn’t common. Just under 50% of the country still rents.

Why Is Renting So Popular In Germany?

Before we talk about you buying a home in Germany, you really need to know some of the facts regarding renting a home and why renting is so popular. There is a reason that around half of the country rent their home and don’t buy. Buying a house in Germany as a foreigner involves learning a bit about the mentality of renting vs buying in the country.

Post World War II with millions (literally) of German homes destroyed, the government built a strong social system and renting a home became the norm for most families. This mentality exists to this day although more people own homes as a percentage in Germany than previously. Low interest rates, new modern homes from many builders, larger dwellings with state of the art amenities and increased energy-efficiency has led more people to buy than ever before. Plus, rent in major German cities continues to go up even with rent controls in place.

I’ve read that the percentage of renters in the country is currently between 48% and 51% so the rental market is very strong and common. In 2013 is was as high as 59% so while the percentage of renting is decreasing (we’ll discuss why below) it is still very common.

I’ve spoken with people who have rented the same home for decades. A friend recently told us about her parents’ situation when her last remaining parent died. They had been renting the same home for 26 years. This is not unusual in Germany.

Why Is Home Ownership So Low In Germany?

Germany has long term housing policies that make it desirable to rent a home rather than buying it. The country has a long-standing social housing scheme that is both high quality and that involved the participation of private investors. Germany also doesn’t build nearly as many new dwellings – either apartments or homes – as the market requires. There is a severe housing shortage in the country. To this day, home ownership in Germany is lower than any other European country except for Switzerland.

For many decades, Germany’s real estate market didn’t see the same price explosion that many other countries around the world saw with theirs. Some German markets like Frankfurt are quite expensive certainly compared to other European countries so investors may look to other countries like Portugal or Spain for investment and summer home opportunities. But in the past number of years, home prices have exploded in many large German cities and with the low interest rates and rising rents, younger generations have made the move to buy rather than rent unlike their parents.

Why Is House Flipping Not Common In Germany?

Buying a home in Germany is a long-term endeavor. They don’t flip houses in Germany like in the US because the market effectively doesn’t allow it:

• If you sell your German home within 10 years of buying it, you pay capital gains. You are taxed on your personal income tax for the profits. So you can avoid capital gains by keeping your home for at least 10 years.
• You can also avoid capital gains by living in your home for 2 consecutive calendar years (January – December).
• Lenders charge significant penalties for breaking a mortgage even with low interest rates. To figure out a mortgage break penalty, banks typically take the current (lower) bond rate and subtract it from the current (higher) lending rate to calculate the net loss they’d experience if you broke the mortgage early. On a 10 year mortgage, it could be in the tends of thousands of Euros depending on the amount you originally borrowed and how soon you’re trying to cancel it.

Check with a qualified German accountant to be safe if you’re unsure and need more details.

Recent Germany Real Estate Trends

German house prices remained steady for decades which may have limited the potential appreciation opportunity for investors including foreigners. Combine that with the fact that buying and quickly selling a home in the country really doesn’t make financial sense as mentioned above, and you can see why flipping homes doesn’t generally work even if you pay cash.

But more recently, the German real estate market overall has started offering investors and home owners appreciation of prices not previously seen in the country.

Combined with very low – under 1% currently – mortgage rates that can easily be locked in for 15 years, more Germans are starting to look at home ownership even if their parents rented for their entire lives just like their parents also did. And rent prices are going up in many major cities as this is occurring even with rent controls in place.

So with the above-mentioned housing shortage, combined with historically low interest rates and the recent migration of many people into Germany, more people are looking at home ownership because rents continue to spiral upwards, making buying a house more attractive than ever before.

Why Buy A House In Germany?

• Many German home builders exist (hundreds!) and can either build a custom home for you or you can buy a home in the increasing number of planned communities being built.
• German homes tend to be solid and built to last. They are built from concrete (Beton) rather than wood-frames like in North America.
• Germany has the strongest, largest and most important economy in Europe with open borders and numerous travel opportunities.
• The country has historically low interest rates, under 1% currently.
• The KfW offers an attractive mortgage rate for new energy efficient homes which effectively offers up to 30,000 Euro in credits with a loan of up to 120,000 Euros.
• The ability to lock in an interest rate for 15 years is easily found and you can also amortize a mortgage for up to 35 years if you choose.
• German law allows borrowers (but not lenders) to opt out of the mortgage whenever you sign one in excess of 10 years in length. The opt out period is at the 10 years and 6 months mark. So you can pay off the mortgage at this point with no penalty, renegotiate, or continue with the mortgage as is if you still like the terms.
• With the German rental market still popular, it’s normally straight forward to rent your home to someone else, possibly for the long term if you need to.
• Even with rent controls introduced in 2015, rent prices in large German cities have increased by 24% – 44% in some cases.

Why Avoid Buying A House In Germany?

• Yields in some areas can be low and Germany is very regional. Home prices in north Germany and in the former East Germany tend to be much lower than in the south and may not appreciate much.
• Buying a home in Germany is not a short term endeavor. You’re in for the long haul, 10 years at least unless you’re willing to sell earlier, pay capital gains and potentially take a loss when you factor in the up front real estate costs you paid upon purchase.
• Up front costs are high: When you buy a house in Germany, you pay the real estate fees, plus land transfer, tax, and lawyer fees. Budget for 15% fees based on the home purchase price when buying, on top of the actual house price.
• Selling a home can take time depending on the location. I’ve heard personal stories and seen actual homes on sale for months and up to one year before it gets sold.
• Many old houses can be difficult to sell and tradespeople can be hard to hire since they are in demand and often prefer to work for developers with steady work.

Remember: The buyer pays the real estate agent fees in Germany when purchasing property, not the seller. This adds to the up front cost.

Buying A House In Germany As A Foreigner

There are no buying restrictions so a foreigner can buy a home in Germany whether you’re a resident or not. You can buy the home and live in it or rent it out as desired. But navigating the real estate market either requires a good understanding of the rules and contracts or use of a trusted interpreter if you don’t speak enough German.

In my personal experience here are some interesting quirks about the German real estate market that I’ve learned first hand.

• Germans do not put For Sale signs up when selling their home. Ever. Ok, it happens, but in 6 years in Germany I saw 3 signs from memory. Three.
• You’ll quickly find out when surfing the German real estate websites that many advertised homes are theoretical homes that a builder could build and isn’t actually a real home being built yet. More on that below.
• Don’t be surprised if you are sent a document(s) to sign by a real estate agent that effectively says that you agree that they get paid a commission if you buy the house before they are willing to send you the address of the home. The buyer pays the real estate fees in a transaction in Germany.
• Some homes are sold with leased land not owned land so ensure you understand what you’re getting. That might explain the attractive price advertised.
• Get used to seeing many empty farmer’s fields and huge plots of beautiful land that they could build on! But they can’t because the government has a moratorium on building on that land for 25 years.
• Conversely, don’t be surprised when you see a nice home on a real estate website and then when you visit the house in person, find out that it has been shoehorned onto a small plot of land with other houses that replaced one single home that was demolished to build multiple new ones in its place.

German Houses Come With No Kitchen, Lights Or Closets

German homes tend to be built without the kitchen finished. You build it afterwards to your own design! So budget for this when buying a new house. Your new home will typically have an empty unfinished kitchen area as Germans like to design this themselves. Your home builder may or may not offer the service themselves. Either way it will be at an extra cost to you. There are plenty of Küchen (kitchen) builders available for this work.

You can spend 5,000 Euro or 20,000 Euro or more to finish your kitchen depending on your budget and how expensive you want your finishings and appliances to be.

And if you’re renting a house, ensure you know if it comes with a fitted kitchen. Yes, you might rent a house and find out that when you move in, the previous tenants have taken the cabinets and appliances with them. We visited a rental home when we first arrived in Germany and the current tenants said they were willing to sell the fitted kitchen to us when they vacated the home as they owned it and paid to have it built.

German homes also tend to come with no lights installed. Do not be surprised when you enter your new owned home or rental home and find wires hanging from the ceiling as lights are also the responsibility of the new occupant.

German homes also tend to have little to no built in closets unless you specifically had them designed and added to the house contract. Instead, you buy a Kommode (chest of drawers or assembled closets) yourself.

List Of Major German Home Builders

While you can certainly hunt for your own Grundstück (plot of land) and then find a builder, it’s a time-consuming and frustrating process in my experience. While some of these builders below may require you to do just that, other builders (Interhomes for example) sell you both the house and land together so you have everything you need in one go.

Contact each company below that interests you to enquire as to what they offers as new housing developments throughout parts of Germany seem to be popping up as the population increases. Below are some of the better known German home builders but there are dozens of others. Builders that have the words “with land” in brackets denotes companies that are known to sell houses and land together in developments:

• INTERHOMES AG (with land)
• Wilma Immobilien GmbH (with land)
• Viebrockhaus (with land)
• Okal Haus
• Lechner Massivhaus
• Hanse Haus
• Bien-Zenker
• HUF Haus
• LEHNER HAUS
• LUXHAUS

This is a very small list as there are hundreds of builders including regional ones. These are some of the ones I’m familiar with and have either met with or visited model homes that they built.

German Real Estate Terms You’ll Become Familiar With

Beton

Beton is the German word for concrete which is the main substance used to build homes. This is opposed to wood frame homes that are typically seen in the US and Canada. You will hear terms like Massivbau which refers to large slabs of prefabricated concrete to build the homes as opposed to other materials. You will also hear Stein auf Stein (stone on stone) which is another type of Massivbau build involving solid materials like concrete and brick.

Cooling off period

Assuming you are buying a dwelling with help from a bank or other lender, you will be signing two documents: The mortgage contract and the home purchase contract. Before you sign with your Notar (notary or lawyer), you have to wait a minimum of 14 days, a cooling off period of sorts, after receiving both documents.

So if you sign your bank agreement on Day 1 and sign your house purchase contract on Day 2, on Day 15 your bank mortgage contract becomes binding and on Day 16 your home contract becomes binding. On or after Day 16, you can meet with the notar and sign the documents to make it official.

Capital gains

If you sell your home before owning it for 10 years, you may pay 25% capital gains taxes, on your income tax. I’ve also read that if you live in the home for 2 consecutive calendar years from January – December for two straight years, you can avoid the capital gains charge.

Check with a trusted accountant familiar in these matters to be sure before buying or selling.

Darlehen and Zinsen

Darlehen is the German word for a loan, or mortgage. Zinsen is the German word for interest (rate) so you’ll hear that term too. German lenders tend to be somewhat conservative so if you’re used to being approved for a mortgage in the US or Canada in a few days, take a seat and bring a snack. You may wait for weeks or even 2 months (we did) until we finally received confirmation that our loan was approved. In our case, we needed to show our foreign debt and income and our circumstances did delay things but that’s how long we waited. Our mortgage broker told us he wasn’t surprised at the delay.

Grundschuld/Hypothek

A very important document. This is the land charge document that your bank provides when you borrow money from them. It shows the plot number/address of the home you’re buying and the amount of money they are lending you to buy it. It gets sent to your Notar (lawyer) to include as part of the purchase contract.

Grundstück

Grundstück refers to a plot of land. They are hard to come by in Germany. If you are looking to build a custom home, you will tend to need to find the plot of land to build your home on and then work on building the home with the builder you chose. No Grundstück = no home. If you buy a home from a builder who has already planned the home and has the land, that’s different.

But many times you will search for homes on the major German immobilien (real estate) websites and see an artist’s rendition of a great home often with a pool (they love adding pools for some reason) that looks perfect for you! And the house looks like it has no neighbors and plenty of room on either side and at the back! Don’t be surprised when you call the real estate agent and you are effectively told that this is the home they can build for you if you find a plot of land first. The house doesn’t actually exist.

Immobilien

Immobilien is the German word for property or real estate and essentially refers to an immovable or immobile object. An Immobilienmakler is the German word for a real estate agent.

Kaltmiete and Warmmiete

These terms are applicable for rental properties only. Kalt means cold in German and warm means warm! Miete is the German word for rent. So a Kaltmiete lease means “cold lease” where the price includes rent only and does not include utilities (gas, electricity, Internet, etc) which means the tenant pays it. Warmmiete means “warm lease” which means the rental price includes at least some of these utilities. Check to see specifics so you know what is included. NOTE: Tenants typically pay the property taxes on a rental property, too.

KfW

KfW is a promotional bank that for German home buyers, can offer part of the financing for a new home that is considered to meet a certain level of energy efficiency. So they will provide part of your financing up to 120,000 Euro and depending on how energy efficient your home is, you might only have to pay back 90,000 Euro over the term of the loan.

So a credit of up to 30,000 Euro is available for the most energy efficient homes rated at KfW 40 Plus. A 24,000 Euro credit is available for the next best rating at KfW 40 efficiency. An 18,000 Euro credit is also available for a KfW 55 rated home. The more energy efficient your new home, the more you can save, not only on heating and cooling costs, too!

Check their website link above for current offers.

Musterhauspark

While individual builders have their own model homes (Musterhaus) for their own homes, Musterhausparks (model home parks) exist throughout Germany that house fully built model homes from dozens of builders that showcase their homes in one central location. Think of it like a small theme park but for model homes. Typically you pay a small fee of maybe 5 Euros to get in and then can walk around the park and see dozens of actual model homes that are fully furnished from many builders and speak with sales staff. Major Musterhausparks exist in German cities like Bad Vilbel (Frankfurt), Mannheim, Berlin, Hannover, Langenhagen, Nürnberg and Münich among others.

I’ve visited the Bad Vilbel Musterhauspark twice and they have plenty of parking, lots of room to walk around, a small restaurant, bathrooms and about 75 fully built model homes at any given time. Each builder has their own brochures but the main lobby area has plenty of brochures from not only the builders but from tradespeople and kitchen builders too.

Click here to check out the full list of Bad Vilbel model homes from the convenience of your home to see who is represented here.

Notar

A public notary. A real estate purchase contract is signed at a Notar’s office to make a home sale official. And once it’s signed and notarized, it’s 100% done and there is no cancelling allowed.

By waiting until at least 15 days after receiving the contracts, you have satisfied the requirement that you do not sign the contracts right away and have been given enough time (ie. 14 full days at a minimum) to review them. You can back out of the bank and purchase contract while the 14 day cooling off period is in place. Check with your Notar, real estate agent and mortgage broker to be sure.

If You End Up Renting A Home In Germany

• Rental laws are fairly pro-tenant in Germany and protects renters for the most part.
• Prepare to pay up to 3 months in rent up front as a security deposit. This is standard. You pay 3 months rent into a special bank account that neither you nor the landlord can touch until the lease ends. It covers damage that you might cause. If there is no agreed to damage, you get the money back in full. So if your rent is 1,500 Euro per month, get ready to put 4,500 Euro in that account to start with.
• The standard notice period is 3 months when you want to end a lease unless your lease contract states another length.
• The longer you remain in the residence, the more notice your landlord has to give you if they want you to move out.
• Once you have lived in a place for over 8 years, your landlord has to give you 8 months notice if they want to sell the property or live in it themselves.
• A landlord can terminate a lease immediately if you fail to pay rent or sublet it without prior approval. You have options to fight it though.
• Tenants generally pay all utilities (Nebenkosten) plus property taxes for the unit they’re renting.
• It’s fairly standard that you paint the walls of the home at your expense when you vacate it upon ending a lease. Check with your landlord to be sure.