Purchasing an apartment in Berlin
Apartments in Berlin- buying an apartment in Berlin
In recent years, buying an apartment in Berlin became a preferred investment option for the average Israeli.
The housing costs, which are relatively low in European terms, let alone in Israeli terms, the location of the city and its branding, the strong economy, the comfortable loan terms and the potential for price rental increase, compared to the low interest rates received from bank deposits in Israel, the high real estate prices in Israel and the toughening of the financing terms for the purchase of an apartment for investment in Israel, drive more and more Israelis to buy an apartment in the German capital.
The price of an average apartment in Berlin is about 1200,000 to 130,0000 Euros, which is lower than the average price of an apartment in Prague, let alone cities like Rome, London or Paris. Israelis, whose main business is rental property, are buying entire buildings in Berlin, renovating them and selling apartments or continue holding them. It is estimated that so far thousands of apartments were purchased for investment by Israelis in Berlin and thousands of apartments were bought by publicly traded real estate companies.
Recently, a trend of demand started to form among Greek, Italian or Spanish investors, seeking to purchase apartments in Berlin. They fear the economic instability in their native country and consider buying an apartment in Berlin a solid investment, which will better itself over time, given the low housing prices compared with similar cities in Europe.
Before planning tobuy apartments in Berlin - a little description of the city
Berlin is the New York of Europe.
This metropolitan area is home to approximately 3.5 million inhabitants and due to its positive migration figures a constant increase was recorded in its population.
Alongside London and Paris, Berlin is one of Europe's largest cities in terms of its population.
The city is characterized by its youthful spirit and the larger part of its population is young.
The city hosts hundreds of thousands of cafes and entertainment venues.
Berlin is divided into quarters. As of the present time, there is no difference between East or West Berlin. In fact, East Berlin quarters, such as the MITTE district and PRENZLAUER BERG are very popular and the real estate prices there depend on the demand.
Where one should buy an apartment in Berlin?
Perhaps the most important parameter to examine the potential and quality of a property, is its location. As we are dealing with Buyers of individual apartments or individual buildings and not of clusters of housing projects, there is currently a clear preference for the purchase of apartments in all the districts surrounding TIERGARDEN and MITTE quarters, as well as those adjacent to KREUZBERG quarter. These are lively quarters, packed with cafes and Entertainment and leisure attractions, which naturally are highly attractive. The demand for purchase and rental of apartments in these areas is great.
However, it is quite possible that in a few years other areas will start drawing attention in Berlin and even more investors will ask themselves how much does an apartment in Berlin costs. Thus for example, in MITTE quarter there were excess supply that lasted for years after the fall of the Wall. Nowadays this quarter is very sought after.
Alongside the aspect of the location of the property, the question of what should one buy is always the key issue in investment, especially when we are dealing with an investment of considerable sums by ordinary people. After a decision was made to invest in rental property in Berlin in the form of buying an existing and rented apartment, the question to be asked is, whether to buy one large apartment or 2 small ones, and whether at the top floor or the bottom floor. There are never any conclusive answers to such questions. The answer is always according to the circumstances and the nature of each different asset.
The advantage in buying one large apartment can also be its disadvantage. Thus for example, one apartment involves contracting with only one tenant. On the other hand, when a disagreement appears with the tenant, which leads the tenant to stop paying his rent, there is no additional rental property, in terms of laying "all eggs in one basket."
A large apartment can be physically split more often than a small apartment. Such split yields, most of the times, almost double revenues. However, there are legal and bureaucratic barriers overcome, which result from the split, while the entailed costs of such split must also be considered.
In many buildings in Berlin, or rather in most of the buildings, there is no elevator.
Very often, the ground floor of the building hosts several businesses, including supermarkets, cafes, offices or even garages. The lower floors may be more than the upper floors to bad effects of such businesses on the ground floor, such bad smells and noise.
On the other hand, in the absence of an elevator their accessibility to the tenant is much more difficult.
Who should one buy an apartments in Berlin from?
Seemingly, it is irrelevant from whom the apartment in Berlin is bough and what is the identity of the seller. This is certainly true when the investment involves the purchase of a building and more. However, recently Israeli real estate professionals, who are highly familiar and experienced with respect to the real estate market in Berlin, sell individual apartments in buildings they own and offer a "package deal", including legal support with the right-registration, mortgage obtainment and management. Others organize acquisition groups, which members buy the building jointly.
Other sellers offer shares in the company which owns the building. There is no doubt that buying from an Israeli entity offer great advantages. There are no communication difficulties or cultural differences, very often the buyer is free from any brokerage costs and has a much more accessible address to return to to, than when buying from a German seller. The advantage of buying from an Israeli seller is specifically noticeable if the management company of the building in Germany is controlled by the seller or its representatives in Israel.
Apartments in Berlin - So how much does an apartment in Berlin costs?
In a press release dated 04.18.2012 the "German Institute for Economic Research" (DIW) asserts:
"The recent steep increases in the prices of apartment rental and purchase in Berlin merely represent adjustments to the prices rates in similar cities and do not represent a bubble.Between June 2011 and March 2012 monthly rental fees for a new tenant grew by 8% and housing prices by 12%. Throughout the year these costs represent a 10% and 15% increase, respectively. Indeed the price increase is steep, but since the average purchase price of 2100 Euros per Sq.m. in Berlin is still considered low, while for a long time the market experienced a price freeze, one cannot speak of a bubble in the housing prices in Berlin"
According to IMMOBILIENSCAUT24 website, a popular real estate site in Germany, the price of an apartment in the KREUZBERG quarter rose by 16.5% since 2010 to a total of 3119 Euro and in MITTE quarter by 11.9% to 3932 Euro in 2011.
Price comparison with to other cities in Europe
In an article dated 05/10/2012 Austrian financial newspaper (WIRTSCHAFTSBLATT) asserts that a purchase price of 7000 Euro per square meter in Paris or London, is an acceptable price. The article notes the rise in prices in Berlin and the rising demand for the purchase of apartments in East Berlin. According to this article, the average apartment price in Berlin can reach 3,500 Euros per square meter.
An apartment buyer who is not a German citizen or resident may receive a mortgage from local bank. There is no legal impediment to it. Although foreign residency is offers less guarantee to the bank than local residency, banks in Germany do not prevent from extending loans for the purchase of apartments to foreign residents as well.
The mortgage terms vary from apartment to the other and between different banks.You it is possible to determine that the loan facility will range between 50% to 70%, subject to the rental yields, the location the condition of the property.The loan period, like the other terms of the loan, is subject to negotiations with the bank and can be deployed to up to 20 years. Usually the loan period will be divided evenly into two set periods, where the second period is an option for the borrower, whether to continue with the bank or seek another loan source.
The prevailing interest rate for buying an apartment in Berlin is about 3.1% for a period of 8-10 years.
Legal restrictions on purchases of residential assets
There is no legal impediment preventing a foreign citizen from buying a real estate property of any kind throughout Germany. Every real estate transaction in Germany must be signed by a local notary, otherwise it has no legal effect.
When buying a rented apartment, the German law grants the tenant the option to buy the apartment. The option period is two months from the date on which the tenant receives a notice from the notary of his right to purchase the apartment. The notary's notice shall be attached with a copy of the sale agreement. If the tenant decides to exercise the right granted to him, he will assume the status of the buyer, with exactly the same conditions of the original buyer. In this case, the sale agreement is with the original buyer is canceled.
The actual purchase of an apartment in Berlin.
As stated above, every real estate transaction in Germany must be governed by a notary. The transaction notary is not the lawyer of either party, but the entity that implements the parties' agreements, as expressed in the sale agreement.
Incorrect assumption of buyers at the beginning of the transaction regarding its commercial terms, could lead to disappointment after obtaining the possession of the property. A buyer who will not consult with professionals may purchase a property, which in reality does not reflect the calculations he has made.
A repeated mistake is making yield calculation according to mistaken sales figures.The total rental fees received from renting a property in Germany, include the "net" rental fees, amounts paid by the tenant as a down payment for current expenses, such as heating or electricity, and finally the "net net" rental fees, which are the rental fees yielded from the apartment, minus fixed costs that apply to the landlord and cannot be assigned to the tenant, such as management fees, insurance and payments to the house committee.Many buyers calculate the value of the deal according to the overall rental fees, a figure that is completely wrong.
An Israel buyer bought an apartment in Berlin, with a given yield, as per the representations presented to him. After the acquisition he was required to pay house committee, insurance and management payments. These amounts have reduced his yield. Another investor was required after the purchase to contribute his share with the other apartment owners, amounting to thousands of Euros, for the installation of an elevator in the building.All his claims were rejected on the grounds that this is the resolution of the House Committee. Since the decision was dully made before the purchase, he assumed the status of the seller and therefore the decision of the House Committee binds him. Another investor purchased a rented apartment. After the acquisition he found out that he is prevented from raising the rent, because the rent is protected and the tenant is the state, which extend the apartment to a tenant of a low social condition who receives housing support from the state.
Another buyer signed a sale agreement, but eventually the financing bank decided not to extend a loan. Since the loan documents were not signed by the bank, the buyer's claim against the Bank was not accepted.
Expenses payable due to the purchases of an apartments in Berlin are as follows:
Purchase tax: 6%
Notary: 1% -1.5% of the apartment value, depending on the actions carried out by the notary
Attorney: According to the agreement. It is customary to charge by the hour or by percentage of the transaction value.
Brokerage: 3% to 7% of the transaction value.
Registration fees: Hundreds to thousands of Euros. For an average apartment the fees will amount to tens to hundreds Euros.
A German citizen is exempted from paying tax on annual rent of up to 8054 Euros.A foreign citizen must pay taxes that may reach up to 16%, yet all the expenses related to the apartment, such as depreciation, mortgage, management fees, repairs, insurance and other expenses, are recognized and may be offset. In the final result, the tax paid on rental is in most cases 0%.
In the sale there is no difference between a local and a foreign seller.Tax on profit from sale may reach up to 20%. After 10 years from the date of purchase there is full exemption from tax on profit from sale, even if selling several apartments simultaneously
Since most apartments in Germany are not owned, but rented, by the tenant, German law protects the tenant. This protection is primarily with respect to the issue of rent and lease term.
Unlike Israel, rental fees of an apartment are regulated and subject to the index of the local authority as per the location of the apartment. The apartment renter may demand the maximum amount specified in the local index. In principle, he may raise the rent every three years up to a total of 20%, while the ceiling is the local index.
Another pillar of German law protection of the tenant is a prohibition on restricting the lease period. Namely, an article in an apartment lease contract in Germany, which limits the term of the lease would be null and void and the contract shall be construed as if the rental period is not limited. An exception to this rule applies when the landlord explains the reason for limiting the period of the lease. A cause recognized by German law is when the landlord needs the apartment for his own use or for his family use.
In principle, German law permits assigning almost the entire current expenses of the apartment, such as water, electricity, property taxes, gas, etc., to the Lessee. However, the German law bans imposing expenses due to management fees, certain insurance payments and "House Committee" payments or "housing fees", on the tenant and such expenses are payable by the owner of the property.
There are fees charged directly from the owner of the property, such as property taxes.
In terms of the authorities, the property tax debtor is the owner of the apartment.
Whether the landlord assigns this payment to the tenant or not, does not concern the local authority. Berlin property tax payment is paid every three months in advance. Usually the management company collects municipal taxes from the owner of the apartment, as per the received assessment, and then charges the tenant for such municipal taxes on a monthly basis.
Many Israeli buyers are disturbed before the purchase by the apartment management issue, which includes payment collection, negotiations with the tenant, repairs and the like.
In fact, this issue is the simplest link in the considerations regarding the advisability of the investment. Almost every German apartment building is run by an outside management company. The job of this company is to collect rent, conduct repairs, take legal steps against tenants and submit periodic reports to the landlord. The monthly costs of managing an apartment building in Berlin are estimated at the amount of about 25-35 Euros per month.
The management company should be in contact with the renter and landlord and receive appropriate directions from him. It saves the landlord time and the task of dealing with the tenant. Some apartment sellers went even further and offer the Israeli buyer management services from Israel, so that the local management company could receive its instructions from the landlord or his representatives. This saves the Israeli buyer the task of dealing with the apartment and the negotiations with the tenant.
Despite the steep increases in prices of apartments in Berlin, it is still considered less expensive than other major European cities. Thousands of Israelis who bought apartments in Berlin during recent years benefited from this appreciation of dozens, and in some cases, hundreds of percent. The great demand for apartments and for rent in Berlin, the favorable financing conditions, the size and branding of the city and its betterment potential, are elements that should encourage buying an apartment in Berlin. It is recommended to use the services of professionals when in the buying process.
Dr. Yuval HenAttorney and Notary
*** This article provides no legal advice. This article does not refer to any specific case.This article does not constitute a recommendation to buy an apartment and does not indicate any viability of any particular transaction. It is not necessarily complete, correct and comprehensive.