When you think of Germany you may think of quality products, discipline, and productivity, of strong political leadership and a stable economy.
More recently there has been a surge in international investment into Germany, partially due to the below 5 reasons:
1. Many of the cities have the best occupancy rates in the world.
In recent studies the likes of Berlin has only 1.2% vacancy rate at any one time. That means that 98.8% of all property has a tenant sat in it. As an investor this is an incredible number and one which makes you feel secure in the longevity of the property.
A real life example we saw regarding this statistic was our most recent development at Baron & Cabot. During the process of our due diligence we naturally look at rental figures to ensure that they are realistic in comparison to the development we are looking at. This particular area of Berlin has a population of 250,000 and yet when we were attempting comparisons there was only 14 apartments available to rent!
High occupancy rates suggest a few things. The first is that there is an under supply of property available. In this case it is critically undersupplied in Germany due to strict building regulations. Under supply in property means that there is competition for rent making rent push upwards regularly, competition on resale of property, pushing prices up and long term rentals as people stay in their property longer with a lack of alternative choices.
High occupancy rates is exciting for investors with long term security and growth.
2. Low to no tax payable!
Tax is clearly the bane of our lives. As an investor myself and speaking to my accountant as to how I could pay less tax, his answer was ‘earn less money!’ But there is another way, and that is German investment.
Now, before we get too excited there are caveats to this. As the German government are continually striving to keep their property market profitable, they also want to ensure it is stable. To achieve this an investor must keep their investment for 10 years before they are liable for 100% tax break on your capital gains. At Baron & Cabot we urge investors to look at Germany as a 10 year investment to really see the massive benefits.
In the short term however there are benefits to German property from a tax perspective. The first is that everything can be offset against your tax, including your mortgage. This allows investors to hold more of their profits, and with investments in the capital of Germany having relatively low initial yields, your 10 year tax position plays into your favour.
3. 10-year fixed rate mortgages
Keeping with the theme of long-term stable investments clients who live in Europe and earn in Euro or live outside of Europe earning local currency can get a 10 year fixed rate mortgage.
Even more exciting is that the mortgage is approved on off-plan properties up to 2 years before completion, meaning you can buy off plan safe in the knowledge your mortgage has been approved.
Not only that but the mortgage company pays the developer in instalments after they have approved the developer and valued each of the properties. Effectively for an investor you have the security of the mortgage broker signing off a developer from a due diligence perspective.
Paying as low as 30% deposit international investors can get a 10-year fixed rate mortgage at 2.9% or lower.
The criteria for a mortgage is also an incredibly low bar, effectively you need to earn over €13,000 per year (or equivalent currency) and not be politically exposed and a mortgage is simple.
4. Huge capital growth
While Germany overall has seen continuous property growth, there are cities, such as the capital which still has a long way to grow.
Seeing 12%-15% annual property growth is not unreasonable, and many investors are investing in Berlin to achieve the same returns they did with their London investments 15-20 years ago.
Berlin has been well documented as having the fastest growing property prices in the world and with wage and GDP growth this is expected to continue.
While yields are around 4%-4.5%, rental growth matches the capital growth and have no sign of stopping over the next 10 years.
With 20,000- 30,000 people moving to Berlin for example each year, and supply a fraction of this, demand will not stop property and rental price increases. With an average salary in Berlin being €46,144 (according to payscale) property prices have a lot of growth before they slow.
With housing in Berlin being approximately 42% cheaper than London, and wages in Berlin being comparatively higher it is clear that the market can absorb significant further growth before any slow down. This is expected to be the next 10 years.
5. Easy to do business
Finally, and possibly most importantly for access to the German market is the ease of investing there as a foreigner.
As a starting point Baron & Cabot manage the process for anyone unsure, however it is really simple yourself with all of the solicitors and management companies speaking English fluently.
Equally there is very little in the way of red tape, and the mortgage company and management company hold your hand through the whole process.
Conclusion
Ultimately Berlin, and Germany as a whole is a superb investment for the right investor. If you are looking for the lower end of the risk spectrum, don’t need to rely on rental income month to month, want capital growth and can wait 10 years to cash in, you are ideal for the investment.
My colleagues in Baron & Cabot who have purchased for themselves have done so to hold the money in the property for 10 years like a very high interest account, safe in the knowledge that if they need the money out before then they can sell and pay capital gains tax.
For any further questions please feel free to email Mark at mark@baroncabot.com or call 0203 287 8282.
