| Real Estate
in Germany |
| Not For
the Risk Averse |
| By Rhiannon Williamson |
| June 2006
There is
much speculation in the property press at the moment about whether or not
Germany property represents an excellent medium to long term investment
commodity for those seeking capital appreciation and/or rental income.
Those who are analyzing the market but have no direct experience of it
seem to think that all the economic and political signals point to profitable
times ahead for those who commit to investing in Germany property. However
we at Shelteroffshore have learned a great deal from investors with personal
experience of buying property in Germany and this is our report on whether
or not investing in Germany property makes sound financial sense. |
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| There are
companies out there like Property Secrets.net who firmly believe that there
is room for growth in the German property market. For example Property
Secrets’ current ‘Germany property investment summary verdict’ is:
“Excellent
cash flow market. Potential for capital growth. Market has bottomed. Don’t
buy less than 6% net yield.”
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Knight Frank‘s
head of residential research, Liam Bailey is another staunch promoter of
the German property market believing that the next two years will produce
dramatically improving residential property prices. |
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| Both of these
expert sources seem to perceive and suggest that increasing house prices
in Germany will create potential for international real estate investors
to tap into capital appreciation which they will then be able to realize
in the medium term by reselling their Germany property assets…
But who will
investors sell to?
Other investors?
They won’t
be selling in any great numbers to Germans because Germany consistently
has the lowest percentages of homeownership in Europe. Having lived
in Germany for seven years two members of the ShelterOffshore team know
from first hand experience that Germans prefer to rent their houses and
lease their cars. Furthermore Germany has been suffering from terminally
high unemployment for a number of years which has dramatically reduced
the amount of disposable income German citizens have to save towards a
property. |
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Offshore
Resources Gallery
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| The massive
increase in the number of unemployed also means that there are fewer
citizens in Germany able to raise finance to buy property and so the local
demand for property for sale in Germany just does not exist and there is
nothing currently to suggest that this situation will change. The German
government has even scrapped payments known as Eigenheimzulage that it
previously made to first time buyers in a bid to encourage them to become
homeowners, so at the moment there is nothing to encourage a German to
buy property in Germany.
Property investors
might consider selling their properties on to those in search of a
holiday home in Germany then – just like investors are able to do in countries
such as France, Spain and Cyprus. But Germany is a country with an incredibly
low international profile in terms of its tourism potential and one doing
seemingly nothing to improve its profile.
While it
is undoubtedly a stunningly beautiful country in parts with castles,
mountains, unspoiled coastlines and vast expanses of woodland and rolling
countryside, Germany is not at all synonymous with the idea of a summer
holiday, a weekend away, an adventure holiday, a stag or hen weekend or
even a cultural or historic tourist experience. |
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| This means
that investors won’t be able to sell to second or holiday home seekers
in any great numbers because quite simply there aren’t any in Germany So,
okay – let’s assume that property prices will rise - those who buy now
will achieve good profit margins and enjoy capital appreciation – but don’t
let’s assume that any investor will then be able to offload his property
to anyone other than another investor who hasn’t done their research into
the liquidity of the German property market.
And what then
anyway?
So an investor
finds a mug punter to sell his German property to - but what about the
15% speculation tax that Germany lumps onto those who attempt to resell
real estate that they have owned for less than ten years and from which
they’ve made a profit?
That 15% speculation
tax together with the Makler’s fees (estate |
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fees) which the investor paid when he bought his German property in
the first place and which amounted to up to ten percent of the purchase
price as well as the 1% for the Notar’s fees (public notary’s fees),
the transfer tax and the back handers the investor likely has to pay out
to all and sundry related to the property purchase process in brown paper
bags in the first place could quickly put those who have profited a little
from real estate firmly into the red.
And don’t
think about buying off plan in Germany, having a property built or buying
a brand new home and flipping it on for profit. You pay a substantial
premium for brand new Germany property that means it will take far longer
to achieve profitable growth for those seeking capital appreciation from
their real estate assets, furthermore the process of having property built
in Germany brings with it even more expenses in the forms of taxation,
fees and more back handers paid to the likes of architects who survey the
property before a German mortgage company will release finance for example
– yes, seriously.
So,
it possibly makes little sense to buy property in Germany if you’re expecting
to easily profit from capital growth any time soon.
You could
however buy to rent to the German population which either has no desire
to own property or no ability to afford to buy property. In popular
and major cities like Berlin and Munich this could be a profitable prospect
if unemployment decreases and foreign investment, local wages and overall
demand increase. But then again the German population is aging and shrinking
and there are few signs that the German economy is going to bounce back
to life dramatically any time soon so you’ll have a market that is not
growing in terms of demand or affordability, you’ll own an asset you cannot
resell for much profit in the long term and as a result we can think of
a million far less reckless ways to invest your money.
How about
property in Zimbabwe for example where investors are considering hedging
against 1,000 per cent inflation? Or what about diversifying your portfolio
and chucking the lot into an untried start up company? After all, if you’re
seriously considering investing in Germany property you can’t be risk averse! |
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Article
Index ~ Germany
Index ~ |
