DEEDS/TITLE
Germany has what they call Grundbuch. This is the land title register. It can be found at the district courthouse and is the central document for a piece of property. There is not really a deed system in Germany. It is all about Title. “ Title to real property is transferred by a declaration of both parties before a notary and by entry of the transfer of title in the real estate register.” (Burns)
INSURANCE
The title to a property must be recorded and guaranteed at the state level and therefore individual title insurance is not a requirement. Being that the real estate register must have a record of the transaction, a personal title insurance registry is really not important. Homeowner’s insurance requirements are something totally different. “ Property is insured in two main ways – open perils and named perils. Open perils cover all the causes of loss not specifically excluded in the policy. Common exclusions on open peril policies include damage resulting from earthquakes, floods, nuclear incidents, acts of terrorism and war. Named perils require the actual cause of loss to be listed in the policy for insurance to be provided. The more common named perils include such damage causing events as fire, lightning, explosion and theft.” (burns)
CONTRACTS
In Germany, the contract for a sale of property must show:
1.Correct names and addresses of the parties and the details of the property
( An error, especially in the property details, could at least partially invalidate the contract )
2.The agreed upon purchase price and terms and conditions of payment
3.Stipulations as to what happens in the event either party fails to live up to the terms of the contract (guide)
Aside from the 3 requirements above, the rest of contract details are very simple. The contracts are generally drafted by the broker. Everything is similar to our system in the U.S. Whatever is the case in the United States is basically the same in Germany.
REITS are alive and well in Germany; many are traded on the Stock Exchange.
DISCLOSURE REQUIREMENTS
“The seller is required to disclose any hidden defects, but is not obligated to point out any defects that should have been obvious to the buyer” (guide)
LEASES
German leasing policy generally depends on the state. Each one has their own set of rules and regulations. For instance “The main parts of a landlord-tenant relationship are codified in a law. There may be nothing in the lease dealing with notice periods, renovations required or actions in the event of non-payment of rent, but these things are still covered because of the law.
An agreement to rent an apartment or house for a fixed term can't be terminated early except under extraordinary circumstances. A transfer is usually not an extraordinary circumstance.
Your payment to the landlord, which is usually made monthly, is in two parts: the rent, which can't be changed for the duration of the lease; and the Umlagen, which can be. The latter can include such things as a share of the landlord's property tax, heat, stairwell cleaning, trash collection and water. If the price of one of these is raised during the period covered by the lease, your Umlagen can be increased accordingly. You generally pay separately for your electricity and gas, though these can be included in the Umlagen. And you might also pay separately for some of the things we mentioned as being in the Umlagen, especially heat.” (how to)
A few other matters concerning living in German rented quarters:
- It's a good idea to have an inventory of anything that is in your new place and any deficiencies that are seen should be noted. This is simply protection for you and your landlord.
- Avoid loud noises between 1 p.m. and 3 p.m. and from 10 p.m. to 7 a.m. Monday through Saturday and all day Sunday.
- Most cities now require that trash be separated in a number of ways. There will usually be separate receptacles (mainly on the landlord's property but sometimes community ones on a nearby sidewalk); one for metal and plastic, one for paper, one each for green, brown and white glass, and one for all else. If you want to get rid of something such as a piece of furniture that's too big for the trash containers, you can call the sanitation office and request its removal. This will usually be done on a Sperrmüll (large trash) day. In most cities they will even haul away an abandoned car by appointment.
- Wash and dry laundry only in the areas or rooms provided by the landlord.
- Leave cars, bicycles, baby carriages, etc., only in areas provided by the landlord. The cleaning of rugs, blankets and the like should be done only in designated areas.
- Obtain the landlord's written permission if you wish to keep a pet.
- Lock entrance doors from 9 p.m. to 7 a.m. if more than one family lives in the building.
- Close and lock all doors and windows in your apartment during periods of extended absence.
- Install satellite dishes and television or radio antennas only with the permission of the landlord and in compliance with local laws.
- Inform the landlord immediately of any damage to gas, water or electrical lines.
- Find out from the rental agreement who is responsible for the cleaning of halls, stairways, front walk, etc. It could be you!
- Never grill, barbecue or make an open fire on a balcony.
- Never pour or shake anything from windows or balconies. Make sure flowerpots or boxes on windows or balconies are secure and that watering them doesn't create a nuisance to neighbors below.
It was difficult to determine and landlord responsibility, other than to honor whatever contract or agreement was signed. As I mentioned earlier, these things vary from federal state to federal state, but tenant expectation is generally the same for all.
EVICTION PROCESS
As in many aspects of German Real Estate, procedure will vary from state to state. Therefore, there are no ‘clear cut’ definitions for the legal requirements or the process time period. But overall, “potentially 1–3 million unemployed, particularly longer-term unemployed, are under pressure to leave their homes, because they no longer can afford the rent. While the number of forced evictions in Germany is limited, another picture indicated larger legal and extralegal, market-driven and policy-driven pressures, less characteristically violent as in other regions, but nonetheless effective in pushing inhabitants to leave their dwelling and join the ranks of Europe’s new "rent refugees.“ (hic)
THE REAL ESTATE SALE PROCESS
Before we discuss the Real Estate Sales process, it is important to note that about 58% of German households are renters. (guide) That being said, there are Agents in Germany who share a non-proprietory version of the MLS system. The UK’s leading professional body for estate agency personnel (including Germany) is The National Association of Estate Agents (NAEA) and their website is . The way to contact agents individually though, is through which contains 17,000 offices in over 3,000 towns (some of which are German). The agents’ websites give access to property for sale or rent for any given postcode. From my research, there doesn’t seem to be much held from the public, but most are renters anyway.
The actual responsibilities of the buyer and seller are as follows:
The buyer needs to secure financing and be ready to present a so-called irrevocable acceptance of loan financing by a good bank before signature of contract. The seller needs to agree to a priority notice in the land register. This protects the buyer from the seller selling to someone else for a higher price once the contract is agreed to. Both parties can freely decide on payment terms. It is final when a notary public signs & dates the document.
LICENSING REQUIREMENTS AND PROCESS
“Licensing of Real Estate Practitioners is not required in Germany.” (burns) That being the case, there is no governing body or any training requirements per se.
RESPONSIBILITIES OF SALESPERSON & BROKER
“A real estate broker, referred to as ‘Immobilienmakler’, must be registered with a credit reporting agency (Auskunft) and must be listed in the commercial register (Handelsregister)”. (burns) They typically represent the seller. Their role is to facilitate the transaction once a buyer is interested. Their payment will vary from case to case. “Except with rental contracts, there is no law regulating commissions. It can be negotiated, and in most cases is between 5 and 7 percent of the purchase price. In some cases the buyer pays the commission in full, in many others it's split between buyer and seller and in some instances agents receive their commission exclusively from the seller.” (how to)
Aside from the general UK agencies, Germany has its own agent group: Web : “www.ivd.de, The German real estate professional association, Immobilienverband Deutschland (IVD), is a professional organisation that represents the interests of service providers of the real estate sector. The approximately 6.000 member firms comprise commercial and residential property agents, real estate managers, financing and loan service providers, assessment experts, property developers and representatives of many other real estate-related occupations. The IVD was established in 2004 as the result of a merger of the until then autonomous traditional associations Ring Deutscher Makler (RDM) and Verband Deutscher Makler (VDM)” (burns)
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FINANCING RESIDENTIAL PROPERTY
As I mentioned before in buyer responsibility, an irrevocable acceptance of loan financing is the equivalent of a promissory note
Contrary to what most might believe though, there are no restrictions on foreign nationals buying property in Germany. Financing is possible for foreigners, but should not be expected to cover more than 60% of the purchase price.
Mortgage rates are pretty low, and the secondary market is comprised of big companies that usually get their financing from their own reserve.
FORECLOSURES
Foreclosure is not really an issue in Germany. It does exist, but not nearly close to the numbers elsewhere. This is due to low home ownership o begin with combined with the fact that Germans who do buy homes carefully plan the purchase and never plan on leaving.
FINANCING INCOME PRODUCING PROPERTIES
There are many options for financing income producing properties. The Council of Mortgage lenders accounts for 98% of UK residential mortgage lending and their website is . (Bloomberg) “German real estate financing can be done either with mortgage banks or with any bank or financing institution for example a "Sparkasse"(Savings Bank), "Volksbank" (Credit Union), Insurance company, Bausparkasse (building and loan association). Financing usually is done for about 60-80% of the buying price by mortgage loan. Anything above 100% of the buying price needs to be secured either by additional securities like insurance or other financial securities that have to be deposited at the financing institution. Financing is based on the actual income a person or company has. Banks do finance non-residents but certain circumstances apply and normally does not exceed 60% of the buying price.” (burns)
SECURITIZED INCOME PRODUCING PROPERTIES (i.e. REITS)
REITS do exist in Germany, mainly commercial property. To find one, the best way would be to go to a commercial lender and inquire about their holdings.
PROPERTY MANAGEMENT
Property management in Germany is best left to the professionals. The key things managers can handle for international investors are spatial distance, the language barrier and legislative & cultural differences. Through my research, I have discovered that even local German investors use property managers. They handle a range of responsibilities including:
- Rent review & Income Optimisation
- Rent collection & Tenant Selection
- Client Representative towards service & providers & authorities
- Overseeing maintenance works
- Regular Property Inspections
- Service charge & Financial accounts
- Resolving contractual issues
- Tenant services
- Tax Preperation
COMMERCIAL DEVELOPMENT
Germany is only too eager to encourage commercial development. As the world’s premier exporter, it is only natural that a good number of companies would want to establish themselves there. On the commercial end, Hypo Real Estate Holding AG (HRX GY) is Germany’s second biggest commercial-property lender. (Bloomberg)
“ A closer look on the two submarkets, commercial and residential, reveals that rents and prices for commercial properties show a more positive trend with +2.7%, while rents and prices for residential properties rose only by +0.7% on average. This positive trend within the commercial properties is mainly based on increasing retail rents for prime locations (+3.7 %) and suburban locations ( +3.9% ), office rents have also developed positive with a growth of +2.0% compared to 2006.” (bulwienGesa)
SOCIETAL ATTITUDES TOWARD OWNERSHIP
Germany holds one of the lowest homeownership rates in Europe. As mentioned before, 58% of households rent, so ownership is not really stressed or a big deal in Germany. Some feel this may change eventually due to “ the need for retirement housing and failing state pension system” .(consultants) That being said, the opinion of those who do buy property tend to different from their counterparts in other areas of the world.
“Unlike Anglo-Americans, Germans tend to buy houses for life. They don't often see the more typical, non-European practice of buying now and continuously upgrading. This explains why there are fewer real-estate market price fluctuations, though the demand for choice locations remains high. It is not unusual for would-be homeowners to take up to two years to find their home.” (how to)
CONSTRUCTION OF NEW PROPERTY
“ A building permit is required for the construction, alteration, demolition or the change in use of a building. The building permit is granted if the project complies with the planning and building regulation law as well as with all other relevant laws like for instance environmental laws.” (invest) The local building authority reviews all building permits and has the final word.
The cost of new construction in Germany is dependant upon several variables. Most of them are incurred just to get the building permit. These consist of “ a site plan, construction drawings, building specifications and applicable documentation regarding heating, noise prevention & fire protection plans.” (invest).
Government restriction falls between both federal & state law. “The planning law, which establishes the purpose for which a property may be used, is a federal law. It determines whether a building project fits into its surroundings. The federal states (there are 16 of them) are responsible for the building regulations law which determines how buildings may be designed and constructed in order to meet the requirements of planning law.” (invest)
The transaction can definitely be done in U.S. currency with absolutely no problem, and there aren’t any real noticeable differences between the two nations in that sense.
EVALUATE THE SYSTEM FOR ITS EFFICIENCY AND POTENTIAL FOR EFFICIENCY.
Overall, the German market could use some improving, but a lot the blame is outside of the system. Too many German residents rent, and there seems to be adequate financing for them to buy if they were so inclined. As far as currency risk, there is none. The U.S. dollar is weaker than the Euro and there are no restrictions or barriers for foreign currency. The attitude of ownership amongst Germans must change if their market is to truly thrive and prosper. As for outsiders, here is the consensus: “The prospects for real estate speculation are not favorable. There is little chance for substantial increases in property values over the next few years, precluding any significant profit-taking. Further, any such earnings would be taxable if the re-sale occurred within 10 years of purchase.” (how to)
REFERENCES