German real estate market – trends and facts

German real estate market – trends and facts

The German real estate market is an attractive target for Israeli investors and the media in Israel is flooded with business success stories in Berlin, real estate related success stories and companies that market acquisitions and investments.

A stable economy – Germany is one of Europe’s leading economies with a gross national product of more than 3 trillion euros. The German market successfully deals with the euro crisis and maintains significant competitiveness vis-a-vis China and the United States. Despite the turbulence in Europe, the labor market is growing along with a significant drop in unemployment. Zero interest rate combined with the weakness of the euro, create an attractive opportunity for investment in German real estate.

A variety of areas suitable for investment at different levels. Germany has a number of large urban spaces – Berlin, Cologne, Dusseldorf, Frankfurt, Hamburg and Munich – each of them provides a mix of investments and different levels of risk and profitability.

Stability and transparency – The German real estate market, coupled with the economic situation and consistent growth, offers a high degree of stability in property prices and rental yields, compared to other European countries, with regulatory stability that regulates and supervises real estate transactions, registration and taxation. It should also be noted that rental contracts are signed for relatively long periods of time and that there is still a significant shortage of rental properties.

Lower yield levels due to lower rental prices compared to other destinations. Rental prices in Germany, with the possible exception of Berlin and Munich, have grown at a slower rate than property prices. It can be assumed that there is room for growth in these levels of return in the coming years.

European citizenship is not required for investments and acquisitions in Germany, and all transactions must be accompanied by legal counsel and accompanied by a notary for the purpose of obtaining approval and registration of documents.

Legislation that prefers the rights of tenants and supervision of rental levels. In Berlin, for example, according to the municipal data, about 85% of city residents live in rented apartments, a situation that dictates preference to tenants and a focus on supervision of leases, with attempts to curb the rate of rent increases. As an example, one can see the “Milieuschutz” regulations that limit the division and re-registration of separate apartments in buildings. This re-registration was halted until 2020, which means postponing the registration of separate assets and reducing the attractiveness of investment in different areas of Berlin.

Taxation on real estate assets – The rate of tax on real estate investments is 25% on income from capital gains and rental flows. There are tax benefits at the marginal tax rate for investors holding assets over a period of time exceeding 10 years. There is a tax on income from an asset for residential rent, but the tax is calculated progressively and considers the taking of mortgages or loans for the purpose of financing the property. In addition, German law enforcement agencies allow residential real estate investors to deduct part of the operating expenses and ongoing treatment of the property, thus receiving relief in the amount of tax.

In addition to tax payments in Germany, the individual investor must pay an additional tax in Israel, at a rate of 15%. Since Germany is a federal country, tax rates vary from region to region. When buying property in Germany, purchase tax, property tax and VAT are required to pay 19%. The purchase tax in Germany is lower and varies from country to country, but it usually ranges from 4 to 6 percent. A tax treaty was signed between Israel and Germany that effectively prevents double taxation on investments.

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