Dear Wilhelm,
Interesting read your warning on the German property market, some good points and some not so acurate statements. Firstly I would like to point out that not all areas of the country are in our book good places to invest. I certainly wouldn’t buy outside of main urban area and unless your in the business and are going to project manage a renovation of a derelict building, don’t.
1)Council Tax is payable in full even if the property is totally derelict.
There is no council tax in Germany.
2) When B2 letting you have to pay all of the bills and then try to claim it back from the tenants. (Not always easy!)
Generally not a problem if you are buying in a sought after area and have good tenants. Look for a house management company that manages many building or apartments (they have strong legal teams if necessary).
3) If your tenants have a problem, for example a small water leak or some kind of maintenance issue they will not call you to let you know. The first you will know is a solicitors' letter with threats of litigation and withheld rents.
This is slightly correct in that tenants deal with the management company who in turn deals with this type of issue. If you own a single apartment this would be paid from the communal sink fund (Our last set of single apartments in Prenzlauer Berg Berlin had contributions of 0.2 euros per m2 pcm).
Under the terms of most standard tenancies (checkable before purchase) if a tenant does not report faults such as this (within in a reasonable time frame) then there is a strong possibility that you can sue them. Again a good house management company is worth its weight in gold in this exceptionally rare scenario.
4) When providing a 'warm' flat you can only charge each flat for a percentage of the heating costs. If you have five flats and four are occupied it's not so bad but if a few people move out you have astronomical running costs. The two flats occupied will only pay two fifths of the heating costs leaving you a substantial bill as the winters are long and hard and can often drop below minus 20 degrees.
If you letting out a warm apartment you have probably bough totally the wrong type of building (probably old communist block of very poor construction quality). Why are you heating empty apartments?
If you pay peanuts what do you get?
When top areas of the capital city of the worlds third richest country has prices per m2 lower than Sofia why are we looking for even cheaper property. Stick to the better quality property in the right areas (areas that are in demand) and you negate the vast majority of these problems.
There are also more properties than people because of a massive depopulation problem in the East. The market is saturated. The economic induced migration is forecasted to last for another generation so tenant prospects are poor and rent potentials very poor.
Again as you may be aware, property is always about location location location. For example you mention Morocco, possibly a good buy, but your not going to buy in the middle of the Sahara are you?
Berlin, Leipzig and Dresden have been enjoying positive economic migration due to businesses relocation to these cities (BMW, Porsch, DHL, Amazon, MTV, Universal and many more) and low cost of living compared to the west of the country. So these are the places to look at. Not small villages in the middle of nowhere, not derelict farm houses and not un-renovated communist blocks which would probably be pulled down if you didn’t buy them!
5) There are massive taxes if you try to sell quickly and make a profit. You have to hold for at least ten years to avoid this and there are rumors that even this will be abolished with a taper system introduced.
Firstly there is no difference in tax if you sell a property after six years or six weeks. In Germany you have to pay capital gains tax at the same level as your income tax (first 7200 euros tax free, then sliding scale from 14 to 44%). This is never the problem though is it?
The problem is that when you bring the funds from this or any other overseas property investment back into the UK, our very own inland revenue will asses it for CGT again.
There is a double taxation agreement between German and the UK. I might point out that this only means you don’t pay the same tax twice. So If you have paid 15% in Poland for example and are assessed to pay 40% in the UK you have to pay another 25%. It doesn’t mean you get away with paying 0% in the UK just because you’ve paid a bit of tax somewhere else!
6) If you have an electricity supply, you have to pay every month a fairly high standing charge whether any electricity is used or not. They haven't got the equivalent of our nil service charge facility. If you disconnect then there are hefty fees to reconnect.
Utility companies charge in advance for your supply and read the meter at the end of the year. They then refund the difference (or charge for the extra). You may have got confused by this system and though it a standing charge when in fact it’s a projected flat rate for the year.
Again why as a property investor are you looking for empty property? With tenants in place they pay the vast majority of your running cost including the utilities, building insurance, property tax etc.
7) Management companies are very expensive.
I don’t know where you have done your home work but I think your getting an F for this assignment
. In central Berlin you should look to pay no more than 20 to 40 euros per month per apartment for both rental and house management.
The house and rental management charges for our most recent single apartments in Berlin (see link below), a flat rate of 242 euros pa per apartment (20.16 euros pcm) (+0.2 euros per m2 pcm sink fund).
http://www.alphare.net/memos/COTHENIUSSTR-MEMO-New.pdf
With a tenant in place that is the full extent of your running cost. As a percentage of yield it’s the country with possibly the lowest running costs in the world.
8) Labour costs are very expensive, at least the price of the Brits. That's why so many Brits have worked over there for better money than they get in the Uk. Poles and Czechs are not legally allowed to work. Renovation costs are far higher than new build.
Yes wages are very high, almost as high in Berlin as London, yet property only one tenth the cost. Sounds like a terrible back drop for investment to me
But yes as stated I wouldn’t get involved in renovation work unless you’re in the business and can take a hands on approach.
9) Listed buildings (Denkmalgeshutzes) are a real money pit. The red tape is much thicker than on listed buildings in the UK and the skilled tradesmen are much more expensive.
See comment above
10) Not many people in the east speak English. Unless you speak deutsche this can be a real problem.
A good agent should link you up with all the English speaking professionals you need.
11) The German economy upturned a little last year but is still in dire straits. The country is literally on the verge of bankruptcy and Angela Merkel is raising taxes to keep afloat. In the next two years there is going to be a major change to the way that property dealers/investors (immobilien maklers) are taxed on their returns. The government wants a much bigger chunk!
Most western governments are on the verge of bankruptcy, we here in the UK and the Americans are (like many others) well past the verge. Last year was a bit more than a little economic up turn, the last quarter saw export growth of 2.4% that’s nearly 10% annualised which would make that the best ever three months for the German economy in economic history. Nation wide unemployment has fallen to comfortably below 10% for the first time in 15 years. Business confidence is at a high and the DAX is gaining momentum.
Taxes have been raised already (VAT to 19%) it happened three and a half months ago. At the end of this year corporation tax is dropping 10% to 30% to bring Germany for the first time since reunification into line with the majority of the other EU members countries. Not exactly a doomed economy with a backward thinking government.
I eagerly await your comments on my response to your research.
Kind regards,
Andrew Stanley
Alpha Real Estate Investments
Berlin property, German property, Slovakia Property -