Buying in Germany

[Starbuyer]

Hey come on, I've given you details of one website, to get specific details on individual properties you'l have to do some research, that said everyone now has a starting point, whilst I wish to help others I don't want to make it too easy or there will be nothing left for me to buy. This said I wish everyone well and to do a little research you may find some really great bargains instead of just following the herd and getting ripped off.

[FlexiBox]

Wilhelm,
Thanks for the great information on your post. I want to seriously look into the German market and was wondering where to start. Maybe Poland would be a better prospect?

As for Morocco - I did a bit of reasearch into Tanjah and was put off for many reasons. Primarily the price and the developers. Are there any particular developments or areas you can suggest.

Thanks
Flex

[Investy]

I did Berlin and as you say is very complex. Im sick of paying for document translations which you continually receieve throughout ownership.

This year Ive gone for Morocco which is by far the best investment out there.

Even Richard Branson has just opened a hotel.

Morocco is something different to all the others (Spain, Turkey, Bulgaria etc) as its attracting predominately middle class investors for a multitude of reasons.

Good luck in Germany, but I wont be investing anymore there apart from via shares (I just bought 27000 shares in a UK compnay that is aquiring German shopping centres - Home | Dawnay, Day Treveria PLC)

[Investy]

Originally Posted by FlexiBox

Wilhelm,

As for Morocco - I did a bit of reasearch into Tanjah and was put off for many reasons. Primarily the price and the developers. Are there any particular developments or areas you can suggest.

Thanks
Flex

Tanjah didnt meet my minimum requirements in terms of:

1) Ease of rental

2) Season legnth

3) Resale ease and exit routes

I went for the biggest development due to be completed in 2010, its called Mediterreanea Saidia and will be the best resort in the whole Med without doubt.

As an example I compared to top Spannish developments such as La Manga.
LM property is over 4 x more expensive yet it has no beach (to speak of) where as Saidia has 6km beach (29 km in total) and a vast mega marina which will attract the money people. Saidia will have 17 up - market restaurants, 20 Golf clubs, Olympic standard sp[orts facilities (England footballers just bought 60 villas because of this).
At LM there a a few shops. Saidia will have 60 shops many of which are designer brands.

Ive been a property investor many years and never seen anything like this.

[Andrew - Alpha]

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 -

[www.infoberlin.org]

I was resident in Spain for 10 years and 18 months ago I sold up my Spanish properties and shifted to Berlin.
And I know I did the right thing.

The real problem with overseas investments is that people don´t know that they are buying and are blinded by adverts of high yields, tax deductions or and fancy brochures.

Unique investment properties in GERMANY Berlin CHEAP.
if you need sound advise, get in touch.
I am offering superb m2-prices but no fancy brochures!
Contact details on my website.

[Reindeer]

German Real Estate Lawyers

I am looking at investing in German property and have done loads of research, however I am struggling to find a German lawyer with reasonable fees.

I have been in e-mail contact with a few lawyers I have sourced on the internet but most seem expensive. I did find a lawyer called Nicolas Zimmer who's fees seemed very reasonable when compared to all others. He has also had an article in the Irish Times which was very useful. Has any body used him to be able to recommend him. Does anybody know of any other real estate lawyers with reasonable fees.

Your help would be greatly appreciated.

Reindeer

[dHeinwitz]

Real estate is always location, location, location. Well, at least that's what most real estate salesperson will tell you. I, on the other hand, look at the running cost, and the cash flow aspect. It doesn't matter where you buy, Berlin, London, NYC, Tokyo, Paris, if you bought a money pit where the expenses overwhelm income, then you are in trouble.

So is Berlin a nice area to invest? I would say depend on each property. While many are claiming Berlin is going up, my concern is on the rent control. The legal restriction on the rent often prevent the investor from getting a decent return. Think of it this, way, ever invest in REIT stocks? REIT often pays handsome dividend. Dividend may only be paid when there's a strong positive cash flow. Now let's look at German properties. Usually I follow the big boy. Goldman Sachs pulling out of Berlin is a sign they see something that's not correct. Fortress, Morgan Stanley are all pulling out (I have links to support this, but don't have privilege to post link, and links from reliable news source, no real estate salespersons). Many are pulling out because they are not getting the return they are expecting. What does that tell you? Yes, the property price is low. However, that also mean the rent is low. Why are the rent low? Based on my experience, it's often the legal restriction. Not only that, if over 70% of German rent and the prices are restricted, this would not create a "buying" frenzy. Had you purchased a money pit, you would be hard to recuperate your investment. Judging from news, I'd not purchase in Berlin.

Google search a bit, you'll notice those who claim Berlin properties are going up are often those in real estate transactions. Now if you can pull the history, you'll see many fund, big investors put money in around 2004-2006, and are now pulling out... ask yourself why? There was anticipation of REIT placement in Germany, anticipation of higher price movement. Now the economy in Germany is finally growing and economic confidence is high, why hasn't the RE price boom as it should? If you can answer these questions, you'll see German properties may not be the best to buy. Of course, if you find a high yield property and plan to hold for a long duration, then that's different. But I would not expect a quick gain.

[Reindeer]

I take on board what you say and find your views of interest which are obviously based on research. I do think that location plays a part in choosing an investment however, it is not the only consideration as you rightly point out, running costs are are of greater importance. There is no point in having a great location if you pay out more than you get paid in. A investment is no good if it becomes a drain on the pocket. I give you an example of my experience. I have a 2 bed flat in England which was not bought as a buy to let but for me to live in. My circumstances changed and I moved into another property but decided to keep the flat in case I needed to move back in so I chose to let the flat. I have let the flat for approx 10yrs which has been very profitable for me however, the Freeholder recently carried out some major external fabric works and some minor internal works. The long and short of it is is that I now have a bill for £5K which is on top of my annual service charge, this hurts. This is my contribution based on my % of leasehold ownership. I suppose I am lucky as my Freeholder is the Council and not some unscrupulous Freeholder as can often be the case, therefore I know that these works were carried out with necessity and went out for tender and am able to discuss payment options with them. I would suggest that before investing in a property that the long term maintenance be considered as there can be hidden costs. Think what major repair works may be required in say 10yrs as part of a 10 yearly major maintenance works programme and what these costs could be. I would now consider a terraced flat instead of an end of terraced flat as this has less external building fabric to be maintained thus resulting in less costs. I would also suggest checking out the Freeholder as there are many unscrupulous Freeholders.

It's interesting to hear you say that the big boys are pulling out. The last I read was that the likes of Meryll Lynch were still keenly investing in Berlin property and that there was a particular interest in retail however, that does not mean to say that this has changed since. I will therefore take a step back and revisit what the larger investors are doing. I do agree that yes it is the Real Estate Agents that claim prices are on the up which is what you would expect to hear from them as that's their business, naturally they will give it hype. I have also noticed many properties that have been on the market for some time which would indicate that may be the market is not moving as fast as they would like you to think. Also be ware that many brokers charge over inflated prices, I would recommend researching brokers.

I do however think that provided you invest in the right property Berlin could prove to be a good investment, although I will review my research taking on board your comments. What I would suggest is that if investing in Berlin property you must forget the short term. If you want to invest it has to be long term. I would be looking at a minimum of 10yrs investment as that is how long I believe it will take for Berlin to turn into and become the major hub of Germany acting as a capital should, which at present by all accounts Berlin is no where near its potential as many would have hoped.

My intention would be very much long term as I intend to build a pension from Berlin property investment. I am not looking to sell to make a gain. There are no guarantees in life but sometimes you have to take a gamble and I would rather gamble in Berlin than Croatia, Bulgaria & Romania and the like. I would like to think that in the long term based on my opinions above the yield on any Berlin investment should I make one will increase proportionally as property value increases much like the UK market, where I have enjoyed a rental yield of 14% based on a 10yr investment. If entering the market it must be long term, this is only how I see it as I will be the first to confess that I am no expert.

[dHeinwitz]

First, let me add Blackrock is also pulling out. For every seller there has to be a buyer. Usually when the big boys come in, the little ones follow and the little ones are those left hanging. This happens in stock market, bond market, commodities (gold, metal especially). You are right, many of the big boys are still holding on to commercial/office properties. The thinking there, I believe is that the economy is booming , more business will come in. I also don't think there's a rent control/restriction on office space (I could be wrong). Now a booming market typically drives up housing market. Unfortunately, German's rental law just prevent you from raising the rent. On website you can check out is finfacts. When big boys buy, there's fanfare. When they sell... they are hush hush.

Also, rising interest rate is another concern. The Americans got hit hard with all their sub-primed loan with low introductory mortgage. When the rate rises, then there goes the neighborhood. Now it seems EU central bank is planning to raise the rate next Spring and it can become a conern.

I don't know much about Merrill Lynch, so can't speak for them.

You raised a very good point that listing time has increased, so the market might have slowed. I am not aware of this.

I will not invest in Croatia, Bulgaria. No offense, the risks in those area are just too great.

Currently China/India properties are going up fast, don't you think it's better to invest there? After all, if my expected return in these area net me 20% after 3 years. Meanwhile, in Germany, after 3 years, I net only 10%, wouldn't it be wiser to invest in an area that has proven to be booming and still going strong instead of a laggard or stand still area? Just my thoughts. And yes, I am exploring to buy in India and China, but seems to be much more difficult for foreign investor. I guess I am looking at this similar to that of investing in equity market. Between stock A and stock B, if stock A should appreciate by 10% and give you 1% dividend vs stock B which looks like would appreciate by 5% and give you 1% dividend, wouldn't you buy stock A instead of B?

And yes, if the right deal comes along in Germany, I would buy. However, as Reindeer, it would be a long term hold instead of short term.

Disclaimer: the above is just my point of view. I shall not be responsible should you lose money based on my views. However, should you be profitable, please contact me if you wish to share the wealth.