You’re content with how your life is in Germany and are thinking of a more permanent settlement. All world cultures equate buying of residential real estate property as a social status symbol and if your culture back home propagates that, then you’re surely inclined to think about housing. There are many parts to understanding German housing, and this article will cut through the clutter to help you make up your mind of becoming a homeowner in Germany.
Why Germans prefer to rent
Before delving any further into the where and the how of buying a house in Germany, you should know that Germans mostly prefer renting a house than buying a house. Although the country is currently one of the strongest economies in Europe, only 51% of Germans actually own homes. There are several reasons for this typical German mindset which are both historical and economical.
The historical reason is that Germany was completely destroyed in post-World War II. With big cities turned into complete rubbles, people lost houses and all their possessions. So fear still perpetuates most Germans from investing in their own home.
Another reason is the complicated process of securing a home loan from the bank. Do note that although it isn’t easy, securing a home loan from the bank is surely attainable.
The benefits of buying a house for foreigners
- Low mortgage rates – A good credit score and a secure job are the precursors to securing a home loan from the bank. Germany often features as one of the countries with the lowest mortgage rates, where the average fixed mortgage rate was 1.90 in 2016. There are plenty of apps on reality websites which will help foreigners calculate their rate of interest based on the total sum of the loan, repayment period (i.e. 10 years or 20 years).
- No more rent – Most foreigners living in Germany are keen to secure their future in its stable economy. So instead of paying a certain lump sum of money towards your monthly rent, think of it as investing the same amount in securing a permanent home for your future in Germany.
Foreigners are allowed to buy real estate in Germany, but purchasing a real estate does not qualify you to become a permanent resident or citizen of the country.
Tips to choose your property
Finding the house of your dreams in the perfect part of your city or town will take some time and a little luck. Most homeowners spend at least a year or two looking at properties and interacting with real estate agents. So most importantly, keep in mind buying a home in Germany is a one-time thing and it requires some patience.
Budget & location: Based on your home buying budget, you can determine the living space and location. Buying an apartment in any of the big German cities (Berlin, Frankfurt, Munich, Düsseldorf, and Cologne) will be more expensive than buying an apartment in the suburbs of the cities. The same rule also applies to houses.
Also, an apartment in the big city will have you compromising on the living space. So the crucial question you need to ask yourself is, do prefer larger living spaces or do prefer compromising on space to live in the heart of a bustling city?
Note, there is no standard rate for properties, and they vary from city to state.
Resale: If you want to buy a house, but you’re not a 100% assured that you would continue living in Germany, then it’s best to consider the resale factor. From the point of view of investment, buying a house in the thriving location always has great resale value, as there is a constant influx of buyers or tenants for your property. Houses and apartments in villages or remote suburban areas will take a longer time to sell with a possibility of incurring a loss on the amount you invested.
How to find a house to buy
There are two ways of finding property in Germany
- Real estate agents/ brokers – Real estate agents work as the direct link between you and the sellers in their current portfolio. Their brokerage fee is usually between 3-7% of the purchase price of the property; this is paid by the seller or split between the buyer and the seller. Be sure to clarify this before engaging the agent’s services. The positive here is that agents will do all the work for you from finding the seller, setting up the appointment and showing you the property.
- Real estate websites – If you’re keen on being in command of your house search, then the best option would be to sign up on many of the German real estate websites. You have the option to personalise your search on these according to budget, size of property and location. A few of the well-known real websites are:-
Bank loan and assistance
Once you have found a house that you’d like to buy, the next step would be to approach German banks for a housing loan. To convince the bank, you’ll need the following:
- Have a minimum of 20% or a maximum of 30% of the price of the house as your initial capital. Or convince the bank you do have a source in the future to pay off the initial capital.
- Have a steady income flow. (The bank will assess your employment history and look into your monthly salary and job position to verify if you are equipped to repay the loan on a monthly basis.)
- You are a registered resident of Germany.
- Have a good SCHUFA rating.
- Documentation to show your tax returns
- Property assessment report from a surveyor.
- Proof that current seller owns the property from a land registry.
One tip here to consider is to approach several different banks and check what they have to offer you. If you are in Germany on a residence permit, this could prove as a roadblock to securing a back loan as banks need proof that you will remain in Germany till you fully repay your home debt.
Other fees and legal requirements
- Hiring a notary: The notary is hired by you and acts as a middleman in the sale of the property. They check all the documents and see if all the information is factual and will be present physically when the deed of property sale is signed. The notary will also have to update your name as the owner of the property in the municipal governments land registry. For these services you would have to pay a fee to the notary, this can be anywhere between 1.2–1.5%.
- Property tax: Depending on the state you reside in, the property tax (Grunderwerbsteuer) is between 3.5 and 6.5% percent. So the higher the price of your property, the higher the tax you will be paying for the property.
- Land Registration fee: To register your property with the municipal government, you have to pay between 0.8–1.2 %.
Be prepared to add roughly about 10% to the property price, which will include the above-mentioned fees along with broker fee. This should give you’re a rough estimate of the total sum required to purchase your own home in Germany.