Rental business in Germany: what does an investor need to know before buying?
The German real estate market is one of the most stable in the world. Today it’s a seller’s market: there are fewer facilities here than investors who want to buy them. The easiest investment option is the purchase of residential real estate for rent, which will bring the investor an average of 2-3% per annum. Low profitability is compensated by high liquidity: the object can be easily and quickly sold at any time. What else does an investor need to know before buying a profitable property in Germany?
Price increase
The reliability of the German real estate market confirms a steady increase in the cost per square meter in the past 10 years. So, unlike other European countries, in Germany, the global financial crisis of 2008 did not cause a collapse in prices. According to Eurostat, if in the period from 2008 to 2013 the average cost of residential real estate in the EU fell by 8%, in Germany, on the contrary, it rose by 12%.
In parallel, the rising cost of rent. The German real estate portal Immowelt.de has been keeping price statistics since 2011: according to their data, by 2017 rental rates in Germany increased by an average of 18%: from 6.6 euro / m² per month in 2011 to 7.8 euro / m² in 2017 In major cities, housing is rented more expensive: according to another portal, Wohnungsboerse.net, in Berlin in August 2018 renting an apartment of 60 m² costs 11 euro / m² per month, in Hamburg – 12, in Munich – 18.
Trading Economics portal analysts predict that by 2020, real estate in Germany will rise by almost 20% Markus Spiske / Unsplash
Some experts talk about the formation of a “bubble” and the imminent fall in prices. However, according to analysts Tranio, a strong economy and stable demand for housing will not allow prices to fall: according to forecasts of the European Commission, Germany’s GDP in the coming years will grow by 2% per year. “Everything has a limit, the rise in prices will slow down, and, perhaps, at some point it will even come close to the rate of inflation. But for them to start falling, we need good reasons: a sharp increase in interest rates or serious problems with the German economy, which is one of the most stable and reliable in the world, ”comments Boris Eliasson, head of Tranio in Germany.
High rental demand
According to Eurostat statistics, on average in the EU 30% of the population rent housing, Germany ranks second in Europe in the share of tenants (48%) after Switzerland (55%). In large German cities, the absolute majority of residents take out real estate: according to LBS information, 70% of the city’s residents rent apartments in Hamburg, 80% in Berlin. According to the portal Immobilienscout24.de for 2016, there are an average of 77 potential tenants per apartment per apartment in Munich, 75 in Stuttgart and 53 in Cologne.
According to Immobilienscout24.de, Berlin closes the ten hottest rental markets in Germany: an average of 33 tenants frederik danko / Unsplash apply for one apartment
One of the main reasons for this demand for rental housing is the constant influx of immigrants. According to the OECD, in 2016, Germany ranked second in the world after the United States in the number of foreigners who received a local residence permit. “The demographic situation in Berlin has especially changed: the population is growing by 50 thousand people a year, with a total population of 3.5 million. The main influx is middle-aged people with a good education, skilled workers. They come with money, they want to rent good housing and buy it, thereby contributing to price increases, ”says Boris Eliasson.
Tax optimization
When renting property, the owners pay income tax: individuals – income tax, which is calculated depending on the income of the owner at a progressive rate from 14.77 to 47.475%, legal – corporation tax at a fixed rate of 15.825%.
Income tax is charged on the difference between all income received and costs incurred. The latter include purchase expenses, utility payments, management company fees, property tax, loan interest, land tax, depreciation of the building (2-3% of the building value per year). It is important to know that depreciation is calculated from the original purchase price of the object. Boris Eliasson gives a personal example: “Eight years ago, I bought an apartment for 30 thousand euros, made repairs, and with the price increase it went up 10 times. However, I still can only write off depreciation from 30 thousand for which I bought. ”
Russians who rent real estate in Germany are not required to pay income tax in Russia, because the two states have an agreement on the avoidance of double taxation AerialBO / Depositphotos
Legal entities refer to the costs incurred as the cost of attracting a founder’s loan. According to Tranio statistics, buyers of profitable real estate worth more than 1 million euros annually save an average of 25% of the income tax, if they register an object for a company, not an individual.
The guarantee of reliability of tenants
One of the features of the German rental market is legislation that reliably protects the rights of owners and tenants.
