A Stable Dynamic
- By Igor Naumann
- Nov. 10 2009 00:00
As the second most popular foreign destination for Russian buyers, Germany is inspiring the confidence of property investors from across Europe. The comparative stability of the German residential real estate market, particularly relative to those in Russia, the U.K. and the United States, has increased its attractiveness for investors reconsidering their risk strategy. Russian real estate investors, both institutional and private, are following their foreign counterparts and turning to the property markets of western German cities.
The structure of the market’s systems and the comparative lack of a preceding boom have made the risks in the country minimal, and the situation is likely to remain stable. Relatively low interest rates on credit — four percent on average — serve as an additional incentive for potential buyers looking at the German real estate market. Russian investors, spoiled by high returns at home, may be particularly interested in the so-called ‘credit leverage’ system, which promotes higher operating profits on the personal capital the investor actually invested.
Following a slow start after reunification, interest in Berlin real estate has grown, particularly in the east.
Nevertheless, investors in the German property market need to take a long-term perspective — in practice from around the 15-year mark. It is a capital investment that can guarantee stable growth, and can form a solid basis for pension provision. However, this is rarely a key factor in the consideration of many Russians. The average profile of Russian buyers in Germany has moved away from the previous norm of businessmen with millions of euros, and is much more difficult to define now. Increasing numbers of middle-income buyers are looking at small and medium-sized properties in the country.
Germany has various types of real estate. Usually the most expensive is the Einfamilienhaus, a one-family house. It is also the most flexible; with a convenient initial layout, it is simpler to refurbish and also allows for further construction much more easily. At the other end of the cost scale is the Reihenhaus, a terraced house, with lower construction costs and utility connections. The Doppelhaus, or semi-detached property, sits in between. Finally, the Eigentumswohnung is an apartment, whose owner has the right to the total area of the actual apartment, but the façade and land on which the building sits are usually held in common ownership.
An Underestimated City
In seeking a Russian comparison for the German capital, Berlin is closer in character and spirit to St. Petersburg than to Moscow. Although it is not on the coast, and lacks the canals, rivers and islands of Russia’s northern capital, Berlin’s people, life and character are much like those of St. Petersburg. There is not the hustle and the motion of Moscow, but there is a kind of internal core, which holds together the politicians, theater lovers, businessmen and tramps who coexist in the city.
After the fall of the Berlin Wall and the euphoria connected with this event, Berlin went into hibernation. It was as though it were paralyzed; despite the many construction projects and new ideas, real estate prices went down. But, since then a little over 15 years have passed, and the situation in the city is different. Interest in the Berlin property market has grown, from both German and foreign buyers, as many in the market consider it an underestimated city and are eager to invest in new prospective projects.
A further positive factor is that the eastern quarters of the city, previously considered less prestigious, are now being developed and modernized. Despite various difficulties, this is progressing slowly but surely and interest in properties in these areas is growing both among investors and city residents. To a certain extent this is most likely connected with the fact that there are around 8,000 buildings of architectural note listed in Berlin. Many former industrial buildings are being converted into penthouses and residential lofts and are fitted out with modern appliances and utilities. This is currently a property type which is much in demand. As well as their exclusivity, such properties are also attractive because of certain levels of tax relief that buyers receive — a result of the fact that the properties are considered listed buildings.
One typical example of a ‘new wave’ project in the German capital is a multi-story apartment block with car access right up to the front door of the apartments, regardless of what floor they are on. And, if in Germany this is all a result of a desire for comfort, security, privacy and luxury, in Russia this type of house could be a real alternative to building an underground garage, especially if the ground and underground utilities prevent developers from doing this.
The most popular and exclusive districts in the city include Gendarmenmarkt, Hausvogteiplatz, Werderscher Markt, Friedrichswerderscher Markt, Scheunenviertel and Prenzlauer Berg. Meanwhile, in the city center houses and villas between Halensee and Grunewald are particularly popular, as are apartments and houses south-west of the center and in the Frohnau district to the north-east.
|Engel & Volkers
Considered a safe investment, Hamburg's waterfront properties cost up to 13,000 euros per square meter.
Another Northern Venice
Despite the current crisis, or perhaps even because of it, the real estate market in Hamburg is currently showing positive dynamics. With many investors, both private and institutional, trying to diversify their portfolio, purchasing real estate in the city is considered by many to be a safe way to invest some of their money. Consequently demand is starting to exceed supply, especially in popular districts such as Alster, HafenCity, Blankenese-Othmarschen, Harvestehude-Rotherbaum, Uhlenhorst and Marienthal.
There is an unwritten rule in Hamburg real estate: where there is water, real estate is always expensive. This is not just along the Elbe and Alster rivers, where properties are highly popular. Apartments and villas around the city’s port, the second largest in Europe, are similarly in demand. Hamburg has around 2,300 bridges — more than Amsterdam or Venice — and many city residents aspire to acquiring a place around the canals and rivers they cross.
With 1.7 million inhabitants, Hamburg is the second largest city in Germany and can offer almost everything that buyers look for when purchasing an urban property. For example, the city’s port does not only house different logistic companies, but also numerous large, medium and small venues, the most well known of which is the Elbe Philharmonic Hall in the HafenCity redevelopment project, scheduled for completion in 2012. Hamburg has the fourth largest number of musicals showing in the world, — an attraction that has brought numerous domestic tourists.
Engel & VolkersAs Continental Europe's financial capital and the home of the European Central Bank, more than a quarter of Frankfurt's permanent population is made up of foreigners.
The city is also highly rated for its environmental standards. During its fight against environmental pollution and to improve the quality of life, the European Commission named Hamburg one of the greenest and cleanest cities in Europe.
A Fragmented Financial Hub
Frankfurt is perhaps the least typical of German towns. It is Continental Europe’s financial capital, with its own unique array of skyscrapers. It is also one of the few cities where foreigners make up more than a quarter of the permanent population, which doubles during working hours as a result of commuters. Frankfurt is not unlike Moscow in terms of its working population at least.
One feature that sets the city aside from others is the fact that when purchasing property in Frankfurt, it is not enough to rely on the name of a popular, in-demand district. Very often premium-class properties are located on the same street as social housing, with the two often divided only by the actual road. This means that in the city there is a precise, clearly defined and limited number of properties in any particular class.
|Engel & Volkers
Top-location apartments in Frankfurt range from 3,200 to 6,000 euros ($4,800-$9,000) per square meter, while house prices start from 500,000 euros ($750,000).
A Return to the Center
In recent years demand for property in Munich has been particularly high, especially for apartments around the 80-square-meter mark in the center of the city. This is linked primarily with the desire of both older generations and young families to live closer to their places of work, cultural and education establishments and institutes. People are returning from the quiet of the suburbs to the center, which has its fair share of greenery and parks.
Prices for mid-range apartments without land are growing faster than construction expenses. The demand for these apartments has made developers and builders rethink their approach to the market. As a result, fewer spacious premium-class properties are appearing on the market, which will naturally stimulate interest among buyers with greater financial means. Realtors in Munich have no problems with buyer numbers, but they often are unable to find them properties. Properties of over 1.5 million euros still in the design stage usually have potential buyers, ready to invest in advance and sign up to any conditions in order not to lose out on acquiring a property.
Purchase and Legalization of Real Estate in Germany
According to German legislation and administrative procedures, there are no restrictions on citizens of foreign countries buying residential or commercial real estate in the country. Complete information on properties and any changes of ownership are recorded and registered by municipal courts in what are called land books. Extracts from a land book provide reliable information on the owners of a property, the size of both the plot and buildings, and whether the property is pledged. Using this, the state regulates relations between buyers and sellers, minimizing the risks connected with purchasing real estate.
An independent notary acts as a guarantor in real estate sales. During the purchasing process notaries undertake a range of tasks. In practice notaries only become involved in the sale after the buyer and seller have agreed on a price for property and the terms of the sale. Following independent consultations with both parties, the notary will settle any outstanding issues orally with both parties. Then they conduct an audit of the property, using information from the land book, and prepare a draft purchase and sale agreement. At the same time they open a bank account in their name for the money transfer.
|Engel & Volkers
The center of Munich, with a relatively high concentration of open space and parkland, is becoming increasingly popular as residents move in from the suburbs.
After the notary has proved that a property is clean, all three parties meet to sign the agreement. The buyer then transfers the money into the account opened by the notary, who on receipt legalizes the transfer of property rights from the seller to the buyer. Finally, once the seller’s name has been replaced by the buyer's in the land book, the notary transfers the money to the seller and the two exchange keys and documents.
In this process the buyer bears a range of additional one-off costs according to the purchase and sale agreement. The notary's services usually cost around 1.5 percent of the total value of the property. In addition, a real estate transfer tax of 3.5 percent and a broker's commission fee of between 3.5 and 5.95 percent of the total cost of the property are also paid by the buyer.
Taxation and Mortgages
The amount of tax due on a property is defined by the tax inspection of the city or district where the project is located. The calculation is based on the area of land, the type of building and property’s usage; it is specific for each property. As an example, there is an unofficial rule of thumb to calculate an owner’s tax expenses: in a year the owner keeps 10 monthly rental payments, while two are spent on taxes, a combination of property tax and income tax.
Both residents and non-residents can use mortgage loans, without any restrictions, when buying property in Germany. As a rule, the 50-50 scheme is usually used for non-residents: i.e. when buyers have funds to meet 50 percent of the total cost of the property, a German bank will consider possibly financing the purchase in Western Germany. In this case the loan repayment period is from three to five years.