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Germany’s real estate market: investment in a country with a stable economy

Germany is deservedly associated with stability and practicality around the world – similar characteristics also apply to the real estate world of this country, therefore it is not surprising that investors from all over the world try to invest their funds in square meters of Germany whenever possible.
A strong economy, thoughtful legislation, political stability, and a high standard of living – these factors make Germany particularly attractive to foreign investors who see real estate in Germany as a safe haven for investing and preserving capital. It is also interesting that the rental system reigns in the German real estate market: if the national average is around 50%, in large cities up to 90% of the population rents housing. According to Forbes, Germany is the leader in Europe in terms of rental housing, which amounts to about 55%, leaving Austria and Poland behind with a large lag.

Buy real estate in Germany

It is not surprising that in 2018 real estate in Germany – the country with the most stable economy in Europe – went up by 5.6%, largely due to the low interest rates of German banks, population growth and low unemployment. The total amount of transactions in 2018 amounted to 124.8 billion euros – a new record for the residential real estate market in Germany, the Team Global Corporate Communication report says. For comparison, in 2017, investment amounted to about 119.3 billion euros. This trend continued in 2019, but unlike in previous years, the wave of demand also spread to secondary cities, since in key cities such as Berlin and Munich, etc., prices reached such a peak that investment objects gradually lose their attractiveness for buyers, both foreign and local. Today, “new” cities are gaining popularity, for example, Nuremberg and Hanover and nearby cities – the cost of real estate in them is still available, therefore, the percentage of capital investment growth, as well as profitability and rental income, are higher than in more popular places.

Trends
The first “seven” cities in Germany and their environs are characterized by stable annual price increases in both private and commercial real estate. Over the past three years, the value of residential real estate in Berlin, Munich, Frankfurt, Hamburg, Dusseldorf, Cologne and Stuttgart has grown by more than 30% and, according to experts, will continue to grow. This is due to the fact that in these cities the demand is several times higher than the supply, largely due to the large influx of the working population to large cities in western Germany. If we consider residential real estate and compare prices for March 2007 and November 2017, then prices for apartments in the secondary market increased by 180.2%, and the cost of apartments in new buildings increased by 177.4%. This situation is “on hand” for investors, as apartments in cities are often purchased for rental. Therefore, in a growing market, investors can earn twice – earning rental income, as well as earning directly from rising housing prices.

Buy real estate in Germany

The following trend follows: according to the German Investment Real Estate Union (DAVE), the suburbs of large cities in Germany, located in a radius of 20-30 km, are currently becoming more and more popular with investors, since prices are not as high as in large cities themselves and the choice of affordable real estate is more. Accordingly, prices in these suburbs also show steady growth. It is important to understand that in Germany, cities with even a small population by Russian standards, for example, up to 10,000 people, have excellent transport links and complete infrastructure, from kindergartens to pools.

Loans in Germany
Another important trend in the real estate market in Germany is low credit rates from 0.8% to 1.8%, which can also be used by non-residents of the country. Low default mortgage rates at low Euribor rates made the German mortgage interest rate the lowest in the world: now it averages about 1.6% per year. The borrower will nevertheless need about 20% of the down payment of the total loan amount – one of the leverage by which the German government prevents the formation of a “credit bubble”.

Buy real estate in Germany

Non-residents of the country is easiest to get a loan in Germany for the purchase of an apartment, which is planned for rental or for their own residence. It is also relatively easy to get a loan for apartment buildings – here the quality of the building, the location and the number of apartments leased (i.e. income) will be taken into account. It is also realistic to get loans for stores with long-term lease agreements (more than 10 years), but banks are reluctant to give funds for hotels – the issue is considered under the condition that the hotel fund exceeds 100 rooms.

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