Germany: Overview

RENTAL YIELDS

Last Updated: May 29, 2009

Rental yields under 5% in Germany’s major cities

Gross rental yields remain low in Germany’s major cities, at under 5%. The difference between Berlin, Frankfurt and Munich are relatively small, with apartments in Frankfurt (4.63%) and Berlin (4.62%) yielding very slightly more than partments in Munich (4.44%).

These yield figures are low. For German investors, they may be compensated for by relatively generous tax breaks. Non-resident foreign investors, on the other hand, suffer tax penalties when they buy property in Germany.

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TAXES AND COSTS

Last Updated: Oct 23, 2008

Rental income tax is high in Germany

Effective Tax Rate on Rental Income
Monthly Income	€1,500	€6,000	€12,000
Tax Rate	15.8%	17.1%	17.6%
Click here to see a worked example
Source:			Disclaimer

Rental Income: The minimum rate of tax available to non-residents is 25%, + 1.375% solidarity tax, i.e., 26.375%. Due to allowances and deductions, effective income tax rates, however, are moderate, at 15% to 18%.

Capital Gains: Properties held for more than ten years are not liable to tax on capital gains.

Inheritance: Inheritances are taxed at 7% to 50%, depending upon the relationship to the deceased, and the amount.

Residents: The same tax system applies to residents and non-residents except for various tax allowances and filing options e.g. joint returns.

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BUYING GUIDE

Last Updated: Mar 21, 2007

Roundtrip costs are low to moderate in Germany

Roundtrip transaction costs are low to moderate at around 7.9% to 12.6% of the total price. Real estate transfer tax is fixed at 3.5% while real estate broker’s fee is negotiable from 3% to 6%, plus 19% VAT.

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LANDLORD AND TENANT

Last Updated: May 25, 2006

German law is pro-tenant

German law leans signifcantly toward the tenant.

Rents: While rents can be freely agreed, “exorbitant” rents can subsequently be appealed.

Rent increases are controlled, and cannot exceed more than 20% in nominal terms (less in real terms) over three years.

Tenant Security: Unlimited contracts are standard, effectively giving the tenant security of tenure. The tenant can object to the “ordinary notice”, and demand continuation, if termination of the lease would give rise to hardship for himself or his family that would be unjustified, even in the light of the landlord’s legitimate interests.

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ECONOMIC GROWTH

Last Updated: Feb 20, 2009

Germany’s economy: Down once more

Germany is Europe's largest economy and most populous nation with 82.6 million people. GDP per capita was US$38,774 in 2007.

With the economy in recession in 2002 and 2003, average annual growth from 2001 to 2005 was a mere 0.52%.

In 2006, Germany’s economy bounced back under the leadership of Chancellor Angela Merkel. With strong export growth and economic reforms, GDP growth rose to 3.2% in 2006 and 2.6% in 2007.

Now, Germany’s main export markets such as France, US, UK, Italy and Netherlands are in economic slowdown or recession. Germany officially entered recession in Q3 2008, with the economy contracting 0.5% q-o-q after a 0.4% contraction in Q2. The economy was last in recession in 2003.

With over-all annual GDP growth for 2008 down to 1.3%, the economy is expected to contract by 2.5% in 2009 and before posting negligible 0.1% growth in 2010.

Unemployment, brought down from 10.6% in 2005 to 7.1% in October 2008, rose to 7.2% in December 2008. As export-oriented manufacturing jobs are lost, unemployment is expected to rise further to 8.1% in 2009 and 8.6% in 2010.

In October 2008, the government approved a €480 billion rescue package, to stabilise the country's troubled banking system.

After realising that the global crisis would hit Germany, the government passed on January 2009 an additional €50 billion stimulus package. It also announced the provision of €100 billion to underwrite fresh credit to companies.