Germany: Overview

RENTAL YIELDS

Moderate yields in Germany

Berlin apartments yield an average of 6.2%, reaching more than 7% for 30-50 square-metre (sq. m.) apartments. Apartment prices are at €2,192 per sq. m., Global Property Guide research shows. Frankfurt and Munich yields have also been rising, averaging 5.7% and 4.5%, respectively.

About 58% of German households are renters with private landlords owning about 46% of the housing stock. Social housing occupy around 6% of the housing stock, while co-operative rentals occupy another 6%.

Read Rental Yields  »

TAXES AND COSTS

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.

Read Taxes and Costs  »

BUYING GUIDE

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.

Read Buying Guide  »

LANDLORD AND TENANT

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.

Read Landlord and Tenant  »

ECONOMIC GROWTH

Economy improves, but problems remain in Germany

Germany is Europe's largest economy and most populous nation with 82.6 million people. GDP per capita was US$35,200 in 2006.

After World War II, Germany was divided into two: the USSR-backed communist East Germany and the capitalist West Germany. To stem flight from East Berlin to the West, the communist government erected the Berlin Wall which became a symbol of totalitarianism and the Iron Curtain.

Germany was reunified in 1990. Since then, Germany expended considerable funds to bring Eastern productivity and wages up to Western standards.

GDP growth was 2.2% in 2006, higher than the average growth rate of less than 1% for 2001-2005. This reflects structural reforms in recent years, and the impetus from Eastern Europe. The government expects to attract more investors with its recent corporate tax cuts.

Inflation was 1.8% in 2006, and is projected to be around 2.0% in 2007. Germany is expected to run a budget surplus in 2007. Average short-term interest rates were at 3.1% in 2006, and are expected to rise to 4.1% in 2007.

However, several structural problems must be dealt with. An inflexible labour market continues to be a cause of Germany’s persistently high unemployment rate, around 8.1% in 2006 (9.1% in 2005). Other problems include bureaucratic over-regulation, a low birth rate, and an ageing population.

The government, headed by Chancellor Angela Merkel, has an overwhelming majority in both the lower and upper house, and the government’s structural and economic reforms are expected to continue.