Investment Property in Berlin?

I was at an exhibition recently where somebody was selling residential preperty in Berlin, the prices were low in comparison to other capital cities. The reason for this according to the vendor was some scandal involving a large bank in the city in the nineties which resulted in an over supply and therefore lower prices (and lower rents). Apparently prices in Berlin have fallen every year for the past 15 years and his opinion was that they had bottomed out. Rents are low but (€400 per month) but there are properties available for €50,000-€70,000 in quite central areas. The infrastructure in Berlin is excellent, capital appreciation doesn't seem far off, dealing in euros, German laws etc... Does anybody have any thoughts on this? Am I missing something

Thanks
johnl68

Yes - declining German population coupled with moribund economy suggests little demand for property of any kind.

One of last sundays business supplements had a 1/2 page on Economic conditions of Berlin. It compared its growth - or lack of - in the last 15 years compared to other European capitals. One of the points I remember was that unemployment in Berlin is higher than the German average. I think the article stated 20%.

it might take a generation or more for germany to sort itself out. since reunification things have gone downhill and a lot of germans blame their former eastern neighbours who have a rep for being lazy and sponging off the state for everything. not surprising as under communism, there was no free enterprise, people did very little work and had most decisions made for them by the state. berlin is situated in the middle of this area, hence the curent problems.

eamonn66 said:

it might take a generation or more for germany to sort itself out. since reunification things have gone downhill and a lot of germans blame their former eastern neighbours who have a rep for being lazy and sponging off the state for everything. not surprising as under communism, there was no free enterprise, people did very little work and had most decisions made for them by the state. berlin is situated in the middle of this area, hence the curent problems.

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Surely this also applies to other the Eastern European property markets e.g Poland, Hungary etc... Yet there seems to be a massive scramble to purchase property in those areas. Berlin has been almost completely rebuilt and is at the centre of Europe in every sense. I can't see the appeal for Budapest (where prices are dearer than Berlin) or Poland where unemployment is running at 20%.

Poland:

Unemployment rate 19.1 pct

Population 40 million.

Capital population in and around 1.5 million

Percentile of total population in capital 3.75%

Effect of changing from an agricultural based economy to market based equals mass migration to the capital . An increase of only 2 percent to the capital equates to a nearly doubling of number of people there. In china they estimate 200 million will migrate to the city.

Interest rate hiked to 6% (Central Bank rate) last year dropped half a percent this year.

GDP 5.7% in 2004 estimated as 4.3% in 2005.

Stripping out irish repatriation of 1/4 GDP of our own figures and its running faster than here. Warsaw was doing between 10%-15% last year.

Unemployment should by conservative estimates drop 2% in next two years. This would account for another 800 thousand people working which helpos the GDP along.

There is other info out there but you have to read it.


Currency last year was trading at 4.7 against the euro. This year it is trading at 4.12 around today.

Let me put this another way thats the fastest appreciating currency on the face of the planet. Appreciating currency = investor confidence.

This year they got there S&P rating up from atrocious to not so bad. They also are negotiating early payment of there debt to the Paris club. They should have euros there by 2009. Warsaw is expanding as a city and people are moving there.

There are some other aspects specific to the real estate business as to why its a good place. Ill let you do your own research on this one suffice as to say there will be a large jump in costs of selling new apartments in 2007.

Where in the world do people get 60%-80% of there wages if they lose there job for a few years, thats righjt folks Germany

a lot of other eastern countries have poor welfare systems and little industry,
they will improve out of necessity as if people dont strive to get ahead, they will starve. the only other option is to emigrate as a lot of people have done by coming over here


west germany on the other hand, a previously very wealthy and successful economy was knocked for six and had its wealth basically diluted with reunification and the strain on its welfare health and infrastructure systems that that caused.

overnight east germans with crappy state jobs became much better off unemployed west germans with little reason to get ahead.

east germany had a lot of problems which are still around today and all the west got in return were some very big bills and a lot of welfare claimants.

I have noticed a property company called Springs have been doing a good bit of advertising in the papers recently - they are selling apartments in a Berlin city centre block which is fully tenanted. The blurb says - property prices at their lowest in 5 years, 85% of pop are renters etc.

I have also read a good few articles on Berlin recently and it does seem to be a good place for property investment. Apparently a good few large Irish farmers have borrowed against their land here to buy property over there. Has anyone any experience of Berlin and specifically the opportunities that exist for investment property there? I read somewhere that there is no capital gains tax in Germany if you hold your property for 10 yrs - that said, if I am to go on the threads above, there may be no capital gains on property bought in Berlin! Am I correct in thinking it could be a safer bet than some of the emerging Eastern european countries? Also the rental culture would put a bit more security on the investment.

I wonder is it easy to raise finances in Germany for an apartment or 2?

Why Berlin? Why not Dresden or Frankfurt or Munich or Cologne? Germany has been in the doldrums for years and is being "talked up" at the moment. Shortly I will be heading off to Cologne to sus out the situation there for myself. I would be interested in a few pointers from those more experienced in purchasing property abroad. Should I be looking at the equivalent Ailesbury/Shrewsbury roads areas or the equivalent IFSC areas or the embassy belt areas. Perhaps near a park or water or DART/LUAS line etc Is there a standard blueprint in respect of location?

HI Boxthefox,

I have bought property in Stuttgart a few years ago, and am looking to do it again soon. Germany is quite a different market in that - CGT is quite high unless you keep the property for 10 years; people in the cities generally do not buy until they retire; renters rights are very strong, so you should understand all the ins and outs.

Personally I am going for appartments in the older houses, built around 1900. The germans love the new buildings, meaning the olders ones come at half the price, but the rent is nearly the same. Last time I bought, I made good rental returns (~6%) and there was very little danger of having an empty flat. I am hoping that within the next few years they will get a boom - although I am hoping my money will be made anyway with the rental returns. Despite all the talk about a crap economy, the germans are very industrious and I think they'll turn the economy around - leading to price hikes. When you look at Dublin and stuttgart the price differences are extraordinary, even though the wages are comparable... but that discussion is for another day

If you don't speak german it could be difficult going it on your own.

If you have any questions let me know.

Darragh

lotus said:

I read somewhere that there is no capital gains tax in Germany if you hold your property for 10 yrs - that said, if I am to go on the threads above, there may be no capital gains on property bought in Berlin!

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It's not just German CGT you need to worry about - What about Irish CGT?

Hi Rainyday,
That's a good question - Germany and Ireland have a double tax agreement (I think that's what it's called)... my guess would be that if you pay the purchasing and rental tax for the property in germany, you could also pay the selling tax in Germany... meaning after 10 yrs no CGT.
Darragh

Darraghdog,

I'm not sure if I misunderstood your last post but a double taxation agreement doesn't mean just because you paid all your taxes in the foreign country, you do not have to pay any tax in Ireland.

If there is a double taxation agreement in place then you pay all your tax's due in Germany first. Then you have to pay all taxes due in Ireland (which I think are pretty much the same as if it was an Irish property). Any Tax already paid in Germany can be deducted from your tax bill in Ireland.

Thanks for clarifying that Don... I didn't realise it worked like that.

P.s. One point I forgot to metion on the German market is that they have very strict controls on how much rent you can charge. Based on the size, condition and location of your property, you are given a target rent and you can legally only charge +/- approx. 10% of this figure. It's called the Mietspiegel. This stops rental prices going through too high too quickly, which I always thought would also stop quick jumps in property prices.

Darraghdog, did you pick Stuttgart for any reason? In an earlier post you mentioned that Germans love the new buildings but you are buying in the older buildings. My own preference is for older buildings also with the possibility of doing a "makeover". Can you give me an approximate price for a two/three bed apartment in Stuttgart in both an old and new building?

I actually lived over there for a few years so I knew the area quite well. For a newly built appartment of around 80qm, you would pay around 250K, whereas and equivalent one which is 100 years old you would pay around 140K.

However it varies a lot based on location and condition. You can get on the ladder with very little money (~40K), but you would need to spend a lot of time managing it which would be tough if you don't live there.

P.s. One thing you could look at if you speak german is the repossessions web page - [broken link removed] - a lot of good bargains in therehttp://www.zvg.com

Hi all,

I have been looking at a reasonable-sized property investment in Germany and Berlin in particular for a few months. Basically the way I see it, it is potentially a good VERY LONG term investment, but as a medium term (<10 years) it's is probably terrible. This is a combination of potential growth in the economy and CGT.

One earlier post to do with CGT in Germany v Ireland. Basically this would have to be run through by an accountant at the time, as the rules of the always subject to change. But in general, it is normally possible to get around home country CGT issues, if you sell abroad and do not remit the money etc. Again, this is the role of a tax consultant in Ireland and Germany

Just some things I have been finding out on the way. Entry costs are quite high .. legal and notary are 5% in total, but agency costs are between 6-7%, which to me seems excessive. Has everyone experienced the same issues, and are they reasonable ways to get around them ?

Also, I am getting some strange advice re-finance. Seemingly you cannot get pre-approval of a mortgage amount. Therefore you select a property and get a finance house to give you an "indicative quote (non-binding, but quite accurate)". Then you have to sign the purchase agreement, as the properties may be sold within 2 weeks (which also seems like exaduration to me).. then about 6-8 weeks later, you get the final ok on your mortgage, and you can then complete ? Is this the experience everyone else seems to have with the financial enquiries ?

I will not even start on the 27 year mortgage thing - I will save that for another day

Also, I am recommended that the lowest level of deposit (investment capital) is 20% LTV (Loan to Value) and the 12% entry costs, making it 32% of the property value as the initial investment. The recommendation is unless I have this, I will not get financing at all

I would particularly like to hear from people who have purchased in germany before on the finance and agency fee issue

Also has anyone any names of some reasonable estate agents in Germany that I can contact.. the likes of Gunne and HOK etc

No offence to anybody intended but the lack of knowledge about the tax matters relevant to foreign property investment - such as exemplified in some of the posts here - by some of those who are getting into this area is astounding. Some people are arguably in for a shock when their true liabilities become obvious!

gnf_ireland said:

One earlier post to do with CGT in Germany v Ireland. Basically this would have to be run through by an accountant at the time, as the rules of the always subject to change. But in general, it is normally possible to get around home country CGT issues, if you sell abroad and do not remit the money etc. Again, this is the role of a tax consultant in Ireland and Germany

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I've never come across any tax law which depends on whether the money is remitted or not - Are you recommending some kind of tax evasion device here which attempts to hide money by keeping it offshore?

RainyDay said:

I've never come across any tax law which depends on whether the money is remitted or not - Are you recommending some kind of tax evasion device here which attempts to hide money by keeping it offshore?

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There are a few permutations of residency/ordinary residency/domicile which can result in foreign sourced income only being taxable to the extent it is remitted, not sure what the position is for CGT. However these will only obviously apply to persons who have moved abroad or inwards to Ireland (and for limited periods of time) not to anyone buying property overseas who has lived in Ireland all their life.