FAQ on Berlin properties

Will I be able to get finance for my Berlin property locally?

Yes. We have good relationships with local German banks. Before approaching them for a mortgage you must already have found your property. When determining the loan-to-value (LTV) figure, they will take into account factors like amount of capital, property income, location, condition of the building, mortgage volume, whether you are seeking recourse or non-recourse financing, and your relationship with the bank.

How much capital will I need to get local finance?

The loan-to-value figure varies typically between 40% and 50% of the purchase price. Transaction costs have to be paid with equity capital and cannot be financed. It is important that you have equity available for the balance.

What is the role of the Berlin Property Trust?

We specialise in helping clients invest in the Berlin property market. We source and check out the properties, we organise several viewings over a short space of time, we can advise on sourcing contacts for arranging local finance, legal procedures, property management services and other useful local contacts.

How does it work with property viewings? Can I see the inside of the flats? Unfortunately, the viewing of the flats is a somewhat sensitive issue in Germany: The tenant has a right to decline such a request and the vendor might not even want his tenants to know that the property is for sale. The following procedure has proven in the past to be the most pragmatic solution:

  1. Property selection: At this stage you are offered a number of properties that fit your investment profile. While we provide background information and rent lists for these properties, you are then free to visit those properties for external viewings.
  2. Viewing of the common parts: When a favourite has been selected we accompany you for an inspection of the common parts (including stairwells, basement, and attic).

What rental yields can I expect from a Berlin property?

The rental yields vary from property to property and area to area. On blocks of flat in cheaper areas of Berlin yields as high as 6-10% can be found. More affluent areas can yield from 5-7%. On individual apartments the yields can fall to around 4-8% dependent on the location and condition of the property. We focus on properties in top locations that are in good condition. At Berlin Property Trust we believe Germany is the most attractive real estate market in Europe given its high yields, low financing costs and high affordability.

What are the fees for purchasing a property in Berlin?

In Berlin all the fees are paid by the purchaser. The transaction costs are: Stamp duty (4.5% of purchase price)

Notary and registration fees (1.5% of purchase price)
  • Agent fee (approx. 6% of purchase price excl. VAT). Additional costs can occur for the due diligence.
  • Lenders charge an up-front fee of 0.25% to 0.75% of the mortgage amount. This usually includes the cost for the bank’s valuation (cost: EUR 1,000 to EUR 3,000). Some banks charge for the valuation separately.

What are the fees for owning a property in Berlin?

During the holding period the services of a property manager are required. Their charges are approx. EUR 24-40 per unit per month (excl. VAT).

What running costs will I need to take into consideration?

The landlord has four types of running costs: maintenance, property management, interest payments (if you have a mortgage) and consultation fees (legal, accounting, tax). Everything else is paid by the tenants as part of the service charge.

What do the tenants’ service charges cover?

The service charge includes building insurance, ground tax, cleaning of the common parts, gardening, housekeeping, electricity for the common parts, regular inspection of the heating system, water, chimney sweeping, cable TV, snow and waste removal.

What are the fees for selling a Berlin property?

There are no fees for selling a property in Berlin; all fees are paid by the purchaser.

How does the purchasing process work?

Once you’ve identified your chosen property, we ask you to send us a non-binding letter of intent and proof of equity. After the offer has been accepted we start with the due diligence and set a date for signing the purchasing contract in the notary’s office. Until the contract has been signed there is no legal certainty that the transaction will take place. The offer and acceptance of the offer are not legally binding. After the contract has been signed the purchaser has between 6 and 8 weeks to provide the funds and pay for the property. Part of the transaction costs are due after signing the contract.

How much time will I need to invest in my property?

It’s up to you. Most investors like to get involved in the decision making process, but if you choose to limit your participation, we can manage much of the process for you and put you in touch with relevant contacts in Berlin. It is advisable to plan for at least two trips to Berlin in order to find the right property and to sign the purchase documents.

How do I find a reliable Berlin property management company and what is included in the service?

We work closely with a number of carefully selected property management companies. Their services comprise re-lettings, running tenant accounts, overseeing maintenance work, rent reviews, representation of the landlord in legal cases, document administration, and consulting the landlord in all aspects of the strategic property management.

How can I increase rents?

The term of a residential lease contract in Germany is usually indefinite; only the tenant can give notice to terminate the contract. For a vacant flat, the landlord can set the rent at market level. For an occupied flat (s)he can increase the rent by a maximum of 20% over every 3 year period until the market rent level has been reached (many rents in Berlin are significantly below market level). If the landlord modernises a flat he can increase the rent by 11% of the modernisation costs. As an alternative to the annual rent review the landlord can agree a step-up rent with the tenant.

How easy is it to find tenants in Berlin?

The vast majority of Berliners rent their homes (85%+). Many people live in the same property long-term (the average tenancy period exceeds 8 years) The tenant must give at least 3 months notice to the landlord. As a result of the longevity of tenancies, people tend to take good care of the property because they see it as their home.

How has the Berlin property market performed over recent years?

After the wall came down in 1989 Berlin property prices increased by some 40% over the next six or seven years, then dropped back to their original level. Rents also dropped but not by as much, creating a situation of rental yields at an all time high with interest rates at an historical low. Since 2003 prices seem to have stabilised and early signs of recovery are very noticeable.

How much tax do I have to pay?

The income you generate in Germany is taxed in Germany. Although income tax rates are marginally higher than in the UK, there are substantial (virtual) expenses you can deduct from your income (e.g. building depreciation) which will reduce your tax bill below what you would pay for an equivalent property in the UK. Most significantly, there are no capital gains taxes if you hold the property for more than 10 years. However, as you repatriate the monies to the UK you will have to pay UK taxes. The taxes you have already paid in Germany are being refunded according to the double taxation agreement between the two countries.

Disclaimer

The information in this document is correct to the best of our knowledge. We do not guarantee its correctness or completeness. We recommend you consult an international tax adviser to analyse the tax consequences of the investment.

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