For members


EXPLAINED: What you need to know about buying property in Germany

Traditionally a tenant-friendly country, Germany has one of the lowest home ownership rates in Europe. Costs to buy are high, but there are some tax advantages for those who choose to buy.

A view of houses and flats from above in Dresden, Saxony.
A view of houses and flats from above in Dresden, Saxony. Photo: picture alliance/dpa/dpa-Zentralbild | Robert Michael

In the early to mid-2000s, when buyers in countries like the US, UK, and Canada raced against a hot market to snap up homes, German house prices actually fell. That experience has stayed with Germans – even as buying a home in certain cities becomes increasingly unaffordable. Just over half of people in Germany own a home, compared with around 65 percent of people in the UK, and around 75 percent of people in Greece. But even that number hides some pockets where home ownership in Germany is particularly low; in Berlin, less than 20 percent of people own. 

Beyond past experience, costs to buy and sell are steep in Germany, and tenant protections tend to be stronger than in many other countries. Still – for some people, buying in Germany can still come with a few generous tax and investment advantages to make the decision worthwhile.

READ ALSO: The hidden costs of buying a house in Germany 

The drive to buy a ‘forever home’

Experts say Germans generally don’t tend to buy more than one – or even several – homes in their lifetime, unlike some other places. 

“The culture of trading in or flipping isn’t the same here. In fact, there’s plenty of variables which discourage it,” says Nick Mulder, Founder and CEO of Hypofriend, a Berlin-based mortgage broker that specifically serves the expatriate market. 

As an example, Mulder points to the fact that in Germany, you cannot typically prepay your mortgage off until year 10. If you wanted to sell your home before then – perhaps to buy something larger – the contract you have with your bank or mortgage broker will typically require you to still pay the bank the interest they would have otherwise made off you.

Flats in Berlin.

Flats in Berlin. Photo: picture alliance/dpa/dpa-tmn | Zacharie Scheurer

“That gives Germans an inflexible feeling of ‘when we buy we have to buy for the rest of our lives’, says Mulder, adding: “Getting on the property ladder is just not as popular. There is also that cultural risk aversion that comes in more generally.”

READ ALSO: How Germany’s soaring property prices are out of reach for buyers

Several other high fees increase the incentive to buy the right place once, rather than buy to trade it in later. One is the land transfer tax buyers pay after purchasing their home. The exact amount varies by state, but comes in at anywhere between 3.5 and 6.5 percent of the purchase price. 

In addition, a notary must preside over any real estate deal in Germany. During this long process – which can last several hours – the buyer and seller will sit and listen to the notary read out the entire deal, to ensure both sides understand it before signing. The notary will then collect a fee of anywhere between 1.2 to 2 percent. 

Finally, the broker will also collect a fee of a maximum of 7.1 percent, which will be split between the buyer and seller.

“If you compare that to other countries, that’s just an exorbitant amount,” says Mulder.

Mulder adds that it’s less clear in Germany whether buyers should first find the home they want to buy or find a mortgage first, as banks don’t grant pre-approval for mortgages the same way they do in the US. Some places, including his brokerage, may issue a certificate saying how much a buyer can afford, to help make offers more easily.

Buying to let

If you’re not ready to buy your own forever home, many experts say purchasing a place to rent out to someone else is an increasingly attractive option in Germany.

“It is more advantageous, at least tax-wise, to rent out an apartment you own to someone else than to live in it yourself,” says Claudia Müller, Founder of the Frankfurt-based Female Finance Forum and author of Finance, Freedom, Provision – the way to financial independence. “You can, for example, deduct the interest payments on your mortgage off your rental income, reducing your tax burden.”

People have to save for several years to buy a home.

People have to save for several years to buy a home. Photo: picture alliance/dpa/dpa-tmn | Christin Klose

Müller adds that after 10 years, selling a rental property will incur no tax on capital gains – even though the property might not be your principal residence. Meanwhile, a person selling their principal residence pays no capital gains tax after they’ve owned their property for two years.

“If you rent it out, you can claim the respective expenses and any depreciation against the rental income you get. For some investments, there may even be special, higher depreciation rates. Depending on your costs and the rent you receive, the overall result might be negative,” says Dirk Maskow, and independent tax consultant based in Berlin and Düsseldorf. “If that happens, you can offset that loss against your other income, for example from employed or self-employed work.”

“Tax-wise at least, buy to let is a lot friendlier than in some other countries,” says Mulder. “That’s why you’re getting more younger people interested in buying up some small bits of real estate they can rent out.”

READ ALSO: Where in Germany can you still snag a home for under €100k?

What’s next for the German housing market?

As in many place, prices have gone up in Germany and fewer people are able to afford to buy property, with a 10 percent increase seen in recent years.

Mulder says he expects interest rates, or the cost of getting a mortgage, to go up in the next six to 12 months – particularly as Russia’s invasion of Ukraine stokes higher inflation and cost of living.

READ ALSO: How Germany’s property boom could be slowing down

With interest rates in Germany having increased from 1 percent to 3.5 percent, Mulder says banks are getting more selective about who they will lend to, meaning fewer people will be able to afford property. He eventually expects demand to drop accordingly and price increases to moderate – although German property is still likely to increase in value, just at a steadier rate than the major uptick we’ve seen in recent years.

He says to watch out for one major variable that will impact buying behaviour: how German-based companies will view remote work after the Covid-19 pandemic. “If you only have to be in the office one day a week instead of five, you might consider buying in the countryside. If companies are sceptical of remote work, we’ll see people who live in the city who won’t be able to buy.”

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For members


EXPLAINED: How much will Germany’s gas levy cost you?

On Monday, gas operators in Germany announced an additional charge of 2.419 cents per kilowatt hour which will come into force in October. Here’s what you need to know.

EXPLAINED: How much will Germany’s gas levy cost you?

What’s going on?

Households in Germany will face significantly higher gas prices this autumn and winter.

The gas transmission system operator, Trading Hub Europe, announced on Monday that German gas suppliers will be allowed to add 2.419 cents per kilowatt hour to the price of gas from October onwards, to help them cope with hugely increased procurement costs. 

The surcharge is aimed at sharing out the soaring costs borne by energy importers after Russia drastically decreased gas supplies to Germany after the invasion of Ukraine.

Gas importers have so far taken on the additional costs themselves, but a new rule agreed by the government allows them to pass on ballooning costs via the levy to households from October 1st.

How much more are you likely to pay for gas?

For an average family house of 160 square metres, which uses 23,000 kilowatt hours per year, this surcharge would amount to around an extra €556.

Those who live in an apartment of 85 square metres, which uses an average of 12,000 kilowatt hours per year, will be likely to pay an extra €290 annually.

Those living in an apartment of 50 square metres are likely to pay an extra €121 to €169 per year.

The levy will primarily affect property owners with gas heating, as well as tenants living in households that have floor heating and their own gas contracts.

What is not yet clear, however, is how households in Germany supplied with Fernwärme (district heating) will be affected by the levy. 

A gas bill in front of a meter, which reads: “your gas bill in detail”. Photo: picture alliance/dpa | Bernd Weißbrod

In many places, this type of energy supply comes from gas-fired power plants and operators of such power plants are supposed to pay the surcharge.

So far operators have no legal means of passing on these costs to their customers, but the German government wants to look into this issue, so this is likely to change. 

Will VAT be charged on the levy?

The German government wants to waive the value-added tax on gas, but it needs permission from the EU to do so. Finance Minister Christian Lindner (FDP) wrote to the Commission on Friday asking for an exception to EU law to be granted so that Germany does not have to charge VAT on the state gas levy.

READ ALSO: Germany pledges inflation relief tax package worth €10 billion

In a letter to Finance Commissioner Paolo Gentiloni, the FDP politician wrote: “VAT on state-imposed levies drives up prices and meets with increasing resistance from the population, especially in the current, exceptional situation.”

It is not yet clear how the Commission is likely to respond to this request.

Haven’t gas prices already increased?

Yes. Numerous gas suppliers have already increased their prices more than once throughout the course of the year.

Most recently, suppliers such as Rheinenergie, Wuppertaler Stadtwerke and Energieversorgung Oberhausen announced significant rate increases. “There is a major wave of price increases,” says energy expert Udo Sieverding from the consumer centre of North Rhine-Westphalia.

In the case of Rheinenergie, for example, an average household, with 15,000 to 20,000 kilowatt hours of annual consumption, is already paying just under €2,000 in additional annual costs after the latest round of price hikes, even before the levy.

Will there be government help for consumers?

Economics Minister Robert Habeck (Greens) announced that the third relief package from the German government will be in place by the start of the levy on October 1st. The traffic light coalition has also agreed on a reform of the housing allowance and is planning a permanent heating allowance for low-income households.

In addition, the new ‘citizen’s allowance’ – a replacement of the current unemployment benefits system – is due to come into effect next year, and promises higher standard rates for the unemployed. 

READ ALSO: Bürgergeld: What to know about Germany’s unemployment benefits shake-up

At the beginning of September, Chancellor Olaf Scholz (SPD) will meet with social partners and other experts as part of a concerted action to discuss relief measures. The main focus will be on supporting lower-income groups that are hit hardest by high energy costs.

The SPD and welfare associations are proposing, for example, monthly direct payments to recipients of basic security and housing allowances and a price cap for a basic quantity of gas is also being discussed.

Economics Minister Robert Habeck explained: “Especially for those who don’t have much, it’s a heavy burden that is impossible or difficult to bear.” 

On Monday, Chancellor Olaf Scholz (SPD) tried to reassure people via Twitter that the government would help balance out the extra costs. 

In the tweet, he said, “we won’t leave anyone alone with the higher costs”. At the same time, Scholz admitted: “It’s getting more expensive – there’s no beating around the bush. Energy prices continue to rise.” So far, he said, government aid of more than €30 billion has already been agreed upon. 

READ ALSO: Germany’s Scholz pledges more relief for lowest earners