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RENTING

Why rents for some properties are starting to fall in Germany

Rents are on the rise in Germany, but not at the same rate everywhere. A recent study by Immoscout shows a difference in demand trends for existing apartments and new builds.

Published: 6 February 2023 17:01 CET
Updated: 7 February 2023 08:25 CET
A crane stands at a construction site for offices. In the foreground, a new building with apartments can be seen.
A crane stands at a construction site for offices. In the foreground, a new building with apartments can be seen. Photo: picture alliance/dpa/Deutsche Presse-Agentur GmbH | Sebastian Gollnow

There’s not been a lot of good news for renters in Germany recently. Rental costs continued to rise throughout 2022 and, with increasing demand in the rental market, tenants find themselves in a poor negotiating position at the moment. On top of that, renters have also had to contend with rising utility costs, as data from the fourth quarter in Germany showed that Nebenkosten (ancillary costs) now account for 18.3 percent of the total average rent.

However, within this trend of increasing rents, there are certain property types for which rental prices are starting to drop.

In expensive cities, such as Berlin, Cologne and Düsseldorf, there has recently been a significant divergence between the rents on offer for Bestandwohnungen so-called “existing apartments” and for Neubauwohnungen –  “new build apartments”.

READ ALSO: Ask an expert: Is now a good time to buy property in Germany?  

The term Neubauwohnung generally refers to properties that are currently under construction or have been completed in the last five years, while Bestandswohnungen – existing apartments – are apartments or houses of older construction years.

The latest housing barometer from Immoscout24 shows that rents for existing apartments in major cities were only slightly more expensive in the fourth quarter of 2022 than in the previous quarter, while in Berlin, Cologne and Düsseldorf, the rental prices for existing apartments even went down slightly.

Newly built rental apartments, on the other hand, were significantly more expensive than before in almost all major metropolitan areas.

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New-build apartments in higher demand

In Germany as a whole, there has so far only been a slight shift in demand from existing to new construction properties but in certain cities, there has been a significant change.

Berlin, for example, saw a significant decline in demand for existing rental apartments for the first time last year. On average, an advert for an existing rental apartment received 139 contact requests per week in the fourth quarter of 2022. At the same time, demand for new rental apartments rose from 76 inquiries per advert per week in the third quarter to 99 inquiries in the fourth quarter.  

READ ALSO: OPINION: Germany’s ruthless housing market is tough on new tenants – but there are winners

In Munich, too, demand for existing rental apartments was significantly lower in the fourth quarter than in the previous quarter. From an average of 75 inquiries for an advertisement per week, demand fell to 63 contact requests. Demand for new-build rental apartments increased by 22 percent in the same time frame. 

In Cologne, Hamburg and Düsseldorf, demand for existing rental apartments was also down compared to the previous quarter. 

“Demand pressure is easing in the short term in the area of existing rental apartments. This is only a small consolation, as demand in the metropolitan areas nevertheless remains at a very high level,” said Dr. Gesa Crockford, Managing Director of ImmoScout24.

Dr. Crockford attributed the shift in demand to increasing energy costs and the desire for more energy-efficient homes. 

“Tenants seem to be increasingly looking for new-build apartments, which are significantly more energy efficient than the often inadequately refurbished housing stock, due to concerns about rising energy costs,” she said. “Accordingly, demand and asking rents for new constructions are increasing at a much faster rate than for existing stock.”

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PROPERTY

Should you think about purchasing a buy-to-let property in Germany?

Buying property in Germany specifically to rent out has increased in popularity over the last few years - even as overall home ownership remains low relative to the rest of Europe. So who should consider it here in Germany? We spoke to an expert.

Published: 5 June 2024 16:11 CEST
Updated: 9 June 2024 16:46 CEST
Should you think about purchasing a buy-to-let property in Germany?

Buy-to-let properties in Germany come with many of the same pitfalls as buying a German property to live in yourself. For one, fees and taxes of around ten percent of the purchase price could dissuade plenty a buyer.

But according to Nick Mulder, CEO of Hypofriend, a mortgage broker specifically targeted to expats – there are four broad types of people who might want to have a look at the option.

They include people who might have cheaper rents in the city but simply cannot afford to buy the forever home they might want. As such, they may consider buying a small one – or one in a cheaper city – that they can rent out and use to supplement their income.

Other groups include people who intend to stay in Germany for at least ten years, people with incomes high enough to write off property depreciation against their taxes, and people looking to supplement their pensions with rental income.

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

What are the pros if I fall into one or more of these groups?

Mulder says one of the most important things for a buy-to-let purchase of a property in Germany is to be sure that you will hold it for at least 10 years.

That’s because once the 10-year clock runs out, you can sell it and pay no capital gains tax on it – even if the property isn’t your residence. In Germany, selling your main residence at no capital gain is possible after two years – but that option opens up with any property based in Germany you own after 10 years.

If it works, you can effectively claw back the high upfront fees and then some after ten years.

“This is unique globally,” says Mulder. “It can be very advantageous.”

That’s not the only advantage Germany seems to have over other countries. Another is the favourable financing terms. German mortgages tend to have the same terms and conditions for buy-to-let properties as they do for ones you buy as your own residence.

“This is uncommon in many countries,” says Mulder. Interest expense can also often be written off against taxes if you own a buy-to-let in Germany – something not available for people to do on their own residences.

The tax advantages can also be considerable, with recent tax changes meaning that some people will be able to deduct up to 40 percent of their German property’s value from their taxes in the first four to six years of owning it. Owners can deduct everything from the depreciation of the building’s value (but not the land) to energy-efficient retrofits.

In many cases, Mulder says the gains are still generally there for the taking if you move abroad in the meantime – provided the country of your new tax residence has a tax treaty with Germany. You just need to hold the German property for long enough to realise the tax advantages – to help offset the high upfront costs.

READ ALSO: Is it a good time to buy a home in Germany?

What are the cons?

Obviously, if you purchase a buy-to-let in Germany – you need to stay locked in for a while to make the high upfront fees – which include everything from land transfer tax to notary fees – worth it. House flipping after a few years doesn’t work here the same way as it might elsewhere – even for your own residence.

Maintenance can be an ongoing cost, which is why Mulder says they recommend that expat buyers buy up new buildings if possible.

Finally, with strong tenancy laws in Germany, rent is only likely to appreciate by two to three percent a year. This means the upside is largely taken when you eventually sell – not from rental income.

All that said, buy-to-let properties may make sense in Germany for certain types of medium to longer-term buyers – who can stick it out for a few years.

READ ALSO: What fees do you have to pay when buying a home in Germany?

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