Buying property in Germany

In Germany, foreign nationals can buy real estate of all types — land plots, residential and commercial properties — without limits. Germany is a seller’s market, so owners typically dictate the sales terms, and buyers pay agent (realtor) fees.

Transaction costs

This article describes the typical process for buying property in Germany. Details of the procedure and the order of stages may vary between transactions.

1. Choosing the property

The buyer decides on the purpose of the purchase, real estate type, budget and contacts an agent in Germany. They sign a brokerage agreement, which obliges the client to pay the agent's fee (3–7% of the real estate value, inc. VAT) at the time of purchase. The client chooses a real estate from what the agent offers.

At this stage, the buyer usually decides whether to register the purchase to an individual or a legal entity. This affects the rental income tax rate if the real estate is going to be leased. For individuals, the tax is calculated at a progressive rate ranging from 14,77% to 47,475% (including the solidarity surcharge), while for legal entities the rate is fixed at 15,825% (on condition that real estate leasing is the only commercial activity performed by the legal entity). Company registration takes 2 to 4 weeks and costs €2,000-3,000, and administrative fees range from €300–400 per month.

2. Reserving the property

After choosing a property, the buyer signs a reservation agreement with the agent. Under this agreement, the agent books the property for the time needed to draw up the sales agreement and conduct other preparations. As a rule, when signing the agreement, the buyer makes a down payment of 10% of the property price.

In transactions involving commercial real estate, both parties also sign a letter of intent (LOI), which includes key transaction terms and the closing date. Usually, the client does not pay a deposit and has no financial obligations to the seller when signing a LOI.

Sofia Bulanova Investment consultant

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At this stage, the buyer opens a current account with a German bank to pay for the purchase. The same account can be used to pay taxes, utility bills, compensate for accounting services and receive rent in the future. If the client takes out a mortgage, the account is usually opened with the bank that issues the loan.

To open an account, the buyer provides a CV, passport and documents proving the legal origin of funds. Banks are obliged to perform customer due diligence as required by the Know Your Customer (KYC) regulation aimed at preventing money laundering and financing criminal activity. Opening a bank account usually takes 5 to 7 days, though in some cases KYC take several weeks to complete.

3. Preparatory actions

As a rule, before purchasing expensive property in Germany, especially commercial real estate, buyers order a comprehensive due diligence. It may include a technical audit, legal review, tax analysis and transaction risk assessment. Due diligence takes about 1 month and costs 0,5–1,5% of the property price, depending on the property's features.

At the same time, the buyer applies for a mortgage if necessary. Depending on the property value and the bank's terms and conditions, non-residents can get 40–70% LTV loans at 1,5–2% per annum in Germany. The average loan term is 15 to 20 years.

Mortgages in Germany are a cheap way for rental property owners to substitute some part of investment, increase ROI and reduce the income tax payable. Loan payments are deducted from their incomes, reducing the tax basis.

Julia Morozova Senior investment consultant

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Before issuing a mortgage, lending banks require their clients to get an independent certified appraisal to assess the property’s liquidity and risks. This appraisal is an extra quality guarantee for the client and costs €1,000 to €2,000 on average. Mortgage costs comprise about 1% of the loan amount and are paid by the buyer upon the issuance of a loan.

4. Signing the agreement

To formalise the transaction, the buyer and the seller hire a notary, who draws up the sales agreement and negotiates details of the transaction with both parties.

Along with other details, the notary checks the land register (Grundbuch) for the previous and current owners of the property, any outstanding restrictions, mortgage and third-party encumbrances.

The notary drafts the final agreement in German and specifies the contract date as soon as all the clauses have been agreed upon. The buyer and the seller sign the agreement in the notary’s presence.

5. Registering and paying for the transaction

Once the agreement is signed, the notary places a new preliminary property ownership record on the land register. The buyer pays the remaining property costs. Depending on the agreement terms, the money is either transferred directly to the seller or through a trust account (typically in major transactions).

After payment, the buyer receives the keys and becomes the economic owner of the property, and is entitled to use it or rent it out. The buyer pays the transfer tax, as well as agent, notary and registration fees, which in Germany typically comprise 10–15% of the property value.

Once the seller acknowledges the receipt of funds and tax authorities in Germany verify the payment of tax, the notary lodges a request to place a definite record on the land register. On the grounds of this record, the transaction is considered closed and the buyer becomes the legal owner of the property in Germany.