In the past few years there has been an increasing trend in Indians buying apartments and houses in Germany. Germany is currently one of the best countries to live in Europe. Given the current economic situation and downward interest rates, buying property in Germany makes perfect sense from a long term perspective.
Buying property in Germany may sound like a difficult endeavour, considering numerous different aspect of the process you have to manage. On top of this, going through and trying to understand infinite number of documents written in formal German can quickly become cumbersome. However, it is very much possible to be an owner of your dream home in Germany. Certain amount of efforts and planning is needed to make sure everything goes smooth.
1. Before you start
Before you can acquire a property in Germany –
- You need a valid resident/ work permit and a stable income source to get a loan from the bank loans (Legally even non resident foreigners can buy a property in Germany)
- Good knowledge of German language is necessary
- You need to have enough of your own funds – Although banks might offer 100% loan, if you put your own capital, you can negotiate better conditions with the bank. Additionally, apart from the property cost, there are various other costs involved (discussed below)
- Most importantly, make absolutely sure that you have sufficient legal insurance (Rechtsschutzversicherung) and liability insurance (Haftpflichtversicherung) before you even start requesting offers from builders.
2. Buy or build?
Buying an apartment (Eigentumswohnung) is obviously much easier than constructing your own house. It would be a standard design for various apartment types e.g. 2BHK, 3BHK etc. and the scope for customizing the floor plan would be very limited. Also the common amenities would be provided by the contractor e.g. heating system, ventilation system, common basement parking, elevator etc. The contract would be standard for all the buyers except for certain individual conditions. The most important point here is to properly evaluate the Company or contractor behind the project that they have the capability to complete the project.
If it is an existing apartment being sold by the current owner, it makes sense to get the property examined by a professional surveyor (sachverständiger or Gutachter). This will cost some money but will give a piece of mind and might save expensive repairs later.
Building your own house
For the more adventures types among us, another option is to buy a piece of land and construct your own house on it. Here again there are two possibilities –
- Build an individual house or
- Build a duplex house for two parties (Doppelhaus)
Following table shows the pros and cons of each.
|Likely to cost more||Likely to cost less than an individual house|
|You are free to design and build as per your wish||Decisions have to agreed upon by all involved parties at the time of construction and also later for every change involving common ownership|
|Very good privacy||Another house is adjacent so total privacy can not be expected. In case of a Reihenhaus, privacy is even more compromised.|
|You have to bear all the costs alone for construction, installation as well as maintenance of house and supporting systems||Costs for common systems like heating, Cellar, Garage etc. can be distributed between multiple parties|
|As a foreigner, building a Einfamilienhaus could prove to be more difficult as you have to manage the architect and the contractor, manage the purchase of dozens different materials, manage all the procedures, communication and documentation in German. So without help from knowledgeable local friend, it's lot more stressful||With a Doppelhaus or Reihenhaus, you will be building with at least one other party and this will help greatly in sharing the stress and if the other party is local resident, He/ she might already have knowledge or have friends/ relatives who have very good idea about house construction.
At the same time, there is an also a risk of other party getting everything done to his/ her advantage. This has to be managed properly.
Building your own house involves managing the whole project for yourself, or a with partner in case of a Doppelhaus. You need a lot of time and patience and perhaps also some DIY skills, and very good knowledge of German language.
3. In search of the dream home
The search for the right property is not difficult with myriad websites, almost all of them in German. The most prominent is immobilienscout24.de. On this website, as a registered user, you can create a search agent with your criteria and save it. This makes sure that as soon as a relevant property is listed, you get an email. This is very important as there is a huge demand for residential properties currently in Germany. There are many other websites including a lot of regional ones. Banks often list local properties for sale at their branches as well as online.
The biggest and real risk you have to consider is the building contractor (Bauträger) going bankrupt (Insolvent). For example, if the contractor declares bankruptcy after he has finished 60% of construction, you end up with an incomplete property and there’s no way to get any compensation. Worse, you will have ongoing expenses like bank loan interest and the Bereitstellungszins (Explained below) plus your current rent. A Completion guarantee (Fertigstellungsbürgschaft) and a Performance/ Warranty bond (Gewährleistungsbürgschaft) can be made with a bank and may help if done properly. Other risks include actual construction differing from the plan and delay in completion.
You should find as much information about the contractor as possible. Take a look at contractor’s previous or ongoing work. Talk to the buyers who have bought property from the contractor.
4. Additional costs
You should not only plan for the price of the property, but also various additional expenses (Nebenkosten). Some likely expenses are listed below.
|Broker commission||If you are not directly buying from the owner or if it is not a new construction, the broker commission could be between 3.7% and 7.14% of the total cost of the property depending upon which state you live|
|Grunderwerbsteuer (Property transfer tax)||This would be between 3.5% and 6.%5 depending upon which state you live
|Notary||approx. 2.5% in total - Contract, transfer of mortgage etc.|
|Land ownership transfer (Grundbuchamt)||0.3% to 0.5% of the total price|
|Other costs||Changes from the standard design of the house/ flat, additional material, upgrade to standard material, new kitchen etc. You should plan between 4 and 8% additional money|
In general, you should be ready to shell out at least 15% in addition to the house cost.
5. Bank loan for your property
The term home loan used commonly in India for the concept of a mortgage. The difference between and a loan (Darlehen) and a mortgage (hypothekendarlehen) is that a mortgage is a secured loan i.e. the property is used as a collateral and can be auctioned by the bank if you are unable to pay the installments (Foreclosure). In India you normally agree to repay the full home loan amount to the bank with a specific monthly installment amount (EMI) for specific number of years (tenure of the loan). In Germany you don’t need to finalize the full repayment tenure with the bank. In fact, a lot of home buyers, out of the monthly installments, pay just 1%-2% as repayment (Tilgung) of the loan amount and the rest is just interest (Zins) (See table ‘Mortgage calculation’ below). The monthly installment does not depend on the full repayment of the mortgage, but on the amount you want to pay every month. This results in a lot of people never repaying the mortgage in their entire lifetime, but just keep the mortgage transferring from seller to buyer and bank to bank! Of course, you can increase the repayment amount to what you can afford and plan to repay the mortgage fully in a certain no of years.
In the past few years, the interest rates have been dropping. However the advertised low rates is the best case scenario. The interest rate that you actually get depends on various factors – Your own capital amount, total household income, your creditworthiness and number of years of fixed interest rate agreement. This is listed in the table below.
|Own capital||More you put your own money, lower will be the interest rate|
|No of years of the fixed interest rate||Longer the period, higher will be the interest rate|
|Total household income||More the better|
|Your creditworthiness||Your creditworthiness will be assessed by your Shufa report|
The bank will offer you a fixed interest rate for a specific no. of years. This is called Zinsbindung. For example, a bank offers you 2.5% for 5 years or 3% for 10 years. At the end of this period, the interest rate will be revised by the bank based on market conditions at that time. Or you are free to go to another bank with better conditions (Mortgage refinance or Anschlussfinanzierung in German) with your remaining loan amount. In fact, within 3 years before the end of your Zinsbindung, you can make a contract with another bank and reserve the best conditions for transfer of the loan. This is called Forward mortgage (Forward-Darlehen).
Two important concepts worth knowing here are
Bereitstellungszins – This is the interest charged on the part of the loan that your bank is holding and has not yet released to your contractor. The Bereitstellungszins is normally around 3% (0.25% per month) and higher than the actual loan interest rate (as of now). The terms of Bereitstellungszins are important because –
- The shorter the Bereitstellungszins free period, the earlier you will start paying interest in greater amount even before the completion of your property. You should always negotiate for longest possible Bereitstellungszins free period with the bank.
- The more the the completion of property is delayed, you will be paying greater interest on your loan amount.
Sondertilgung – This is the extra amount that you are allowed to repay to the bank every year as repayment of the mortgage in addition to your regular monthly installments. Sondetilgung is normally upto 5% of the total mortgage amount per year. Make sure that your bank allows this if you know you will be having extra money every year to repay your mortgage.
Other institution for getting loan
The government owned KfW bank promotes energy efficient houses and it is possible to get a loan from this bank with better conditions. However with the all time low interest rates as of now, the KfW loan might not be cheaper than the regular bank loan. More information can be found KfW bank website.
Where to look for your home loan
You can either talk to your bank or there are many home loan comparisons websites to find you best rates. The lowest interest rate is not everything however, other points like special repayment conditions, Possibility of early repayment in full etc. play an important role. There are some good services like drklein.de who work with banks and try to find best conditions with no charge to you.
6. Signing the contract
Usually when the building contractor sends you an offer, he will also send a description of property. This document is called Exposé. The Exposé includes the details like the layout plan of the location and of your particular plot, property drawings, floor plans of interior and exteriors, garden and common area, cellar, parking etc. It lists the floor area of each room and passage in square meters. Finally, it includes the price of the property.
The Baubeschreibung is another important document that contains details the construction work. How will the foundation be laid out and details of the cellar and underground parking construction. It contains details like how thick the concrete and brick walls will be, the height of living rooms and cellar rooms etc. It contains details of the insulation material for walls and roof. Details of internal and external doors, windows and shutters. Details of electrical installations like number of points, type of buttons and plugs. Plumbing details, bath tubs and wash-basins, Heating system details and radiator details, Internal and external plastering, screed, floor and wall tiles, flooring, terrace and garden etc.
It is important to get all your queries answered and make sure that the contractor is in agreement with you.
The Deed of Sale
The Deed of sale (Kaufvertrag) is the most important document in the purchase of the property. This is completely in German. A Notary can translate it for you at additional cost. The contract is signed by all parties in presence of the notary. The notary acts as a mediator and is legally bound to inform all involved parties about potential risks involved in the purchase agreement. You should get all your queries clarified with the notary.
What’s in the contract
A contract for a house generally contains the following details.
|Name and address of both parties|
|Status of entries in the land Register (Grundbuchstand)|
|House construction (Bebauung) and plot separation deed document references|
|Conveyance of property|
|Confirmation of plot reservation by the seller (Eigentumsvormerkung)|
|Price and additional costs if any|
|Payment terms and schedule|
|Foreclosure terms (Zwangsvollstreckung)|
|Completion of the construction terms|
|handover of the property|
|Guarantee period, terms and conditions|
|Specific terms and conditions agreed between you and the contractor|
|Power of attorney to the seller for certain actions|
Any changes that you make to the floor plan, changes in the material, additions services like garden construction etc. should either be added to the original contract or covered in a separate contract.
7. The payment plan
A stepwise payment plan should be clearly laid out in the contract. Your bank will release the payment due at completion of each milestone after it receives a confirmed request from you. The payment is deposited into a bank account held by notary on behalf of the contractor as an escrow account.
|Beginning of the foundation work||30%|
|Structural completion with rooms||28%|
|Completion of roof and gutter||5.6%|
|Heating pipes installation||2.1%|
|Plumbing pipes installation||2.1%|
|PVC pipes installation for electricals||2.1%|
|Installation of Windows including glazing||7%|
|Completion of screed (floor)||2.1%|
|Tiling Sanitary (bathrooms, toilets)||2.8%|
|Ready for occupancy||8.4%|
|Facade (Frontal work)||2.1%|
Even though 13 steps are listed above, most agreements have 7 steps with a few smaller ones combined together.
Finally, this is what I heard more than once from my contractor and I must quote it here – Maybe it’s an old Bavarian saying 🙂
You build three houses in your life – 1st for your enemies, 2nd for your friends and 3rd for yourself!
So are you ready to take the plunge now? Feel free to write you questions and comments in the field below. Do you know the peculiarities of buying property in other European countries? Would you like to write about it or any other topic, check here.
Image source: My own house under construction