Berlin, the capital of Germany, is a popular real estate investment alternative in Europe. The Berlin property investment is focused on the rental income generated by the old and new tenanted residential building, apartments, and condominiums. The factors discussed below are considered by potential investors thinking about investing in Berlin real estate.
The income levels of Berlin
The relative newness of Berlin as a market is responsible for lower income levels as compared to other capital cities of the world. As a result, the rental yields are compressed. This situation is expected to change in coming years as the city develops and big businesses and startups move to the city. The expected opening of a new airport, Berlin Brandenburg Airport along with the realization of startups like Zalando are indicators of the changing situation. In the medium to long-term, the income levels are expected to rise higher.
The average rental yields
The average rental yield of the Berlin property is an important part of investment consideration. The rental yield is lower in Berlin as compared to other similarly priced cities. At Kreuzberg, the gross yield is between 3 to 3.5%. These yields go up to 11% since the high-end refurbishment and new buildings are not subject to rent control.
Fees to be paid while purchasing a property
The acquisition cost is in the range of 9 to 10% over and above the property sale price. It includes the following
- Transfer tax- 6%
- Land registry fee- 0.5%
- Notary fee- 1.5%
- Legal fee- Approximately 1%
The capital gains tax in Germany is not applicable when an investor holds property for 10 years, so the costs are minimal on exit.
Need of an attorney
The contracts of purchasing the Berlin property are in German and it needs to be notarized at the notary’s office in Berlin. So, either an outside of Germany investor needs to be present while the contract is being notarized or a lawyer representing him should be there. The lawyer should be supplied with power of attorney certified by the local German embassy.
The average vacancy rates
The total percentage of owner-occupiers in Berlin is only 15%. Thus, 85% people of Berlin are living in a rented home. The apartments don’t stay empty for long durations due to a low vacancy rate of 1.2%. A large number of international tenants have moved to Berlin in the recent times. So, there’s a high demand for rental accommodation in the city.
For an outside of Germany investor, it’s necessary to inquire about the local market conditions and rents through a local agent. The knowledge of upcoming projects and development plans can be instrumental in deciding a locality for investment purposes. The property prices vary from district to district with the Mitte district being most expensive, closely followed by Prenzlauer Berg, Friedrichshain, and Kreuzberg.
The average price per square meter of property in Berlin is 3300 Euros that’s low compared to cities like Munich and Frankfurt. The growth of 30% in property prices in the last three years makes investment property in Berlin a lucrative real estate investment alternative.