3 reasons why real estate in Germany is a great investment
Real estate in Germany has always been an interesting investment for both local and international investors. With its stable economy, favourable investment climate, and sound legal framework, Germany offers a safe and reliable opportunity for those seeking to invest in real estate. Axel Brueckner, an independent financial planner at PerFinEx, explains why real estate in Germany could be a good investment.
1. High investment returns
Investing in real estate in Germany has become more and more popular in recent years, with property prices increasing by more than 40 percent in the past four years (after inflation).
The increase in property prices has become so high that some experts have expressed fears that the real estate market is in danger of forming a bubble (that is, that prices are artificially high, unsustainable and the market is therefore volatile). In fact, property prices on the German real estate market are simply the result of supply and demand.
Germany's population is currently at an all-time high, and the economy and salaries have been growing continuously for the past 10 years, leading to an increase in real estate prices. Mortgage interest rates have also been low for years, which made investing in real estate in Germany more attractive.
Nevertheless, it is still a good time to invest in real estate in Germany, particularly because the government aims to satisfy the demand for living space by building 400.000 new flats every year (more on this below). Overall, investing in real estate in Germany can be profitable, but it is essential to take the right steps and understand the market's nuances.
2. Great real estate locations
The German real estate market is extremely diverse and resilient. Unlike the UK and France, which are heavily focused on their respective capitals, London and Paris, Germany's top seven A-list locations each have their own unique benefits and industries.
For example, Berlin has a thriving startup culture, Frankfurt is a financial centre, Hamburg is a logistics hub, and Stuttgart is all about cars. If something were to happen to one of these cities, people would simply move to a different location and the wider market would likely still be fine. This diversity is what makes the German real estate market a great investment opportunity.
Aside from the top seven A-list locations, B-list locations can offer even more attractive real estate investments.
3. Tax benefits
Investing in real estate in Germany can be very lucrative due to the country's unique tax laws. Unlike many other countries, the German government only supports real estate investors who are providing a home for someone else (and not homeowners). This means that if you purchase an investment property, all costs associated with it become tax deductible. This includes interest on your mortgage, modernisation and renovation costs, insurance, and even the cost of a professional property manager.
These tax benefits are not available to homeowners, which is why Germany has one of the lowest rates of homeownership in Europe. However, for those who understand the tax advantages of investing in real estate, the potential for profit is enormous. While the days of double-digit property price growth may be over, the tax benefits of real estate investment are here to stay.
If you structure your real estate investment in the right way, you can receive a tremendous amount of money in the form of tax benefits. This is how many people get rich from investing in rental properties. By investing in properties that keep rising in value and taking advantage of the tax benefits at the same time, you can build a successful real estate portfolio in Germany.
Is now the right time to buy a property?
German real estate prices have been a hot topic of discussion lately, with concerns of a real estate market crash and falling property prices looming large. No matter how the mass media scares with headlines about a real estate market heading for a crash, these fundamentals of the German property market will prevent this and keep prices stable:
- Demographics: Germany's population is currently at an all-time high, and the number of people living in cities is expected to grow. This trend makes investing in real estate in Germany worthwhile, even though it can be expensive in the major German cities.
- Supply and demand: The German government aims to build 400.000 new flats every year, but currently, less than 300.000 are being built. The gap is likely to increase as the cost of building properties rises due to inflation and other factors like the shortage of building materials.
Given these factors, it is unlikely that German real estate prices will fall significantly or crash over the long term. While there may be a slight hiccup in the short term because of rising mortgage interest rates, the market is expected to recover quickly. This continues to make real estate in Germany a sound investment.
Thinking of investing in real estate in Germany? Book a free meeting with PerFinEx and they will help you get on your way to becoming a real estate investor, with advice on finding the right property and the right bank for your mortgage.