Last Updated on October 7, 2024 by Kristina Valcheva
Dreaming of owning a slice of Germany’s real estate pie?
Buying property in Germany as a foreigner can be a smart investment opportunity, but it’s important to understand the tax implications and potential challenges of owning real estate abroad.
Renowned for its stable economy, strong legal system, and commitment to quality living, buying property in Germany as a foreigner is a secure and reliable investment, and you can benefit from rising house prices.
Whether it’s a cozy Berlin apartment, a charming Bavarian villa, or an industrial space in Frankfurt, the German property market beckons. But if you’re not a resident, how do you navigate the ins and outs of this enticing market?
With every twist and turn in international property tax policy, global real estate investors are reshaping their strategies, hunting for the next big win.
This guide explains what you need to know about buying property in Germany as a non-resident.
If you are a non-resident in Germany and you own rental property, we can help with tax compliance.
Our team is specifically focused on ensuring the property owner’s tax obligations are all addressed both in Germany and at home. You can request a no-obligation consultation with a tax expert.
Is it good to invest in property in Germany?
To buy or not to buy? The property market in Germany continues to be viewed as one of the most attractive investment destinations in Europe.
Despite the high prices, it still makes sense to buy because property can be one of the safest long-term investments. Why? Because the demand for real estate surpasses the supply in urban areas and the interest rates have remained low.
Germany attracts real estate investors from all over the world due to its highly educated workforce, economic and political stability, extensive infrastructure, and the lack of restrictions on foreigners buying property.
The country’s high quality of living, diverse real estate opportunities, and historical market resilience make it an attractive and secure option for investors.
Additionally, Germany’s central location in Europe and cultural richness add to the overall appeal of property investment in the country.
More than half of the population does not own property but rent it instead. That’s why house prices will continue to grow as the demand is higher than the supply.
What’s more, for buy-to-let (buy-to-rent it) mortgages, Germany has an incredibly generous system that provides numerous tax benefits.
Property prices rarely decline, and the rental income is higher than the interest you pay, that’s why many people use buy-to-let properties (buy to rent it out) to increase their retirement income.
For this reason, buying property in Germany is attractive for investors who want to live off rental profit or supplement their retirement income. Investing in real estate is preferable to keeping your savings in a bank where you receive virtually no interest.
Here are some of the main benefits of buying property in Germany:
- a very stable rental market
- stable political environment
- a strong economy with solid household income in the heart of Europe
- fixed interest rates and tax advantages
In October 2023, if you wanted a mortgage for 5 to 10 years, you could get a low rate of 3.85%.
But if you were considering a floating rate mortgage lasting up to a year, it would be more expensive at 5.53%. The most popular choice among homebuyers was mortgages in Germany with a fixed period of over 10 years, which had an interest rate of 3.9%.
Can a foreigner buy properties in Germany?
As we mentioned earlier, there are no limits for expats to purchase property in Germany, whether they are from an EU or non-EU country.
You should be able to get a mortgage from a German bank if you work and live in Germany. If you are a non-resident and you want to buy German property from outside the country, you may need a bigger deposit.
If you can bring higher capital to the table, you may be able to secure a mortgage with ‘only’ a Blue Card.
The German word for real estate is ‘immobilie’. If you want to buy an apartment, you are looking for ‘Eigentumswohnung’. Buying a house is translated as ‘Haus kaufen’.
Can you get German citizenship by buying a property?
Buying a house and becoming a citizen are not connected. If you meet the legal criteria, you can purchase property in Germany and apply to become a citizen.
In Germany, you can buy a home and apply for citizenship without being a German resident. Purchasing a home does not make it easier to become a German citizen.
Learn more about our services and German rental income tax.
How much does a property cost in Germany?
The middle price for a selling apartment in 2024 is around €4,741/m², which means there are an equal number of properties priced higher and lower than that. For houses on sale, the middle price is €3,139/m².
In Berlin, it’s €8,307/m² (in the city center) and €6,056/m²(outside the city center). In Hamburg- €8,237/m²(in the city center) and €5,299/m²(outside the city center).
Leipzig and Düsseldorf are considered some of the most affordable locations in Germany.
According to Numbeo.com, in some of the biggest cities, the price per square meter in the city center is around €6,043/m² and outside of the center – €5,018/m²
What are the additional costs of buying a property in Germany?
Investors should be aware that some of these fees could add up to 10% of the initial price and sometimes even more.
Some of them are:
- notary and registry fees
- transfer tax (if there is any)
- real estate agent fees
- maintenance costs
- property tax
You can expect a real estate transfer tax, of around 3.5 – 6.5% of the purchase price, the agent’s fee – 3-7% of the purchase price, and the notary’s fee – 1.5-2% of the purchase price.
Read also:
2024 Guide to Rental Income Tax in Germany
Property transfer tax
It’s also known as property acquisition tax or Grunderwerbssteuer in German.
This is the highest additional fee when you buy a house in Germany. The exact rate will vary depending on where in Germany your real estate is but it’s usually between 3.5% and 6.5% of the purchase price.
In Munich, it’s 3.5%, while in Berlin you can expect to pay 6%. You must pay this tax within one month after the purchase. After you do so, you can register the transfer of the ownership of the property in the land registry also known as Grundbuch in Germany.
Real estate agent fees
Real estate agent fees, also known as Maklerprovision in Germany can be as high as 6% + VAT, for a total of 7.14%, or 3.57% for the seller and 3.57% for the buyer.
In Germany, homebuyers usually must split estate agent fees with the seller. This is the law.
Notary and land registration fees
You can expect to pay around 1.5 – 2% and this depends on the value of the property. The fee for registering the property in the land registry is also included here. In German, it’s called notar.
What is the equity capital when buying a property in Germany?
How much money you will need in advance depends on the purchase price of the property. Financial experts advise that you have 20-30% of the property’s cost available as equity capital.
Equity is not just the money you have in your bank account, it also includes other properties you own, mutual funds, shares, and more.
Equity capital is a crucial component in the property buying process. It demonstrates to lenders that the buyer has a financial stake in the investment, and it can affect the terms of a mortgage loan. Generally, the higher the equity capital, the lower the loan-to-value ratio, which may result in more favorable loan terms.
What documents are required for non-residents who want to buy property in Germany?
The documents necessary for purchasing a property in Germany vary and depend on factors such as the property type and the buyer’s circumstances. Typically, the following documents are needed and some of them translated in German:
- proof of financing
- proof of sufficient income or bank statements
- valid passport or an ID card (proof of residence)
- proof of employment
- German bank account
- Tax Number – Non-residents might need a tax number (Steuernummer) in Germany, obtained from the local tax office
- property purchase contract
- a notarized purchase agreement
- foreigner’s office approval (if applicable): Non-EU residents may need approval from the Foreigner’s Office (Ausländerbehörde) for the property purchase
- latest tax returns
- Selbstauskunft questionnaire*
*You must complete a questionnaire called the “Selbstauskunft” in which you’ll provide personal information such as your name, current income, marital status, the number of children you have, and more.
Which banks in Germany offer mortgages?
Foreigners can get home loans in Germany. The German banking system lets people from other countries apply for property loans, but there are rules to follow. To get a loan, you usually need a valid residence permit, proof of income, or a job, and you must meet the bank’s criteria.
Some of the German banks in Germany that offer mortgages are:
– DKB
– Postbank
-Deutsche bank
-Commerzbank
– KfW
–Hypovereinsbank
-Santander
Mortgages for non-EU citizens
How much you can borrow depends on your residency status. Non-residents can borrow up to 60%. If you are a non-EU citizen with a temporary residence permit, you should be eligible for all types of mortgages. DKB and Santander are two German banks that offer mortgages to expats.
Only a few banks will agree to lend to you and they will require a larger deposit in advance. A permanent residence permit will improve your chances.
Mortgages for EU citizens
In this situation, you will have the same limits as German citizens (up to 100% of the property value). Some banks might ask you for a larger initial deposit.
Mortgages for self-employed
You may find it more challenging to get approval in this situation. It will be easier to get approval the longer you have been working for yourself.
Buy-to-let mortgage
You can get a buy-to-let mortgage which is suitable for investors who plan to rent out their properties. This means that your loan is calculated based on the rental income that you expect.
Applying for a buy-to-let mortgage is the same as applying for any other type of mortgage. Interest rates for buy-to-let mortgages are usually a little higher.
What documents are required to get a German mortgage?
A mortgage broker can advise you depending on your circumstances. Some of the documents usually are:
- proof of equity
- an ID/passport (but not a driving license)
- registration certificate (Anmeldebescheinigung)
- a copy of your residence permit
- social security ID or proof of German pension scheme
- various documents that you can request from the real estate agent, such as a floor plan and declaration of division, land registry documents, property assessment, and more
Documents for employees:
- Salary statement from the previous year (Lohnsteuerbescheinigung)
- Salary slips from the last few months
Documents for self-employed:
- The prior year’s profit and loss statement, confirmed by your accountant
- The German tax office’s two most recent tax assessments (Steuerbescheid)
- Most recent tax returns
What is the process of buying property in Germany?
Before starting your search for a German property you will need to get a pre-approval informal mortgage agreement. You will also need to open a German bank account. Once you get it, you can take the next steps.
Search for a property
You will need to keep a close eye on the market for a while to understand it better. We advise you to sign up on online portals because when a new property is added, you will be notified.
You can also get in touch with a real estate agency to assist you through the process. Ensure that any agent you hire is a member of a reputable group like the IVD.
Some of the most famous German portals for properties are:
- immobilienscout24.de
- totaladblock.com
- wg-gesucht.de
- immowelt.de
- immonet.de
- A place in the sun
- immobilio.de
You can also take a look at websites that offer houses that are privately sold.
Agreement on the price with the seller and making an offer
Once you have decided which real estate you want to buy, get an agreement on the price with the seller. This offer could be through the real estate agent. It’s a good idea also to check for any potential problems with the building with professionals.
If you accept it, you will be asked to pay the reservation fee so that the property is taken off the market. It is usually between 0.5%-1% of the price. If you give up on the real estate later, you may lose it.
After you pay, you will have up to one month to finalize your mortgage.
Get your mortgage finalized
Now is the time to get back to the banks or lenders to finalize your mortgage. You can do this by yourself with your preferred bank or with the help of a mortgage broker.
You should give the mortgage lender up to 10 days to process your application once you’ve filed it. The process could be quicker but if the lender wants to get more details or to perform their valuation of the real estate, you might expect delays.
Sign the contract
You should have around 14 days before signing the contract. You will need a notary. Since the documents are in German, you may have to bring a translator, so that you have a full understanding of what you are signing. It’s also possible to find a bilingual notary. Both the buyer and the seller can ask questions and request edits.
Register your purchase
It is crucial to know that simply signing the contract is not sufficient. The property should also be registered with the notary. This process is usually handled by the notary, and the government will check for any unresolved problems with the sale.
Transferring money and paying fees
Now is the time to pay some of the fees listed above. The first one will be the real estate agent’s fee and then the notary’s fee. After this, you will have one month for the property transfer tax. The notary will schedule a date for you to transfer the complete purchase price to the seller a few weeks later. After this, you will receive the keys to the real estate.
Buy-to-let property in Germany – how does it work?
Any time you buy property as an investment (instead of for your personal use), it’s called buy-to-let. After ten years, you can sell your buy-to-let property without paying any capital gains tax (before the 10 years period, you will have to pay it).
Selling your property in Germany and Capital Gains Tax
If you decide to sell your property and if you have owned it for less than 10 years, your financial gain will be subject to Capital Gains Tax which is 25% in Germany. There can be an exception if you have lived in the property and it was your main residence for two years.
You might also have to pay mortgage termination fees in addition to estate agency expenses. The value of the property should be evident from the real estate agent’s assessment, but it’s wise to gather many opinions before settling on an asking price.
Several documents must be ready before you can advertise your property for sale. A floor plan (Grundriss), an extract from the land register (Grundbuchauszug), an energy certificate (Energieausweis), and a building permit are among them (Baugenehmigung). A statement of the building’s division (Teilungserklärung) and reports from the most recent owners’ meetings are also required if you’re selling an apartment.
What German taxes apply to rental income?
If you rent out your property in Germany, you will have to file tax return in Germany and pay taxes on the rental income.
Income from renting property in Germany is taxed on a progressive scale, ranging from 14% to 45%, depending on the taxable base. This base is calculated by subtracting allowable expenses and depreciation (such as building, fittings, and furniture) from rental earnings.
Non-residents face different tax rules compared to German residents. In 2024, foreigners can earn up to €11,604 without paying taxes, a notable increase from the 2023 limit of €10,908. Additionally, a solidarity surcharge at a rate of 5.5% of income tax is applicable, and it is recommended for non-resident married couples to file their returns separately.
The good news is that you can deduct any costs associated with rental income from your taxable rental income. This covers mortgage expenses as well as costs for maintenance, repairs, improvements, and others. Rental income is subject to the 5.5% solidarity surcharge in addition to the usual progressive income tax rates for singles and married couples.
If you’re a foreign property owner in Germany, our tax advisors can assist with the tax filing process.
Feel free to reach out for a no-obligation consultation with a tax expert if you have any questions.
Taxes on rental income if you don’t live in Germany
When you own an investment property, even if you don’t live in Germany, you must continue to file your property tax return with the German tax office.
Non-residents may find it difficult to file their taxes on their own, particularly if all the official paperwork is only in German.
Who can help me file my German property tax return?
If you are non-resident with a rental property in Germany, it’s important to understand the tax implications and to file all necessary tax returns to comply with German tax law.
We know that dealing with property taxes in Germany can be stressful.
If you don’t live in Germany, it will be easiest for you to use the help of a property tax expert like PTI Returns. Our tax advisors can help you file German property tax return.
In addition, with the help of an experienced tax expert, you will be able to claim all the tax credits and deductions applicable to your circumstances.
Why choose Property Tax International (PTI Returns)?
Peace of mind – PTI Returns is part of Clunetech. We have more than 25 years of experience in international tax, and we will keep you compliant with the German tax office.
Save time and stress – Our property tax experts will handle all the tricky tax paperwork in German
Better value – we offer a more affordable service than your local accountant
Secure -We are a Registered Tax Agent with over 1 million tax returns filed. Our service is also ISO 9001 and ISO 27001 certified
Convenient service – Our service is online
Your questions answered – If you have any questions that we did not answer, you can request a free callback from our tax experts
No language barrier – Our tax experts will deal with language barriers and with the local German tax office
File your German property tax return with PTI Returns today.