Why should I consider investing in real estate ?
- High probability of increased value for attractive properties in good locations.
- Real estate is considered a conservative and long-term capital investment. For this reason, this type of investment is of particular interest as a retirement provision. In other forms of savings, it is easier to overcome the inhibition of using up one's personal financial reserves to reach a particular saved amount.
- The financial administration supports investments in real estate in a number of ways, whether by increasing the investor's tax-allowable expenses, allowing financing costs to be deducted as income-related expenses, or through certain benefits in the case of estate- and accession taxes.
- Other asset categories are highly speculative (e.g. stocks) or offer the investor only a minimal rate of return after deduction of taxes and inflation (e.g. government bonds). There is no foreign exchange risk involved. Furthermore, it is advisable to distribute one's assets over a number of asset categories (diversification).
- As an investor, you have the advantage of being free to choose, for example, to later occupy the property yourself, thereby avoiding the need to make rental payments after retirement.
- You have the greatest possible power of decision with regard to your assets. There is no money manager who could potentially cost you your savings through their investment decisions.
- If one assumes, as in the past, a certain connection between rent prices and inflation, then your investment in real estate will protect you from losing buying power in the case of currency depreciation.
- Purchasing property is—given the necessary solvency—also possible with a minimal shareholder's equity.
- An investment property makes particular sense for individuals wishing to plan for the long term and set their own goals. When combined with long-term financing, your investment guarantees you planning reliability, and though loan redemption and property appreciation, you attain a significant capital growth.
- Your retirement provisions are inheritable, and may also be used as collateral if necessary.
- In the last few decades, the economy has been characterized by instability, excess, and crises. Given this financial situation, it makes sense to make solid, profitable investment choices.
- Former Minister of Finance Norbert Blüm liked to quote the phrase “our retirement is secure;” today, all that is certain is that little more than the absolute minimum of basic social care will be left. It is up to you to take this opportunity to shore up your retirement provisions and take control of your own future.
Why should I make an investment decision soon ?
- Property in Germany are very cheap by international standards.
- The property market in Germany is not overheated, and there was no speculative bubble as in stocks.
- The mortgage rates are at historically very low.
- The inflation rate is still low, although the world's state debt, and the money supply to skyrocket.
- The number of newly built homes has been declining for years, a timely demand for residential and commercial space is available.
- A real estate investment is a long-term investment. The sooner you buy a property, the more likely it is the date on which it throws off your property a pension.
- The property market is in upheaval. For example, the state of Berlin has to be separated from many of its state-owned homes to rinse urgently-needed money into the empty budget coffers. It can not and does not want the country to respond to market trends. Take advantage of this opportunity and benefit with our help of such special situations.
Bestellerprinzip and Mietpreisbremse
Germany’s tenancy law reforms, the Grand Coalition’s Mietrechtsnovellierungsgesetz (MietNovG), came into force on 01.06.2015 and brought a number of major changes, and a major dose of uncertainty, with them.
We’ve already looked at one of the biggest reforms, the Mietpreisbremse, which has given local authorities the power to impose rental controls in neighbourhoods with “overheated” housing markets.
The second major reform, and one that is starting to attract as much, if not more, press and media coverage than the Mietpreisbremse is the newly introduced Bestellerprinzip. Read on to find out about the intentions behind the new law and the impact it is already having on tenants (Mieter), landlords (Vermieter) and lettings agents (Makler).
He who pays the piper calls the tune…
Up until the latest reforms were introduced it was a tenant who typically ended up footing the bill for the lettings agent’s commission (Maklercourtage). The fact that agents have always typically been commissioned by landlords to advertise their vacant apartments, organise viewings, screen tenants, etc., wasn’t enough to prevent the bill for their services landing in the tenant’s letterbox. Depending on the location and size of the apartment, this could amount to a good few thousand euro. As specified in Germany’s apartment letting law (Wohnungsvermittlungsgesetz), an agent can charge a maximum of two net rents, which are referred to as Kaltmieten (literally “cold rents”), i.e. the apartment’s monthly rent, excluding utilities and shared costs, plus sales tax (Mehrwertsteuer) of 19%. This left tenants with considerable up-front costs—alongside the commission payment they would also have to pay their security deposit (Kaution), which amounted to a further three net rents, plus the other costs associated with moving home. Unsurprisingly, a lot of people pointed out that the system was unfair and eventually their complaints were heard by Angela Merkel’s coalition government.
Clear intentions, clearer warnings
The Bestellerprinzip fundamentally changes this arrangement and enshrines in law the principle that whoever appoints the lettings agent is responsible for paying the agent’s commission. Sounds fair enough, you might think. In any case, whatever extra costs the landlord is subject to will just be added to the tenant’s rent and spread over a number of years, won’t they? This is how you would expect it to play out, but with Mietpreisbremse rent controls introduced at the same time, landlords won’t always have this option to recoup the additional costs.
The government was warned and lobbied (and then warned and lobbied some more) against introducing this reform. Lettings agents predicted that their businesses could collapse as a result of landlords deciding to find their own tenants. Agents also warned that tenants would suffer as many landlords are simply unable to offer the same high standards of service. It has been calculated that a lettings agent spends between 25-30 hours successfully marketing an apartment (including phone calls, placing ads, attending viewings, meeting prospective tenants, etc.) It’s probably unrealistic to expect a landlord to be able to devote that amount of time to the same task.
Viewings will become less convenient for potential tenants—telephone calls will go unanswered—tenants will have to do a lot more work themselves. These were common warnings made by agents and their trade associations. Unfortunately for the lettings agents, most Germans had nothing against landlords having to foot this bill, so there was little support to be found among the general public.
What people describe as “black sheep” within the profession probably didn’t help much, either. It’s difficult to support (or even have sympathy for) lettings agents when so many people have a less than positive impression of them.
I might as well do it myself then…
The initial reaction of some landlords to the Bestellerprinzip was to seriously consider whether the job of a lettings agent was something they could do themselves. Many landlords have longstanding professional relationships with specific lettings agents, so may not have had to think about this for long. But, given the number who are trying to get by without an agent, it is clear that some landlords weren’t necessarily convinced of the value of a service they would now have to pay a few thousand euros for. After all, with all of the websites that have sprung up over the years to help tenants find apartments (and sellers find buyers), how difficult can it be? Only time will really tell, and there are probably quite a few lettings agents across Germany at the moment hoping that their clients don’t take too long to realise just how much they need their tried and trusted agents.
Take it or leave it
It has certainly been interesting to read about some of the creative (although still illegal) methods that landlords and lettings agents have cooked up in an attempt to make sure that the final bill still lands with the tenant. There have been tales of unjustifiable rent increases, fixed-term leases and extra payments demanded from new tenants. There have been articles discussing the legality of small print in contracts that turn the tenant into the commissioning party, despite a pre-existing agreement between landlord and lettings agent. In some cases, especially where demand for apartments far outstrips supply, prospective tenants have reportedly been told that the only way they will get the apartment they want is if they pay the commission.
Clear problems with Germany’s Bestellerprinzip
The reformed law makes life very difficult for lettings agents:
- agents will only be able to offer an apartment to a prospective tenants if it has never been advertised anywhere else or offered to another prospective tenant (otherwise no exclusive commission could exist). A major problem with this is the simple fact that the average tenant has viewed eight apartments before they find the right one. An agent would be left with seven apartments that cannot be offered to anyone else.
- agents will only be able to serve potential tenants once the tenant has signed a contract with them. In the past it wasn’t necessary to have a written contract, a verbal agreement was enough.
- agents commissions were often split between tenant and landlord in regions with balanced supply and demand (or an over-supply). This will no longer be possible as the letting agent can only be commissioned by one party, so either the landlord will pay the full commission or the tenant will
It is going to be interesting to see how all of this develops. If you have experienced either the positive or negative effects of Bestellerprinzip, feel free to let us know in the comments section below.
EnEV – Germany’s Energy Saving Ordinance
EnEV, Germany’s Energy Saving Ordinance, is something that everyone in Germany’s real estate industry is familiar with. After all, around 25% of the country’s carbon emissions come from residential and office buildings. For non-German speakers it’s not always easy to understand the Energy Saving Ordinance, which is why we’ve put together an outline of how these important regulations have evolved over the years and an insight into what changes are on their way. Read on to find out more.
Origins of EnEVW
ay back in 2002, the EU issued a directive with the snappy title “Energy efficiency: energy performance of buildings” (2002/91/EG) which required EU member states to introduce and apply minimum standards for the energy performance of new and existing buildings, certify buildings‘ energy performance and ensure that heating and air conditioning systems are regularly inspected and maintained. Prior to 2002, Germany had separate regulations for thermal insulation and heating systems (WschV and HeizAnlV), which were first tied together in the first Energy Saving Ordinance (EnEV). By 2007, the EnEV, after a couple of interim revisions, finally legislated for the full implementation of the 2002 EU directive.
Germany, like all other EU countries, has to meet targets on energy efficiency and greenhouse gas emissions. On the supply side, the government has introduced a wide range of measures to reduce dependency on oil, coal and gas. On the demand side, massive strides have been made to increase energy efficiency (consumer goods, vehicles, etc) and thereby cut back on consumption. Household appliances now use a fraction of the energy they used to; public transport increasingly uses hybrid or electric vehicles; and carbon offsetting (e.g. in the form of emissions trading schemes) has to some degree pushed industry to lessen its impact on the environment. Against this background, it’s no surprise that the German government also took action to drastically improve the energy efficiency of buildings. Hence EnEV, which established:
- minimum standards for the thermal insulation of building envelopes (new-builds and renovated buildings)
- minimum standards for the energy efficiency of heating systems
The evolution of EnEV
From the first EnEV in 2002 there have been three updates. Each new EnEV (2007, 2009 and 2013/4) has been a combination of fine-tuning existing regulations and broadening their scope with raising standards and introducing completely new regulations.
For example, EnEV 2007 simply restated many of the 2002 regulations without change, whilst at the same time extending energy-efficiency requirements to non-residential buildings, establishing “energy performance certificates” (Energieausweis) to rate the energy consumption of existing buildings and specifying inspection and evaluation procedures for thermal insulation, heating and air conditioning systems.
The aim of the 2009 regulations was to reduce energy, heat and warm-water consumption in buildings by around 30%. For example, the maximum permitted primary energy demand for new-builds and renovated existing buildings was cut by an average of 30%, with a further 30% cut planned for 2012. Heat insulation standards for building envelopes were raised by 15%. Air conditioning systems that had an impact on air humidity had to be fitted with active humidification and dehumidification systems. Monitoring procedures were also strengthened and harmonised financial penalties for breaching the regulations were introduced.
Sometimes referred to as EnEV 2013 (because the German parliament approved the regulations on 21 November, 2013), but more widely known as EnEV 2014 (because the regulations came into force in 2014), new emissions and energy-efficiency targets were set, including the aim of carbon-neutral buildings by 2050. EnEV 2014 redefined the energy ratings for buildings (redrawing the rating system’s bands) and specified that the primary energy consumption of new-builds would have to be cut by another 25% from 01.01.2016. The role of the energy certificates was also strengthened, and the extent of the information they contain was also broadened to include more detailed information on heating systems, energy sources, actual energy consumption and year of construction. These more extensive certificates also had to be made available to new tenants and house and condominium buyers much earlier in the letting or sale process. In addition, oil and gas boilers that are more than 30 years old and provide central heating in apartment buildings need to be replaced. Fines for breaching the regulations were also increased to €50,000.
Exceptions to EnEV
Not all new and renovated buildings have to meet the requirements set out in the Energy Saving Ordinance. Exemptions exist for:
- listed buildings, as long as an exception has been granted by the competent national authority,
- buildings that are mainly used for animal husbandry (e.g. stables, barns, etc.),
- large premises that have to be kept open on a daily basis (e.g. train stations, airports, churches, etc.),
- underground structures,
- spaces where plants are grown and sold (e.g. greenhouses, etc.)
- air-supported structures, tents and similar buildings that must be built and disassembled on a regular basis (e.g. circus tents, marquees, etc.).
Government support for energy-efficient buildings
Newspaper front pages are currently dominated by the United Nations Climate Change Conference 2015 in Paris and the measures being discussed to cut carbon dioxide emissions, limit global temperature increases to 2°C and decarbonise energy generation. It’s not clear yet what concrete targets will be announced, but the German government already offers cheap loans and other support to encourage energy-efficient construction and renovation via the state-owned KfW Bank (originally established in 1948 to help fund the post-World War Two reconstruction of Germany). Loans at interest rates as low as 0.75% are available, as are grants/bonuses of up to 27.5% to help repay loans. At individual state level there are also a range of programmes to encourage and subsidise energy-efficiency installations and renovations. These go a little way to offsetting the rise in construction costs caused by the more stringent regulations, although it has been estimated that building costs have increased by more than 25% over the last decade as a result.