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Buying property in Germany: scams and pitfalls

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Everything you need to know is included in our Germany Property Pack

The German real estate market is increasingly appealing to foreigners, thanks to its stable economy and reliable investment opportunities.

Navigating the local property market can be a bit of a puzzle though, especially for non-residents. There are several hurdles and surprises that you should be ready for.

Our community of property purchasers, in conjunction with our nearby experts, has identified a multitude of problems. We've listed them all in our Germany Property Pack.

This article provides a brief overview of potential pitfalls that may arise during the property buying process in this country.

Is it safe or risky to invest in real estate in Germany?

Germany's position as an economic powerhouse in Europe extends to its real estate market, a realm that offers lucrative prospects for many.

Yet, like any market, it is layered with complexities, especially for foreign buyers. Let's explore this terrain more critically.

While Germany is predominantly safe when it comes to real estate transactions, there have been instances that warrant caution.

For example, in the bustling capital, Berlin, there have been reports of fraudulent agents showing properties they don't have the rights to sell. This is reminiscent of the "Berliner Modell," where, in the past, scammers rented apartments and posed as landlords to collect deposits, leaving the prospective tenant with no place to stay and a lighter pocket.

Germany's property market has its unique quirks. Take the "Kaufnebenkosten" (additional purchase costs) as an instance. In a city like Munich, where the real estate market is heated, a buyer might get caught up in the excitement of finding a property within their budget, only to realize they haven't accounted for these extra costs, which can be a significant sum.

Not only does this oversight strain finances, but it also alters investment calculations.

Germany's robust legal system is both a boon and a bane.

On the positive side, the "Grundbuch" system is a testament to Germany's commitment to transparency.

In a recent case in Frankfurt, a buyer discovered through the Land Registry that the property they were interested in had unresolved liens. This access to information saved them from potential future litigation.

However, the bureaucratic depth of German property law can be daunting, and without local legal advice, foreigners can find themselves in a quagmire.

In comparison to, say, the Scandinavian streamlined approach, Germany's property purchasing process can seem tedious. But, it's this meticulousness that often catches pitfalls.

For example, in Germany, a notary's involvement is mandatory, unlike in the UK. This often results in double-checking that can catch discrepancies or potential fraud.

Despite its efficiency, the German legal system isn't immune to prolonged property disputes.

A case in Hamburg saw a property dispute between two parties extend for over five years due to complexities in previous ownership structures and claims. While justice was eventually served, it underlines the importance of pre-emptive legal counsel.

It's crucial to not just rely on translations but engage a local expert.

In Düsseldorf, an American buyer misinterpreted a property clause due to language nuances. The property, situated in a historical district, had stringent renovation guidelines, something the buyer realized only post-purchase. Such nuances necessitate local expertise.

The tales of challenges are many.

From the Asian investor who struggled with obtaining a mortgage in Stuttgart due to lack of credit history in Germany, to the challenge faced by many non-EU residents who find themselves navigating the intricate web of residency and property ownership rules.

Buying real estate in Germany can be risky

An increasing number of foreign investors are showing interest in Germany. However, 90% of them will make mistakes. Avoid the pitfalls with our comprehensive guide.

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Avoid these pitfalls when purchasing property in Germany

The concept of "Kaufnebenkosten"

One unique aspect you should be aware of when buying residential property in Germany is the concept of "Kaufnebenkosten" or purchase additional costs.

These are fees and charges that are specific to the German real estate market and can significantly increase the total cost of purchasing a property.

When you buy a property in Germany, you should budget for Kaufnebenkosten, which typically amount to 7-15% of the purchase price. This includes the real estate transfer tax ("Grunderwerbsteuer"), which varies by state (Bundesland) and can range from 3.5% to 6.5% of the property price. For example, in Berlin, it's 6%, while in Bavaria, it's 3.5%.

Additionally, you must account for notary fees and the cost of registering the property, which usually amount to about 1.5-2% of the purchase price.

Another aspect unique to the German market is the concept of "Wohnungsgeberbestätigung," a document you need when registering your residence at the local Bürgeramt (residents' registration office).

This document is a confirmation from the landlord or property owner that you have moved into the property.

It's essential for completing your Anmeldung (registration), a necessary step for anyone moving to a new residence in Germany.

Lastly, be aware of the "Energieausweis" or energy performance certificate, which is a legal requirement for selling or renting properties in Germany.

This certificate gives information about the energy efficiency of a property, and not having it can lead to fines.

The "Grundbuch" system

Another unique aspect to consider when buying residential property in Germany is the "Grundbuch" system.

The Grundbuch is a legal registry of real estate property, somewhat unique to Germany, and it plays a crucial role in property transactions.

When you buy a property in Germany, you must ensure that the property is registered in your name in the Grundbuch. This registry is managed by local Grundbuchämter (land registry offices), and it provides a definitive record of who owns a piece of property.

It is crucial to understand that in Germany, the ownership of a property is not fully recognized until it is entered into the Grundbuch.

A common pitfall for foreigners is not understanding the importance of this registry or the process involved in getting their name registered. The process can be quite bureaucratic and requires a notary. You should be aware that even after you sign the purchase contract and pay for the property, the ownership transfer is not complete until the Grundbuch entry is made.

This can take several weeks or even months.

Also, before purchasing, you should request a Grundbucheinsicht, or an inspection of the Grundbuch entry for the property.

This inspection will reveal if there are any encumbrances or liens against the property, such as mortgages, which could affect your ownership rights.

The Grundbuch system ensures a high level of security and clarity in property transactions, but it also requires a thorough understanding of its processes and implications.

As a foreigner, you should work closely with a notary or a real estate lawyer who can guide you through this process and ensure that all legal requirements are met for a smooth transfer of property ownership.

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"Erbbaurecht" or hereditary building rights

A particularly unique aspect in the German residential property market that you should be aware of is the concept of "Erbbaurecht," or hereditary building rights.

This is a specific type of leasehold arrangement prevalent in Germany, where you can own a building but not the land it stands on.

Under Erbbaurecht, you essentially lease the land for a long period (usually between 50 to 99 years) and own the building erected on it. At the end of the lease period, the ownership of the building reverts to the landowner unless the lease is extended.

This system can be appealing because it often allows for the acquisition of a house at a lower initial cost than buying both the land and the building. However, it comes with specific challenges and considerations.

You should be particularly cautious about the remaining duration of the Erbbaurecht contract. If the lease is close to expiring, it might be difficult to secure financing or sell the property in the future.

Additionally, you'll typically pay an annual ground rent ("Erbbauzins") to the landowner, which can be subject to adjustments.

Another key aspect is understanding the terms and conditions of the Erbbaurecht contract.

These contracts can have specific clauses regarding what you can and cannot do with the property, and failing to adhere to these can have legal repercussions.

Lastly, be aware that at the end of the Erbbaurecht period, there might be provisions for compensation for the building, but these are subject to the specific terms of the contract.

It's crucial to have a clear understanding of these terms before entering into an Erbbaurecht arrangement.

Given its unique nature, if you are considering a property under Erbbaurecht, it is advisable to seek legal counsel and thoroughly understand the implications of this type of property ownership in Germany.

The risks related to "Maklerprovision"

Another unique and potentially challenging aspect of buying residential property in Germany, especially for foreigners, is understanding and dealing with the "Maklerprovision" or real estate agent's commission.

In Germany, the commission for a real estate agent can vary significantly depending on the region and the property. Unlike in some other countries where the seller typically pays the agent's commission, in Germany, it's common for both the buyer and the seller to share this cost.

This can be a surprise to many foreigners who are used to different practices in their home countries.

You should be aware that, as of recent regulations, the maximum commission split between buyer and seller in Germany is capped at 7.14% of the purchase price, including VAT. However, this rate can vary, and in some cases, the buyer might be responsible for the entire commission.

This additional cost can significantly affect your overall budget, especially if you hadn't anticipated it.

Furthermore, the role and duties of real estate agents in Germany might differ from what you're accustomed to.

German real estate agents typically facilitate the transaction process, but they might not provide the same level of market analysis or negotiation support that agents do in some other countries.

Before you engage with a real estate agent in Germany, it's crucial to clarify the commission structure and understand exactly what services are included. Also, make sure that any agreement with the agent is clearly documented to avoid any confusion or disputes later.

As with any significant financial transaction, especially in a foreign country, seeking legal advice is always a prudent step to ensure that you fully understand your obligations and rights.

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"Wohnungseigentumsgemeinschaft" or condominium owners' association

Another unique aspect in the German property market, particularly relevant for foreign buyers, is the concept of "Wohnungseigentumsgemeinschaft" (WEG), or condominium owners' association. This concept is crucial when buying an apartment (condominium) in Germany.

In a Wohnungseigentumsgemeinschaft, you don't just buy the physical apartment, you also become part of a community of owners who jointly own and manage the common property of the building, like the roof, the facade, and shared facilities.

This communal ownership and management are governed by WEG law, which has specific implications for property owners.

As a member of a WEG, you will be required to participate in regular owners' meetings (Eigentümerversammlung) and contribute to decisions about the building's maintenance, repairs, and improvements.

Decisions in these meetings are usually made by majority vote, and you need to adhere to the decisions made, even if you disagree with them.

Moreover, you should be aware of the monthly "Hausgeld" payments.

These are not just maintenance fees but also include contributions to a reserve fund for future repairs and renovations. The amount can vary significantly depending on the age, condition, and amenities of the building.

A common pitfall is underestimating the impact of these communal obligations and costs. As a co-owner, you are partially responsible for the entire building, not just your unit.

Unexpected major repairs or renovations can result in significant additional costs.

Before purchasing an apartment in a WEG, you should thoroughly review the minutes of past owners' meetings, understand the financial situation of the WEG (including reserve funds and planned projects), and get a clear picture of any ongoing issues within the community.

This review can help you avoid surprises and ensure you are prepared for the responsibilities that come with being part of a Wohnungseigentumsgemeinschaft in Germany.

"Baulastenverzeichnis" or encumbrance register

An additional unique and often overlooked aspect when buying property in Germany, particularly relevant for foreign buyers, is understanding the implications of the "Baulastenverzeichnis," or encumbrance register.

This is a public register maintained by local building authorities in Germany, and it lists any and all obligations ("Baulasten") that a property owner has towards the local authorities or neighbors, which are not covered in the land register (Grundbuch).

When you buy a property in Germany, it's crucial to check the Baulastenverzeichnis.

This register can contain information about rights of way, building restrictions, or obligations to maintain certain infrastructure, like a private road or a sewage system. These obligations are legally binding and are transferred to the new owner of the property.

For example, there might be a Baulast on a property requiring the owner to allow access to a neighboring property through their land, or there could be restrictions on how high you can build or what portion of the land can be built on.

Not being aware of these obligations can lead to unexpected limitations on how you can use your property or might result in unforeseen additional costs.

The challenge here, particularly for foreigners, is that information in the Baulastenverzeichnis is usually in German and might contain technical legal and architectural terms.

Moreover, this register is not typically checked as part of the standard property buying process and needs to be requested specifically.

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"Denkmalschutz" or historical preservation laws

Another aspect specific to the German property market, especially relevant for foreign buyers, is the potential impact of "Denkmalschutz" or historical preservation laws.

In Germany, properties that are designated as historical monuments or are located in historical preservation areas are subject to strict regulations regarding renovation, restoration, and alteration.

When you buy a property under Denkmalschutz, you are limited in the changes you can make to the building's exterior and, often, its interior as well. These restrictions can include the types of materials you can use, the colors for painting, window styles, and even the landscaping.

The goal is to preserve the historical and architectural integrity of the building and the area.

While owning a historically significant property can be prestigious and attractive, it comes with unique challenges. Renovations and repairs can be more costly and time-consuming, as they often require special materials and techniques and must be approved by the local Denkmalschutzbehörde (historical preservation authority).

This can be particularly challenging if you are not familiar with the local regulations and processes.

On the positive side, there are often tax advantages and grants available in Germany for preserving and restoring historical properties.

However, navigating these benefits requires a good understanding of the local laws and regulations.

Before purchasing a property under Denkmalschutz, you should thoroughly research the specific restrictions and obligations that apply. It's also advisable to consult with a local architect or builder who has experience with historical properties to get a realistic estimate of the potential costs and complexities involved.

Understanding the implications of Denkmalschutz is essential to making an informed decision and ensuring that you are prepared for the responsibilities that come with owning a historically significant property in Germany.

"Altlasten" or contaminated sites

A further unique aspect to consider when buying property in Germany, particularly for foreigners, is the potential presence of "Altlasten" or contaminated sites.

This term refers to properties that have been contaminated by previous industrial or commercial use, potentially making them hazardous or less suitable for residential purposes.

In Germany, the issue of Altlasten is taken very seriously.

If you buy a property that is later found to be contaminated, you as the new owner could be held responsible for the clean-up, which can be extremely costly and time-consuming. This is particularly important in areas that were heavily industrialized or where there might have been historical military activities.

Before purchasing a property, especially if it's in an area known for past industrial activity or in redeveloped urban zones, you should conduct thorough due diligence. This involves checking the "Altlastenkataster" or contaminated site register, which is maintained by local environmental authorities.

This register lists known contaminated sites and provides information on the nature and extent of the contamination.

Keep in mind that, unlike the Grundbuch, the Altlastenkataster is not automatically checked as part of the standard property transaction process in Germany. Therefore, you need to actively request this information or ensure that your legal advisor does so.

If a property is listed in the Altlastenkataster, it's crucial to get expert advice on the potential risks and costs associated with the contamination.

Environmental assessments and soil tests may be necessary to fully understand the extent of the problem and the implications for property use and value.

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"Mietpreisbremse" or rent price control regulations

Another unique aspect in the German property market that foreign buyers should be aware of is the potential for "Mietpreisbremse" or rent price control regulations.

This is particularly important if you're considering purchasing a property as an investment to rent out.

In several cities and regions across Germany, rent control measures have been implemented to combat rising rental prices. Under the Mietpreisbremse regulations, there are limits on how much landlords can increase rent for existing and new tenancies. These limits are usually set based on the average local rent in the area, and significant penalties can apply for non-compliance.

If you're buying a property with the intention of renting it out, you need to be aware of the local rent control regulations in the area. These regulations can significantly impact the rental yield and the investment potential of the property.

It's crucial to research whether the Mietpreisbremse applies to the area where you're buying and understand the specific rules and limits.

Additionally, these regulations can change, so staying informed about any updates or modifications in the rent control policies is important.

Violating these regulations can result in fines and the requirement to refund excess rent to tenants.

"Teilungserklärung" or the declaration of division

An additional and somewhat unique aspect of buying property in Germany, especially for foreign buyers, is understanding the implications of "Teilungserklärung" or the declaration of division, particularly relevant when purchasing an apartment in a multi-unit building.

The Teilungserklärung is a legal document that outlines the division of a building into separate units, each of which can be owned individually.

This document is essential in defining the individual and common property within the building, as well as the rights and obligations of each apartment owner.

When you buy an apartment in Germany, it's important to review the Teilungserklärung carefully. This document details your ownership rights, specifying what parts of the property are exclusively yours and what parts are shared with other owners. It also outlines your share of the common property and your voting rights in the Wohnungseigentumsgemeinschaft (WEG), the community of owners.

A common pitfall for buyers is not fully understanding the implications of the Teilungserklärung.

This document can contain complex legal language and may outline specific rules and regulations about the use of your property and the common areas.

For example, it might restrict the type of renovations you can do or outline specific rules about using shared facilities like gardens, rooftops, or parking spaces.

Misunderstanding or overlooking the details in the Teilungserklärung can lead to disputes with other owners or the WEG, and can even result in legal challenges. It's crucial to have a clear understanding of this document before proceeding with the purchase.

Given the legal complexities, it's advisable to have the Teilungserklärung reviewed by a legal expert, preferably one who specializes in German property law. They can help you understand your rights and obligations, ensuring that you are fully informed about the specifics of the property you are considering purchasing.

This step is especially important for foreign buyers who may not be familiar with German legal terms and property laws.

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