Buying Property in Germany as a Non-resident - Ultimate Guide (2024)

Last Updated on May 31, 2023 by Kristina Valcheva

Buying property in Germany as a non-resident can be a smart investment opportunity, but it’s important to understand the tax implications and potential challenges that come with owning real estate abroad.

Unlike other countries in the European Union, there are no restrictions for foreigners to buy real estate there. This is a safe investment, and you can benefit from rising house prices.

This guide explains what you need to know about buying property in Germany as a foreigner.

What are the benefits of buying property in Germany?

Compared to other European countries, property prices in Germany are more competitive than in the UK, Spain, or Greece for example.

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.

For this reason, buying property in Germany is attractive for investors who want to live off rental profit or supplement their retirement income.

Here are some of the main benefits of buying property in Germany:

• a very stable rental market
• better prices compared to the rest of the European cities
• stable political environment
• a strong economy with solid household income in the heart of Europe
• fixed interest rates and tax advantages

For a few years, the European Central Bank’s interest rate has been relatively low. Therefore, the bank may provide you with a mortgage with an interest rate as low as 2 -3%.

That’s why investing in real estate is preferable to keeping your savings in a bank where you receive virtually no interest.

Read also:

Property Tax in Germany – How much property tax do I have to pay on my German rental income?

Can foreigners 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, it’s possible that you will 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.

How much does a property cost in Germany?

The cost of buying a property in Germany is influenced by the location, condition, and size of the real estate.

The average house price in Germany in 2022 is around €340,000. People spend approximately €354,000 on average when buying a property in Germany.

Reuters has reported that the average residential property values in Germany, which is considered the largest economy in Europe, are expected to decrease by 5.8% this year (2023) followed by a 2.5% drop next year.

This forecast is worse than what was predicted three months ago when the expected declines were 3.5% and 0.5% respectively. Saxony has the lowest cost, while Munich has the highest.

According to other analysts, the property market in Germany is expected to remain steady in 2023. The sustained interest in purchasing property, particularly in key urban areas, and the reasonable interest rates set by the European Central Bank are factors contributing to this stability.

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 – 3-6% of the purchase price, and the notary’s fee – 1.5-2% of the purchase price.

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.

What documents are required for non-residents who want to buy property in Germany?

You will need to provide these documents translated in German:

• proof of equity
• proof of employment
• 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?

Some of the German banks in Germany that offer mortgages are:

– DKB
– Postbank
-Deutsche bank
-Commerzbank
–Hypovereinsbank
-Santander

Who can get a mortgage in Germany?

There are no limits for foreigners to buy property in Germany. Here are some of the basic requirements:

• you are working in Germany
• the business or the company pays taxes in Germany
• your salary is in euros
• you have a residence permit that allows you to work
• with your own equity (up to 15% of the purchase price), you can pay the closing charges

You may need to fulfill any additional requirements depending on your personal circ*mstances. Lenders often require that your mortgage repayments won’t be more than 35% of your monthly income, and some banks will demand that you earn a minimum amount every year in order to qualify for a mortgage (for example, €20,000).

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.

Here are some of the requirements you will have to meet:

• You are employed in Germany for at least three months
• Your monthly salary is between €1500 and €2000

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 personal circ*mstances. 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 own 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.

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.

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.

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).

Is there a property tax in Germany?

Real Property Tax also known as (Grundsteuer) is an annual local property tax for all property owners in Germany. It is calculated by multiplying the assessed value of the real estate with the local tax rate and it’s between 0.26% and 1%.

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.

A number of 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 an annual income tax return and pay taxes on the rental income.

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 and 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.

Progressive income tax rates in Germanyapply to the rental income. However, keep in mind that non-residents are taxed differently than German residents. 10, 347 (the threshold for German residents) is added to their profit to calculate the taxable base.:

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 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 income tax return?

As a non-resident buying 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 German 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 consultants can help you file your annual income tax return in Germany.

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 personal circ*mstances.