The German real estate market continues to be seen
as one of the most stable investment destinations
in Europe. It offers great opportunities for investors
who are seeking the security of a European economic
powerhouse together with a real estate market that has
both stable core assets and hidden gems for those who
have a higher risk profile. Interest rates have remained
low and cities such as Munich, Hamburg and Frankfurt
have strong local microeconomic climates that have
helped ensure stable and — despite declining in recent
years — still attractive yields for investors looking for
But Germany offers more than that. Highly educated
employees, comprehensive infrastructure, low inflation,
economic and political stability and the lack of restriction
on foreigners purchasing property make Germany an
attractive destination for real estate investors from all
over the world.
This article highlights the opportunities available for foreign
investors seeking to profit from the real estate market
in Germany and the legal requirements and procedures
that must be followed in order for them to do so.
No country-related restrictions
Full ownership is the most complete and comprehensive
right over real estate in Germany. Ownership of the
property includes ownership of all constituent parts
of the property (notwendige Bestandteile), including
all buildings located there and everything above and
beneath the surface of the land (unless the rights have
been granted to a third party). Ownership is registered
in the land register and that is proof of ownership
to everyone with a legitimate interest.
Unlike many other countries, Germany does
not generally impose limitations on foreign real
estate investments. There is also no difference
between ownership by a natural person and a legal
entity, simplifying investments from foreign states
Only a few restrictions affect certain purchasers
regardless of their nationality. Due to reasons of national
and governmental interest, acquisition of agricultural
property, property located in publicly announced land
reallocation areas or urban improvement areas and
transfer of property within the territory of the former
German Democratic Republic may be subject to the
requirement for a public permit authorizing the transfer.
In addition, the local authority or municipality may
have a legal right of pre-emption to acquire the land.
However, this right is usually waived.
In summary, there are no country-related restrictions
when purchasing property in Germany and the same
rules apply for every party interested in property
Acquisition of ownership
In Germany there are in principle two ways of acquiring
property. Either the property can be acquired directly
(asset deal) or the legal entity owning the property is
purchased, accompanied by a transfer of the ownership
(share deal). In order to be valid, agreements for the
transfer of property must generally be in the form
of a notarial deed. The deed must cover all relevant
aspects of the acquisition. Any kind of side letter or
agreement that amends the contents of the notarial
deed either orally or in writing may result in the
purchase agreement being invalid. Additionally, every
property in Germany is recorded in the land register.
To complete the transfer of ownership, the new owner
must be registered in the relevant land register.
The change of ownership is effective from the date
As mentioned above, a public permit may be required
prior to a transfer of property. The permit is usually
requested by the notary. The notary also applies for
the waiver of the local authority’s pre-emptive right
(also referred to above) and the tax clearance certificate.
The latter is issued by the tax authorities after the
payment of any real estate transfer tax (RETT) which
may be payable on the transfer.
Besides permits and notarial certification, foreign
investors assigning a legal representative to act in
Germany must bear in mind the legal provisions
regarding power of representation. The document
authorizing the representative must be in German
and foreign investors need a certificate evidencing
their corporate status (Existenzbescheinigung) and
representation (Vertretungsbescheinigung). These
documents must be notarially certified in the same
way as the purchasing contract in order to be valid.
In addition, if they are certified by a foreign notary,
an apostille has to be attached to the documents.
It is then common practice to authorize the notary who
notarized the transaction to make all necessary (public)
applications and declarations in order to effect the
transfer of the property. Notaries are entitled to be paid
pursuant to a legally binding fee order. The law prohibits
any agreement on lower notarial fees; however, fees are
capped at a transaction value of €60 million. Notaries
are regularly investigated to ensure that the fee order is
observed. The declaration of transfer of ownership itself
must be contained in a notarial deed issued by a public
German notary. Transaction costs for the transfer of
property to cover registration fees, notarization, etc. can
be estimated at 1.5 percent of the purchase price. RETT
currently varies between 3.5 percent to 6.5 percent,
depending on the German Federal State. This excludes
costs for due diligence and the involvement of lawyers
and technical experts. There are ways to avoid RETT;
however, tax reforms are currently being enacted in
order to reduce the available tax prevention schemes.
It is clear that the German real estate market is an
investment-friendly stronghold located in the heart
of Europe. Foreign investors are not faced with any
particular restrictions but instead enjoy equal rights
and obligations when it comes to acquiring property.
Due to the growth in the number of city dwellers,
increasing rent levels and a secure and attractive
environment, real estate owners can profit and grow
accordingly. In short, the German real estate market is
a place for every serious investor to take an active part.
What are you waiting for?