Similar as in other places such as Tokyo for example, the property purchase price is not the only expense for the buyer but additional fees and various charges have to be taken into account, e.g. brokerage, purchase tax, VAT, legal fees, renovation costs, etc.
However, these expenses vary depending on the country and on the specifications of the deal itself. They vary in particular, when the purpose of use is investment versus own use.
In Germany, unlike Israel, only the buyer pays a broker fee while the seller is exempt from brokerage.
Following is a brief overview of expenses to be expected when purchasing real estate in Berlin. There are fixed costs such as purchase tax and notary fees, costs that are subject to negotiations such as broker fees, and costs for services at your choice, such as financing brokerage or technical inspection of the property by an engineering company.
Price of the property
Prices of properties in Germany vary from region to region and are affected by specific locations in different streets. Typically, funding options in Germany are favorable, up to 50% of the purchase price can be obtained as mortgage. German banks are willing to grant financing for the purchase of an apartment or investment property, provided that the asset has cash flow, meaning the property is leased. In cases where a foreign investor (e.g. from Israel) will acquire an empty apartment it will be more difficult to get funding from the bank, or alternatively he will be granted a lower amount at higher interest rates which reflects the higher risk the creditor is taking. It is important, though, to take into account that the German mortgage system is considered one of the most advanced in the world, interest rates on loans are low and range between 3.5%-4% only. Besides, based on the fact that almost 85% of Berliners live in rented apartments, properties rarely stay empty.
Real estate agent
German law does not regulate minimum or maximum commission rates. It solely depends on the real estate agent and the area where the property is located. The common brokerage comes up to 6% plus 19% VAT = 7.14%. However, when it comes to real estate deals of 5 million EUR and up fees can be negotiated and reduced to 3-4% or even less.
Once you find the adequate property for purchase, you have to contact a notary who is technically the central figure in all real estate transactions in Germany. The buyer will be charged 1.5-2% notary fees. In case the respective property is managed by a property management company, the notary has to obtain the consent for sale. For this document the notary may charge handling fees of 60 – 120 EUR, or handle it free of charge. The purchaser transfers all payments to a notary trust account, which will be opened by the notary for this specific deal only. The money will be kept in the account until the notary obtains all external approvals in order to file a priority notice in the register in favor of the buyer or registration of ownership in the buyer’s name. Managing the trust account is subject to an additional fee of 0.5% of the purchase price. Registration in the land registry requires additional fees of about 1% of the purchase price, which have to be paid separately.
The purchase tax which has to be paid to the German tax authorities is a substantial expense when purchasing real estate. It has to be paid about 45 days after reporting the deal to the tax authorities. To date, the purchase tax is 6% of the purchase price.
As noted, a great number of the real estate transactions in Germany are being conducted with funding from banking institutions. Processing the mortgage is handled by a mortgage broker, who charges for his services a fee of 1% of the purchase amount or alternatively 2% of the mortgage value plus 19% VAT.
Additional expenses when buying property
When applying for mortgage, similar to existing laws in Israel, the debtor must purchase a life insurance policy. Furthermore, when acquiring a building or commercial buildings, an expert has to be appointed to execute a thorough inspection of the building and a Due Diligence report. It is recommended to hire a professional company and include a general inspection of all systems, such as sanitary installations, plumbing, electricity, etc.