In today's uncertain global economic landscape, investors are seeking stable and lucrative opportunities to safeguard their wealth. One such avenue that has consistently proven its resilience is investing in German property. With key strengths such as a strong economy and favourable mortgage options, Germany emerges as an attractive destination for anyone looking to build their portfolio. In this blog post, we will explore the key advantages that make German property investments stand out in the realm of wealth management.
1. Strong Economy
Germany's robust economy serves as the cornerstone for the country's real estate market. Amidst numerous crises, the German economy has consistently demonstrated remarkable resilience against external shocks. As the world's third-largest exporter, Germany is projected to achieve a staggering economy of EUR 5.34 trillion by the year 2035. This substantial economic strength, coupled with its status as the largest economy in Europe, solidifies Germany's reputation as a secure destination for international capital. The nation's economic stability is bolstered by its diverse industrial sectors, including automotive, machinery, and chemical manufacturing.
Furthermore, Germany's unemployment rate has consistently been below the Eurozone average, which is a testament to its resilient labour market. Low unemployment rates are directly correlated with a stable real estate market, as employed individuals are more likely to purchase properties and fulfil mortgage obligations.
2. Strong and Resilient Housing Market in 2023
The market value of the German housing stock is forecast to reach EUR14.5 trillion by 2035, with house prices increasing by an average of 40% over the period. Consumer spending on housing rent is also expected to follow a similar trajectory, growing by an average of 44% between 2021 and 2035.
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3. Increasing Rent Prices in 8 Major Regions
According to recent JLL research, Berlin stands out as an impressive example of rental price performance. The city’s advertised rents have surged by an impressive 16.7 percent compared to the previous year. In the eight major regions encompassing Berlin, Düsseldorf, Frankfurt, Hamburg, Cologne, Leipzig, Munich, and Stutgart, the median asking rents have witnessed a substantial rise of 6.7% during the first half of 2023 when compared to the previous year. The city of Leipzig also experienced notable rental growth, with rents rising by double digits at 11.1%.
4. High Demand for Housing
Over the past decade, Germany has witnessed a significant influx of over 4.5 million newcomers, placing immense pressure on the construction sector to meet the rising demand for housing. As a result, persistent imbalances between supply and demand have resulted in a staggering housing deficit of 1 million units by the year 2020. Notably, Berlin has emerged as a prominent contender in PwC's Emerging Trends in Real Estate: Europe 2022 report, ranking second in terms of overall real estate prospects. Additionally, cities like Frankfurt, Hamburg, and Munich have also secured positions in the top 10. Germany's real estate markets have reaped the benefits of the nation's economic strength and effective handling of the pandemic, leading to an impressive year-on-year average price increase of over 14% as of April 2022.
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5. Pre-approved Mortgages
Investing in German property is further facilitated by the availability of pre-approved, 5- or 10-year fixed rate mortgages at 4%. The German financial system prioritises prudent lending practices, which requires potential borrowers to undergo rigorous credit assessments. While this might seem inconvenient, it ultimately ensures that property buyers are financially capable of sustaining their mortgage payments, reducing the risk of defaults and foreclosures.
The pre-approved mortgage system encourages responsible lending and empowers investors with the confidence to make informed decisions. As a result, the likelihood of a property bubble or sudden market crash is substantially mitigated, providing a secure environment for long-term investments.
6. Protected Stage Payments for Off-plan Investing
Off-plan investing refers to the purchase of property before its construction is completed. While this strategy carries inherent risks, Germany has implemented measures to safeguard investors' interests. The country's regulated system of stage payments ensures that funds are released incrementally and only when specific construction milestones are met.
By implementing such protective measures, investors are shielded from potential financial pitialls, such as developer insolvency or project delays. This transparent and structured approach enhances investor confidence and encourages participation in the off-plan market, where potential returns can be especially rewarding.
7. Zero Capital Gains Tax after 10-year Hold
One of the most alluring aspects of investing in German property is the prospect of zero capital gains tax after a 10-year holding period. This favourable tax treatment is a powerful incentive for long-term investors seeking to maximise their returns.
In Germany, if an investor holds a property for more than 10 years, any capital gains realised upon selling the property are exempt from taxation. This tax policy encourages a patient and
strategic approach to property investment, aligning the interests of investors with the government's goal of promoting stable, sustained economic growth.
Conclusion
Investing in German property presents a compelling opportunity for investors seeking a stable and profitable venture. The country's strong economy provides a solid foundation, while pre-approved mortgages and protected stage payments for off-plan investing offer security and transparency.
As with any investment, thorough research and professional guidance are essential to capitalise on the benefits of German property investment fully. By leveraging the unique advantages provided by Germany's real estate market, investors can pave the way to prosperous financial growth while navigating the ever-changing landscape of global economics. If you are thinking of investing in German property and would like some professional advice, reach out to one of our experienced Wealth Managers here.
