German Property Newsletter
Understanding the German Rental Market
March 2007
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In this issue you will find:
-- 1) Germany, Motor for Euro Zone’s Growth?
-- 2) Understanding the German Rental Market
-- 3) New Residential and Commercial Opportunities
-- 4) Tell Us What You Think!
Welcome to the March edition of our German Property Newsletter. Spring has arrived… and with it sunshine and warm days. And, though little to do with the season, the sun has also been shining on Germany: the good news keep coming on both the economic and property front. Confidence in Germany is increasing by the day.
The strength of the German rental market coupled with comparatively high yields and extremely low prices make German – and in particular Berlin - property an attractive investment proposition.
However, foreign investors need to understand the particularities of the market, including the regulations that apply to rental property. After all, only an informed decision is a good decision.
Therefore, in this month’s issue we are going to explain some of the ins and outs of German tenancies and rent related rules and regulations. And of course we will be giving you a round up of economic and property market news.
And, in case you have missed our recent newsletter issues, they are available for you here:
Berlin property, German property -

1) Germany, Motor for Euro Zone’s Growth?
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Economic success

We start this month’s economic round up with a quote from the German Chancellor Angela Merkel: “Germany’s economy has regained its strength and the country is again the motor for growth in the Euro zone.”
But of course we all know how reliable politicians’ statements are so let’s look at this month’s news.
Unemployment has over the last fifteen years been a hot topic in Germany. It peaked at upwards of 14% to 15% at one point. Following the strongly positive trend of 2006, during the course of March we had excellent news from the German government on the current unemployment figures. A further fall of 79,000 (almost double the predicted) has brought ILO unemployment rate (seasonally adjusted) to 7.4% and overall unemployment to 9.3%. This is the lowest rate over the past five years.
Also in March the International Monetary Fund (IMF) made a forecast for “robust, sustained growth in Germany”. This has been attributed to a range of economic reforms making Germany more competitive and attractive to investments again. And, the Institute for the World Economy predicts a strong 2.8% GDP growth for Germany this year!
Excellent news for investors, as a strong economic base for the property market is certainly not going to hurt your capital growth prospects and rental yields.
So what has been going on in the property market?
Well, we have seen no slowing of the tide of investment into the German property market. Deals of note this month:
Gagfah announces planning to invest 1.4 billion euros annually to acquire a stream of residential properties in Germany. That’s approximately 25,000 apartments per year! (Gagfah is owned by US giant Fortress Investments Group.)
Premier Asset Management also announced an acquisition spree, planning to align a quarter of their entire fund into the German market.
Aviva, Morley Fund Management, Round Hill Capital and Deutsche Bank agreed to buy 31,000 residential units between them this month, totaling $2.1 billion.
Resolution Property (London) added a whole host of new properties to their 500 million euro portfolio this month, including a business park, several retail stores and hypermarkets in Germany.
And finally, Multiplex Group also announced this month that they are launching a new European property fund which will include $600 million of German property assets.
So it’s been a busy month for institutional investors and the flow of capital is showing no sign of slowing its acceleration let alone actually slowing down! This has been matched by the build up of pioneering private investors from the UK, Ireland and many other European nations (including Germany).
If you are already amongst them, congratulations. The evidence is stacking up that you have made the right decision. If you haven’t yet made a move then fear not for there are still excellent quality opportunities to be had.
For details for our current property deals please go to Berlin property, German property, Slovakia Property - or alternatively email us at info@alphare.net detailing your requirements.


2) Understanding the German Rental Market
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Given the strong rental culture in Germany, and more so Berlin,tenants tend to live in a property for many years – 10 and more is not uncommon. It is therefore understandable German tenants typically consider their rental apartment their home, and treat it as such. Properties are rented bare – tenants provide their own furniture and even kitchen (and take it with them upon vacating the property). The only furnished rentals are generally for short term lets (1-12 months).
By standard rental contracts tenants must hand over the property in the same condition they received it (set rules apply to how often tenants have to repaint walls, update bathrooms, etc). In most cases, therefore, the landlord does not face any major costs or burdens before re-letting the property.
Rental contracts
Most rental contracts in Germany run over indefinite periods (with the exception of short term rentals). The landlord can only evict a tenant upon significant breach of contract (mainly non payment of rent or running costs, disturbance or breaches of house rules, anti-social behavior, unauthorized use or subletting, damaging property, etc). Similarly to the UK, a court order has to be obtained before an eviction can take place.
Landlords generally hold a three months deposit (although 1-2 months are accepted in some cases, depending on negotiation).
As a property owner you can also force tenants to leave if you are going to live in the property yourself (or closest family). You would have to prove you had done so for at least one year or else you will face very severe penalties. Do bear in mind if you are planning to live in your German property you would still need to serve notice on the tenant before you could move in.
Per standard rental agreement tenants have to give landlords three months notice if they are to leave the property. Within this time period it is not uncommon for tenants to source a replacement tenant. They don’t do this out of love for their landlord!
They often wish to leave before the three months notice period and by delivering another tenant they avoid making additional rent payments. It is also unlikely their fixtures and fittings (carpets, kitchens etc) will fit in their new apartment or house, so they will usually look to do a deal with the new tenant. This of course is great news for you the landlord as you get a continuous tenancy without needing to pay any rental agent’s fees (generally equivalent of two months rent).
Rent controls and Mietspiegel
Rents and rent increases are tightly controlled in Germany. Every municipality sets the maximum levels of rent (in euro/m2/month). Investors generally need to ensure they do not set rents above these values. The rental levels are set in the so called ‘Mietspiegel’, which translates as ‘rental mirror’. (Apartments let on short-term contracts are typically excluded from these provisions.)
The Mietspiegel takes the area and the standard of the property into account. If the top Mietspiegel value (for the particular area and property standard) is exceeded the landlord can face severe penalties in addition to being forced to return all excess rents to the tenant.
In some cases tenanted property offered for sale has rents set above the Mietspiegel values (to achieve a higher selling price). What may initially seem an advantage of high rental yield can later turn into a serious problem for the new owner, causing a loss of revenue and possible legal repercussions. If in doubt contact us here at Alpha Real Estate Investments and we’ll be happy to help you check the Mietspiegel in question.
There are also legal restrictions on rent increases. It is legally possible to increase rents up to 20% over each three year period. Rents can only be increased once every 15 months. Additional rent increases are permitted (under set rules) following a modernization of a property. The Mietspiegel values are still applicable however and should not be exceeded.
Even though rent increases are controlled, most properties currently offer a sufficient cushion to allow for a rent hike (and consequently increasing yield). You just need to keep the framework in mind and know what you can and cannot do.
Running costs
Good news for investors now! In Germany tenants are liable to pay utilities as well as almost all other running- and associated costs (including insurance, property tax, etc). In most cases investors only have to pay the fees for house management and property (rental) management. This can range anywhere from 20 to 40 euros/unit/month each. Owners also make payments into the building reserve fund (sink fund) to cover future repairs of the building.
All property in Germany is freehold so owners (by a majority vote) have the power to replace unsatisfactory house management. Because of this most companies offer a good standard service without the extortionate service charges you can fall foul of here in the UK.
3) New Residential and Commercial Opportunities
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As usual, we have a number of unique residential and commercial property opportunities for you in Berlin as well as other German cities.
Whether you are interested in single apartments or blocks, or large commercial investments, there is something for all budgets.

We will shortly be releasing a new buy-to-let opportunity - apartments in an excellent renovated building in the desirable Berlin area of Prenzlauer Berg, all let at a solid 5% yield and available at rock-bottom prices.
Among new commercial property and portfolio deals are a shopping centre in north Berlin producing an outstanding 9% net yield; a residential complex with over 2,000 units in the fastest growing area of Berlin, available at 90 million euros and netting a nearly 7% yield; and others.
Please see Berlin property, German property - for further details or email us at info@alphare.net detailing your requirements. We will be happy to provide you with all the information you need to break into the exciting and lucrative German market.


4) Tell Us What You Think!
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We would love to hear what you think of this issue of our newsletter. We hope you find the information useful and wish you best success in your investment activities. And of course, if you have any suggestions for upcoming issues that you'd like to share with us, please send them!
Just e-mail us at:
info@alphare.net
We are looking forward to seeing you next month. In the meantime, if you have any questions or would like to request further information, please email or call us at our offices.

Best wishes,
Your team at Alpha Real Estate Investments
Berlin property, German property, Slovakia Property -
81 Oxford Street
London W1D 2EU
Tel: + 44 (0) 207 851 3570
Fax: + 44 (0) 207 851 3571

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Bob Sheth - Administrator @ TotallyProperty.com
You can contact me by using the Contact Us link at the bottom of the page. Or email me on administrator [at] totallyproperty.com.