Germany is a highly industrialised country extremely popular for its achievement in the technology sector. Despite the number of industrial projects in the country, Germany still has vast areas covered in woodlands and forests. Germany also boasts of top-notch education standards. In fact, about 81% of the German population has a recognisable qualification that exceeds the OECD average of 67%. Its investor-friendly social market promotes profitable property investments in Germany.
The Economic Status of Germany
The economy of Germany is the largest in Europe and the fourth-largest in the world. The main driver of the country is its industrial sector, mainly the export industry. The country’s trade surplus often competes with China. Germany also serves as the home to dozens of publicly traded companies.
Foreign investors can benefit from the country’s government integrity. In the 2019 Economic Index Freedom, Germany ranked as the 24th freest in the world, with an overall score of 73.5. Among the European countries, it ranked 14th with an overall score that is way above the regional and world averages. Analysts noted that the country’s business freedom remains as an attractive economic driver of long-term competitiveness and entrepreneurial growth.
This year, the economy of Germany is forecasted to produce $4.2 trillion based on its nominal GDP. This marks the country’s 12th year as a flourishing country thanks to fiscal policies that led to low unemployment rates and robust economic growth.
For three consecutive years, Germany’s GDP growth rate continued to increase. From 2017, it posted 2.4% more than its 2016 figures. Economic growth would continue to rise moderately before slightly speeding up next year due to rebounding exports. The moderate growth can be due to global trade tensions and impending Brexit. However, the country’s resilient domestic demand, together with an active labour market and lax credit conditions, should be enough to support economic growth. Based on the FocusEconomics Consensus Forecast, Germany’s economy will grow by 0.6% in 2019 and 0.9% in 2020.
The country significantly benefits from its adoption of the euro. Similar to most eurozone members, using the euro as a primary form of currency equates to lower interest rates, which stimulates more investments.
Another factor that attracts investors into putting their money in Germany is the presence of government transparency. Transparency International’s 2018 Corruption Index ranked Germany as the 11th least corrupt country, with a score of 80/100.
Liveability in Germany
It is no wonder why foreign investors are not afraid to put their money in Germany. Aside from a healthy economic climate, the country also has liveable cities that make property investments in Germany worthwhile. Based on the latest survey of The Economist Intelligence Unit’s Global Liveability Index, Hamburg, Berlin, Frankfurt, Munich, and Düsseldorf made it to their top 30. Frankfurt took the 12th spot. With a livability score of 96. In fact, none of the cities received a score of less than 93, which shows that Germany is indeed one of the best places to live.
Compared with other European countries, Germany is a relatively affordable country to live in. The cost of housing, food, clothing, and entertainment are slightly higher than the EU average, but the enormous pay packages offset it. Most students spend a large part of their budget on rental fees.
Property Investments in Germany
Foreign investors are free to buy property in Germany without many restrictions. Foreigners can buy a house even if they do not have a German residence permit. They have to make sure that the property they are buying is suitable for a long-term investment to counter the high commission rates of real estate agents. In Germany, houses are commonly sold through agents. It is always best practice to look for private sales to avoid commissions.
Property Market Trends in Germany
Property investments in Germany continue to have strong yields as the market retains house price increases. After four years of stable housing prices, Germany’s real estate market is posting significant growth. The reason for this is attributable to the country’s economic growth, low unemployment rates, low interest rates, and high levels of work-related immigration. During the year to May 2019, apartment prices increased by 10.22%, rising by 4.8% year-on-year rises, which marked the strongest growth in six years. The country’s low interest rates and bond yields promoted consistent demand.
CHG Recommendation: Invest in Student Housing
Property investments in Germany are highly profitable, but you have to choose wisely on what investments you would like to make. It is best to purchase a rental unit. Don’t go buying a big property as they have lower yields compared with smaller properties. Look for a studio apartment located in a central location, near cafes and local amenities. The growing number of students seeking to have German education is driving the prices of rental properties up. The best areas to invest in include Frankfurt, Munich, and Cologne. It is best to stay away from Berlin. While the city is famous among foreign buyers, it lacks fundamental underpinning. Berlin does not have a shortage of apartments, unlike in Frankfurt, where the demand is high, and the supply is low.
Expats are also ill-advised to rent to someone on a long-term basis. While it is good to have a long-term and secure source of income, renting to someone on a long-term basis has too expensive upfront costs. If you look for students renters, it would be best because they will eventually move on after they graduate and turn over the unit to someone they know through recommendation.