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How to Buy Property in Berlin’s Housing Market

How to Buy Berlin Real Estate

Berlin is hot. Buyer’s however need to understand the nuances of acquiring houses, apartments and multifamily properties here.  Real estate in Germany is not the same as it is in the US, Canada, or the UK. 

It’s wise to understand the peculiar rules, regulations and practices of the Berlin housing market before you move here or buy a home or multifamily property in this part of Germany unseen.

In this post, a Berlin real estate agent and property manager, gives a rare insider view of Berlin’s neighborhoods and how property is transacted here. Enjoy this unique journey into the Berlin real estate market.

Berlin’s Real Estate Market Is Different

Before moving to Germany, my career in real estate had been firmly rooted in the highly professional, mostly unemotional, and definitely very business-like world of investment and finance. 

I was definitely ready for a change when I moved to Berlin and decided to specialize in residential condominium sales.  I can say after 3 short years, that selling upscale apartments in one of Europe’s most dynamic and developing cities has been an incredible journey for me and for many of my clients. 

Buying residential real estate is a much more emotional process and one that is primarily driven by a variety of personal wants and needs.  Consequently, helping buyers successfully purchase an apartment in a fast-paced market like Berlin is infinitely more satisfying work than what I used to do. 

Closing a sale can be especially rewarding in the city famously referred to as ‘poor but sexy’ because it presents some very unique challenges that buyers have to face.

Dealing with Berlin’s Complex Real Estate Laws

As in other cities, buying a flat in Berlin is an emotional process.  Buyers are torn between everything that they want to have and the realities of having to accept compromises. 

Playing property advisor to help some clients figure things out and prioritise their needs is just part of the territory.  And for expats and first-time buyers in Berlin, the process itself and the laws are often completely foreign, adding another challenge to the mix.

But as anyone who has watched an episode of House Hunter International knows, there is indeed success at the end of the journey.  You just need to understand how to navigate the market and come armed with a good strategy. 

Germany Does Not Use an MLS

First, I can understand and deal with some of the unique challenges you’ll be facing.  For example, unlike the US and many other countries, Germany does not have a Multiple Listing Service (MLS), so be prepared to do much more work on your own. There is generally no sharing of real estate commission between brokers. 

Real estate agents are generally only allowed to show buyers their own listings.  Engaging an agent to exclusively represent you as a buyer, to search the entire market for you, and to show you all the properties that fit your criteria is practically non-existent in Germany. 

Buyers should expect to search and contact each listing individually and to speak with multiple agents and real estate firms to get information and viewings.  You’ll be spending significant time explaining your needs so each agent can focus on the flats in their inventory that might make sense for you.

A Fast Growing Market and Growing Population

Also, know that Berlin is an incredibly dynamic and rapidly evolving market. On average between 40-50,000 people have been moving to Berlin every year for the past several years – with no end in sight.  People already living here and many who have come and fallen in love with Berlin are attracted by its cultural and creative diversity, the expanding economy and the overall excitement and freedom of living here. These buyers want to put down roots and make Berlin their permanent home. 

Similarly, international real estate investors appreciate that Berlin is still a bargain compared to Paris, London, New York, and still less expensive than much smaller German cities as well. As a result, real estate demand has soared, but supply has not quite kept up. 

Attractive flats in coveted neighborhoods like Mitte, Prenzlauerberg and Kreuzberg are snatched up quickly (sometimes within hours), which can sometimes leave buyers frustrated by their lack of progress.

What Buyers Need to Succeed in Berlin’s Market

Despite the challenges and local nuances, buying a flat in Berlin is a life-changing milestone for those who can find success.  In my experience, these buyers have all embraced the following when pursuing their dream of owning in Berlin:

1.   Successful Buyers are Committed – The current residential market in Berlin sometimes reminds me of the US market in the early 2000’s. People were spending entire weekends searching for homes and attending open houses.  People were obsessed with buying a home and achieving an essential component of the ‘American Dream’. Berlin has a similar feeling today. People talk about ‘getting on the property ladder’.  They are tired of paying rent, or they are motivated by the fear that if they don’t buy soon, they will never be able to buy in the future.

Now add to this overall sense of urgency, the fact that there is not a lot of supply on the market.  New construction projects are already sold-out by the time they are completed and not many people are selling while prices are rising.   Reasonably priced properties in good locations that do hit the market often sell within a matter of only a few days. 

Having the intention and inspiration to buy a flat in Berlin is a wonderful start, but buyers need to know that the process is extremely competitive and can be pretty stressful.  To succeed under these circumstances takes a strong level of personal commitment and investment of time.

You’ll need to commit time to understand the neighborhoods you want to live in, and also those you might not know very much about. Not everyone can afford the top-tier pricing of Mitte, Prenzlauerberg or Charlottenburg, but areas like Moabit, Wedding and Weissensee are quickly gentrifying and seen as the new up-and-coming places. 

Berlin is a big city with over 3.6 million inhabitants, and a land area slightly larger than all of New York City.  There are hundreds of micro neighborhoods (Kiez’s) throughout Berlin’s larger districts, so you are bound to find a place that has what you are looking for and is more affordable if the pricier areas are out of reach.

The easiest place to start are the big portals like Immobilienscout24.de, Immowelt.de and also  Ebay-kleinanzeigen.de, but also talk to people you know and friends who have bought or are also in the market. Lastly, visit these places by bike and on foot.  Nothing I know of can replace the in-person feel and vibe of a place, so make a commitment to visit and explore the neighborhoods that sound promising. 

Real estate is a major investment at any level, so there are no real shortcuts to educating yourself and committing yourself to the process.

2.   Successful Buyers know the Transactions Costs – Imagine that you’ve done the research and you receive an E-mail alert with a flat that is exactly the right size and layout and in a neighborhood you really love.  Imagine that you tour the flat and want to reserve it on-the-spot. 

I can tell you from experience that this would not be the time to ask about basic transaction costs.  In Germany, the brokerage commission (Provision) can be as high as 7.14% which the buyer pays.  There is also a 6% real estate transfer tax (RETT or Grunderwerbsteuer), also buyer paid.  Expect Notary fees (closing fees) from 1-2% and another 1% for an attorney if you need one.  In Berlin your transaction costs can range from 8-15% of the purchase price, and these costs are often not covered by any mortgage loan. 

Uninformed buyers often realize pretty late in the game that they cannot actually afford the flat they thought they could because they hadn’t anticipated the transaction costs. Successful buyers have an understanding of the general transaction costs and know how much home they can realistically afford, before they start shopping.

3.    Successful Buyers have researched their Financing – Cash buyers and the 1%-ers have a distinct advantage when it comes to financing, but the rest of us would typically rely upon a mortgage loan to make a purchase.  The great news is that money is rather cheap in Germany, with interest rates under 2% for many mortgage loans. The not-so-good news is that every bank is a little different in Germany, so you’ll need to shop around to get the best rate and terms.

Your best bet is to inquire with a mortgage broker who can look at multiple lenders to find you the right financing sources and loan options.  There are now several online mortgage brokers in Germany, and most firms have the ability to support non-German speakers and international investors.  Online mortgage sources like Interhyp.de, Loanlink.de, and Hypofriend.de have made the mortgage process in Germany much easier and understandable than in the past, so these are good places to start.

Keep in mind that most lenders will usually require quite a bit of information before making any binding loan approval.  And pre-approval letters are generally not a standard practice. The important thing is to work with a broker to develop a relatively clear understanding about the amount your loan is likely to be.  Armed with this information, you can then build a realistic budget for your purchase. 

This all sounds like basic due diligence, but I am constantly surprised by how many people start shopping for an apartment without this fundamental knowledge.  If you aren’t quite sure about how much you can really borrow, this is where you need to start so that you can be productive in your real estate search.

4.    Successful Buyers can (and do) Act Decisively –  It’s truly an exciting time to buy in the German Capital, but the market doesn’t wait around for those who linger when making a decision.  Successful buyers not only have the ability to act decisively (because they’ve already done their homework), but they are determined to make decisions relatively quickly. If a property seems right – they act. 

These buyers understand that there are almost always some compromises that need to be accepted, and they are also better prepared to make these calls.  They’re simply more prepared and have invested in understanding the realities of the market.

I once sold an apartment to an investor from Hong Kong who was able to decide within 24 hours on a significant apartment, sight-unseen, in a large Charlottenburg project.  To this day, I believe he purchased the best unit for the price in the entire development…not because he was lucky, but because he was truly informed and understood the marketplace.

And although some buyers complain that there just isn’t anything on the market that fits their needs, this is only partially true. There are always new opportunities that come on the market in Berlin, but buyers who are motivated and can act quickly end up purchasing these listings first. Good opportunities don’t sit on the market for very long. 

This can be especially true for vintage apartments (Altbau), where the supply is very limited and the competition higher.  New construction projects (Neubau) most often have less competition because they usually take a few years before they are ready for occupancy. 

But you still need to keep in mind that the best choice of units, at the most attractive prices, always occurs at the beginning of the sales phase. By the time a new project is delivering, only the most expensive penthouses are left (if at all), and market prices have increased significantly, often by more than 1,000 Euro per square meter!

It’s Time to Act on a Great Opportunity

Setting out to buy an apartment in Berlin is an inspiring decision to live in Europe’s most dynamic, creative, and expanding capital city.  It’s an investment all my clients wish they had achieved earlier, having seen the tremendous progress taking place. 

While buying here can be a uniquely challenging task (especially for foreigners and non-German speakers), it is not hard to be successful if you are prepared and have qualified professionals to help guide you. 

Buyers who commit themselves to understanding the market, the inherent costs and their financing ability, and who can act decisively, are in the best position to successfully purchase a place to call their Berlin home.

Now that you know the lay of the land here in Berlin, I’d be happy to help in your journey to ownership. My experience in buying condos and multifamily units will be invaluable so you avoid the perils and extra costs.

 

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