Pros and cons of investing in real estate in Austria and Germany. Specifics of the real estate market for investors, visas and residence permits.
Austria and Germany are of particular interest among investors from all over the world who want to invest in real estate in order to generate income.
The countries not only border each other but also have a lot in common, including a high standard of living and the stability of the political and economic situation, guaranteeing the security of investments and a good payback. At the same time, Austria and Germany have a number of differences in terms of conditions for investors. We have prepared an article in which we will analyze these factors and find out which sectors of the real estate market in the two countries are the most profitable to invest money in order to maximize profits.
In 2020, global GDP decreased by 5.2% due to the COVID-19 pandemic. At the same time, Germany and Austria were among the few countries that were able to get through this difficult period with minimal losses. Both countries demonstrate high socio-economic indicators and are of great interest for long-term investment.
In Austria, there are several restrictions on the purchase of local real estate by foreigners; these apply both to citizens of non-EU countries and to legal entities with foreign capital.
According to the Law on Real Estate Transactions (Grundverkehrsgesetz), expats can purchase residential and commercial properties only if the following conditions are met:
Austria consists of 9 federal states, and each has its own peculiarities of working with foreigners:
At first glance, the procedure for purchasing housing in Austria seems quite complicated, however in practice, all legal and procedural issues are resolved through the involvement of a qualified intermediary. This can be a broker, a lawyer, or a real estate agency. The intermediary undertakes the tasks to submit petitions, draw up a purchase/sale agreement, as well as accompany the buyer during the transfer of ownership.
On average, the associated costs for the purchase of real estate in Austria range from 8.6% to 10.6%. If it is necessary to obtain a municipal permit, you will need to pay up to EUR 1,100 (USD 1,239) for it.
In addition, when selling real estate, an expat will need to pay capital gains tax (the difference between the proceeds from the sale and the purchase price) to the amount of 30%. The seller is exempt from paying this tax if the owner has been registered without a break for 2 years since the purchase of the property.
There are no restrictions on the purchase of real estate for foreigners in the country. Expats in Germany can buy any type of property, including land, residential or commercial properties. But as in Austria, you can not do it without the help of a realtor or real estate agent as an intermediary for the purchase of housing.
The use of mortgage lending is widespread in Germany. Therefore, banks in the country are willing to provide loans to foreigners for the purchase of real estate. The bank is able to finance 40–70% of the cost at 1.5–2.0% per annum for up to 15–20 years, depending on the selected lender and the financial condition of the borrower.
There is rental income tax in Germany. For individuals, this is calculated at a progressive rate from 14.77% to 47.48%, and for legal entities – 15.83%. If the property purchase is for subsequent rental, buying through the creation of a legal entity may be more profitable.The following taxes and fees must be paid to the investor in the process of purchasing real estate in Germany:
The average amount of related expenses for the purchase of a real estate in Germany is 10.12%–18.59%. When purchasing property through a legal entity, opening a company will cost the investor EUR 2,500 (USD 2,818) and the cost of maintenance will cost from EUR 500 (USD 563) per month. Buyers who take out a mortgage will additionally be required to pay for the drafting of a mortgage agreement (1% of the loan amount) and an independent assessment of the property (EUR 1,000–2,000).
Austria is one of the most highly developed countries and leaders in terms of living standards in Europe and around the world. The state has both a stable economy and political environment. Crystal clear lakes and mountains, as well as world-famous ski resorts are located here.
In the first quarter of 2021, the real estate price index in Austria increased by 12.34% compared with an increase of 3.4% over the same period last year. The cost of housing in Vienna increased by 10.94% and this was the most significant increase in value over the past 8 years.
A slight slowdown in housing construction was observed in 2020. During this period, the total number of residential buildings approved for construction also decreased by 4%, according to Statistics Austria. In 2021, the situation changed as local developers began to actively construct new projects in key regions of the country, which made it possible to expand the housing stock of Austria by 7.5%.
High demand for ski properties, namely cottages and chalets, remains in the Austrian Alps, according to the marketing company Lindforth.
Throughout the coronavirus pandemic, the level of ski real estate transactions has remained stable, as stated by real estate consultant Maisie Delaney Baird. Properties with gardens and terraces were also popular. In conditions of forced self-isolation, many buyers began to prefer residential properties with extensive open space and picturesque views, rather than apartments in large cities. The very structure of demand has changed due to the pandemic.
Germany, like Austria, are among the leaders of the EU. The country's GDP declined by only 5% even after the onset of the COVID-19 pandemic. The unemployment rate here is traditionally at a low level, so the population of the country is solvent and ready to rent housing at high prices. Only 51% of Germans own their own real estate, as a result of which the demand for local real estate is very high. In most cases, wealthy foreigners acquire property here. For example, about 45% of all transactions over the past year were with expats.
According to Europace data, over the past year, the hedonistic price index for German real estate has increased by 11.12% and the cost of local housing increased by 3.23% only during the first quarter of 2021. When considering changes in the value of real estate depending on its type, the following trends can be traced:
There is a shortage of supply in the residential real estate market in Germany, especially in large cities. Taking into account the population growth and the influx of migrants into the country, there is a shortage of residential property both for sale and for rent in developed cities as well.
The supply crisis is also largely associated with a decrease in the number of completed projects being put into operation. Less and less real estate has been built in the country since the 1990’s: in the period from 1992–1999, 476,000 construction permits were issued, and from 2001–2005 their numbers decreased further to 222,000. This is also due to the increase in VAT from 3% to 19% and the abolition of state subsidies. These measures have made the process of housing construction more costly, and consequently less profitable for developers.
The sharp influx of migrants is another reason for the shortage of real estate. Germany ranks 5th among the countries that have accepted foreign refugees on their territory (about 1.1 million people), according to the Office of the United Nations High Commissioner for Refugees. The real estate market in Germany physically does not keep up with such high demand, which negatively affects the profitability of local housing.
To eliminate the shortage of residential real estate, it is necessary to build at least 400,000 apartments in the country every year. As of 2020, this figure was only 368,400 units.
Germany is on the list of European states that have agreed to accept Syrian refugees on their territory. In 2015, 1.1 million migrants arrived in the country, and in 2016, another 280,000 migrants arrived in Germany. Due to the growing number of refugees, the local government has introduced an annual quota for granting refugee status to the amount of 200,000 people.
In most cases, refugees are accommodated in larger and more developed cities such as Munich, Frankfurt and Berlin, where the supply of real estate is very limited. Since only 51% of Germans have their own housing, both expats from developed countries and native Germans are forced to compete with refugees for free rental housing, which negatively affects its cost and profitability.
Austria, as well as Germany, accepted refugees from countries with unstable political situations, such as Afghanistan, Syria, etc. on its territory. But the Austrian government, unlike Germany, did not support the policy of "open doors" and demanded the introduction of a quota for refugees (400,000 people per year). At the moment, the number of migrants in the country does not exceed the total of 1 million people. This state of affairs makes the real estate market in Austria more attractive, as the competition among potential buyers and tenants is noticeably lower, and the supply is many times greater compared to Germany.
The capital Vienna is the optimal territory for investors in Austria. Vienna is consistently at the top of the world rankings in terms of living standards and is the most popular tourist destination in the country. In comparison with other capitals of European countries, the maximum number of representative offices of international corporations and charitable organizations are concentrated here. Global-scale cultural and scientific events are held in the capital of Austria. Vienna is also a city of student youth, as more than 300 thousand people out of 1.9 million inhabitants study at higher educational institutions.
Graz, Linz and Salzburg are the most attractive cities for investment after Vienna.
However, the most loyal legislation for foreign buyers of real estate is in the capital of Austria.
North Rhine-Westphalia, with the administrative center of Dusseldorf, is the most attractive for investors among the federal states of Germany. The largest number of residents is concentrated here – about 18 million – compared to other regions. It is also the most popular area among property buyers. It is here that almost half of all transactions are concluded and 27.5% of the total volume of foreign investments is concentrated.
Both Austria and Germany have a standard investor rule: more reliable investment units bring less profit and vice versa.
Only 51% of Germans have their own real estate, according to Eurostat data. The niche of rental housing in the country is very extensive, but at the same time, the profitability of residential real estate is gradually decreasing. According to the Global Property Guide, the ROI of German housing ranges from 3.5%–3.7%.
The "second-tier" cities, such as Essen, Dortmund and Duisburg, demonstrate the highest profitability from renting real estate. But for the capital and other well-known megacities, such as Munich and Cologne, this indicator is only about 3%.
Investments in residential property in Austria provide an ROI of 2.5–5% for residential real estate, and 2–6% for commercial properties. As in the case of Germany, there is a significant demand for rental real estate in Austria. If about 43% of the country's residents do not have their own real estate, then in Vienna this figure reaches 78%. The average rental in the country has increased by a massive 53% since 2006.
The efficiency of capital investment is determined not only by rental income. The cost of residential property increases every year by at least 2–3%, and sometimes by 10%, while the return on investment is 6–8% per annum. Local real estate has high liquidity and, if necessary, you can easily find the appropriate buyer when the time comes to sell.
Following on from all of the above, we can conclude that Austria has a number of significant advantages over Germany:
The main purpose of investing in foreign real estate is to preserve capital, as well as to generate income. If the investor is an experienced business individual but does not have good knowledge of the real estate market of a particular country, its legislation and its tax system, they cannot do without the help of qualified specialists.
The support of a trusted real estate agency at all stages of the purchase, including the selection of a segment, region and type of property, the collection of documents, mortgage registration and the conclusion of a transaction, is the main recommendation of experts on investing in the markets of European countries.
In Austria, Luxury Immobilien GmbH can become a reliable partner. The firm is part of the Metropolitan Premium Properties group, which is one of the most recognized leaders on the international market.
Luxury Immobilien GmbH specialists know the subtleties and peculiarities of Austrian legislation and are well-versed in all sectors of the country's real estate market. Agents will help solve any issue, starting from choosing the most profitable property and ending with obtaining a residence permit. The full catalog of offers on the Austrian real estate market, which is regularly updated, is at the disposal of the agency. The catalog presents all real estate, including budget apartments, villas, luxury penthouses, secondary housing and off-plan projects from developers.
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