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How should expats invest in Germany?

Lucky enough to have something left over from wages each month? Would it be best to put it in property or start a pension? In this week's Job Talk we asked a financial adviser about the options in Germany.

How should expats invest in Germany?
Property or stocks? Photo: DPA/Nicole Jankowski

Sending money 'home' to a nest-egg may seem like the most logical thing to do, while putting money into a German property might be a little scary. And what about the famed German pensions? The Germans seem to love them – would it make sense to put extra cash into one of those?

Here Munich-based financial adviser Martin Brown gives us some ideas.

Property

The housing market in Germany is doing exceedingly well at the moment. We advised all of our clients to buy German property. Not all of them listened. For those who did, they're doing extremely well. For those who didn't it's probably a bit too late.

If our expatriate clients are going to stay in Germany we advise that they should really look at German property as a reverse pension programme.

We advise people to buy a rental unit – not a two-bedroom flat, or a big property or a house. You are looking for a studio apartment in a central location no more than two blocks away from a U-Bahn or S-Bahn station. There should also be cafes and amenities nearby if possible.

These are still available if you are fast enough. Look for something between 25 and 50 square metres – no more than 50.

The best cities to buy property in are Frankfurt, followed by Munich, followed by Cologne.

I wouldn't advise anybody to buy in Berlin and there are a simple set of reasons why not: It is a lovely city and it is very popular with foreign buyers. But Berlin has no fundamental underpinning. It has too much land and redevelopment possibilities which will go on for decades to come.

This means there is no shortage of apartments and new trendy areas are constantly emerging. You do not have that in small defined business cities like Frankfurt. Prices have increased in certain areas in Berlin but eventually fundamentals will catch up with you.

Never buy in order to rent to someone long-term. It is too expensive and there are too many upfront costs. Buy properties in good areas and do them up nicely and then companies want to rent these because it is cheaper than putting staff for three to six months in a hotel.

Pension schemes

Are they always appropriate to expatriate clients? No they are not. German products are very often inappropriate from a long-term savings point of view.

You only have two forms of saving programme that you are going to be able to save any taxation on – Riester-Rente and Rürup-Rente.

Riester-Rente is generally for people who are employed by a company. It was originally set up for lower income families with children and that is still the case.

If you have more than two children and you are going to be staying in the country it is worthwhile considering one, but not if you are planning to leave the country when you would be eaten up on charges.

Long-term let’s say you are going to stay in Germany, the underlying guarantees on Riester-Rente are normally just one percent a year, so you are making less than inflation so you are going to be losing money.

For self-employed people you have a different type of semi-state sponsored programmed called Rürup-Rente. You can contribute up to €20,000 a year. But you need to be very, very focused. Do not take one if say you are going to be here three to five years or if you are not going to be retiring here.

It is also quite inflexible so be careful. On both types of programmes it is preferable to stay in Germany to get the maximum out of them.

The stock market

Direct stock market participation by any individual should be undertaken only if they have a thorough knowledge of the stock or bonds they wish to buy, and how to trade effectively.

People need to be honest with themselves. They need to look at the four Ws first: What, When, Where and Why. This is particularly important for expat clients.

Customers should ask themselves: What will I need? If I'm trading in stocks and I'm trying to save for retirement, what am I going to need that money to turn into? This helps to design what sort of risk you should be looking at.

Also ask yourself: where? Am I going to stay in Germany? In which case, if you're trading stocks, you're going to be charged all sorts of taxation on your profits including a 25 percent flat tax on profits.

I would say to anyone trading stocks directly: know what you're getting into. Is it the correct risk for you to be taking?

Sending money home

If your intention is to send money home [to a non-Euro country] you need to consider exchange rates to time your transfer. You should probably use a foreign exchange trader. In general they do a very good job.

The worst thing to do if you’re going to be sending say €5,000 or €10,000 is to ask your bank to send it back to your account. You will lose quite a lot.

Martin Brown is a financial adviser at First Financial Direct Group

DISCLAIMER: The content of this article should be used for general information purposes only. It does not constitute financial advice. 

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MONEY

What to know about German parcel delivery price hikes

People sending packages in Germany face higher costs after Deutsche Post subsidiary DHL announced it will increase prices from July.

What to know about German parcel delivery price hikes

Under the changes, sending some packages will become more expensive, both within Germany and internationally.

Logistics group DHL said the price hikes were due to several factors. 

“Increased transport, delivery and wage costs, as well as general cost increases, make price rises in national and cross-border parcel shipping unavoidable,” the company said. 

Meanwhile, there will no longer be a price advantage for buying parcel and package stamps online for domestic shipments. 

The different prices for labels bought online or in store will remain in place for international-bound parcels.

The changes come into force on July 1st.

READ ALSO: EXPLAINED: Why people in Germany are being charged to receive small parcels from outside the EU

What are the changes for domestic-bound packages?

The branch and online prices in the product category ‘Päckchen S’ will rise to €3.99 from €3.79.

The price for ‘Päckchen M’ will be €4.79 from July, up from €4.50 for a store-bought label, and €4.39 online. 

The price for the two-kilogram parcel, which is only available online, will rise to €5.49 from €4.99.

Packset and Pluspäckchen products will also cost slightly more due to the increase in paper costs, said DHL. 

However, the price to send a 5kg parcel is going down – it will be €6.99 instead of €7.49.

Prices for the 10kg and 31.5kg parcels will remain unchanged.

A DHL delivery worker carries packages.

A DHL delivery worker carries packages. Photo: picture alliance/dpa/dpa-Zentralbild | Jan Woitas

What’s changing for sending packages abroad?

The cost of many cross-border parcel and small package shipments from Germany will also increase. The logistics company said that’s because of the hike in flight rates as well as higher costs charged by other delivery firms.

The firm said it was “partially passing on to customers what are in some cases steep increases in airfares and the substantial rise in costs charged by delivery partners abroad”. 

There are particularly large price hikes for shipments to the United States.

For instance, from July it will cost €49.99 to send a package weighing up to 5kg to the US (zone 5 in Deutsche Post’s price chart) rather than €38.99. The online price for the same product will be €47.99 instead of €36.99.

The price of sending a packet weighing up to 10kg to the US will go up to €79.99 instead of €54.99. 

For an overview of the new prices, check out this chart. 

READ ALSO: How to challenge high import fees on non-EU parcels in Germany

Are there any other changes to know about?

Deutsche Post says the €1.70 customs data entry fee for shipments to non-EU countries franked at retail outlets will no longer apply from July 1st.

Instead, it will be incorporated directly into the respective retail outlet prices for non-EU shipments at a rate of €1.

The company is also pushing its sustainability strategy, with its GoGreen service being included for all products from July 1st, 2022, without customers having to pay a surcharge. “This is already the case for domestic parcel shipments,” said the firm. 

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