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Renting versus buying in Germany: What is actually cheaper?

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Daniel Wighton - [email protected]
Renting versus buying in Germany: What is actually cheaper?
'For Sale'. Photo: DPA

Renting is heavily embedded in German culture - but what makes the best financial sense for you?

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Arrivals from abroad - particularly from English-speaking countries - are often surprised at Germany’s rental culture.

But while more Germans rent on average than elsewhere, does this make financial sense? Put simply, it will depend on your personal financial and personal circumstances. 

Other factors, like where you want to live - i.e. urban or regional - are also important

Studies into renting versus buying are published regularly in Germany and frequently come to different conclusions. 

In April and June of 2019, weekly German news magazine Spiegel ran reports on two different studies into renting versus buying: each of which had a different conclusion. 

Reports such as these looking at the comparative cost of renting and buying in Germany’s more competitive urban markets like Munich and Hamburg find that renting will be a far lower monthly outlay.

While this may benefit some individuals and families for a period of time, renting makes less sense from a long-term investment perspective. 

Other studies which compare the investment value of renting plus investing in the sharemarket against buying a home have found that the latter has a greater investment value, although there are of course caveats due to the potential volatility of shares and housing bubbles. 

For those who want to invest and who have one eye on retirement, buying a home will over time be the cheaper option - but only for those who can afford it. 

READ ALSO: It's not that hard: the beginner's guide to buying a home in Germany 

Mortgage advisor Chris Mulder, from Hypofriend, told The Local that buying makes sense in the medium to long-term - even in rent-loving Germany. 

“At a fundamental level, what you see in Germany is that the people that rent, they end up poorer than the people that buy,” Mulder said. 

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Why do Germans rent rather than buy? 

More than half of Germany’s population rent their homes - significantly less than the 70 percent on average that own their own homes across the EU. 

Unlike the United States, United Kingdom, Australia or other countries where getting on the property ladder is a central (if sometimes unachievable) aim for most, many Germans are often content to rent for most of their lives. 

A look at history as well as an understanding of German tenancy laws explains this somewhat. 

Post-war Germany looked to improve the domestic economy by building - creating a larger supply of units in the process.

READ ALSO: The reasons why so many Germans rent rather than buy 

Leases are long, tenants can make significant adjustments to the property and landlords face greater barriers in evicting tenants than in many other countries. 

And while it differs from state to state, Germany has various ‘rent control’ laws which prevent landlords from unilaterally raising rental prices and giving renters greater certainty than they have in other countries. 

Renting versus buying: What makes the most financial sense for you? Photo: DPA

What makes the best financial sense?

Renting versus buying will depend on your personal circumstances - as well as your short and long-term goals. 

In the short-term, buyers will often have to service their mortgage plus a range of other costs - from upkeep to taxes. 

Someone staying short-term in Germany might not want to make a financial commitment, while the comparatively higher capital needed to purchase a home in Germany will prevent those who don’t have a large amount of savings (or wealthy parents). 

A study from the Hamburgisches Weltwirtschaftsinstitut (HWWI), which looked only at monthly costs for renting and buying, found that renting was cheaper in 112 of 401 urban districts in Germany. 

As noted by Spiegel, which reported on the study: “in 112 of the total of 401 districts and cities in Germany… buying still seems to be worthwhile compared to renting".

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“These include large cities from the Ruhr area such as Gelsenkirchen, Duisburg, Dortmund or Bochum as well as the eastern German cities of Chemnitz and Magdeburg.”

This study did not however take into account the long-term investment value of buying a property - nor did it consider what is perhaps the most important factor for people when thinking about renting or buying: retirement. 

But according to Mulder, from mortgage advice firm Hypofriend, buying a house is likely to pay off quicker than most people think - even with Germany’s higher-than-average up-front costs. 

“Buying a house involves quite a few up front costs. In Germany these up front costs are high. Real estate agent fees can be as high as 7.14 percent, notary fees 2 percent and taxes on the purchase can be up to 6.5 percent,” Mulder writes

Mulder told The Local that homes are currently far more affordable in Germany than in previous years. 

“In Germany, actually houses right now are still very affordable because interest rates are so low. So compared to 20 years ago, houses are more affordable than they were,” Mulder said. 

“It (buying) totally makes sense to buy in Germany - but you just have to swallow hard when you see those fees.”

Hypofriend’s mortgage calculator shows that the decision to buy a home in Germany can pay itself off in under five years, far lower than the decades-long predictions made by other organisations. 

'For Sale'. Photo: DPA

‘On the property ladder’ 

In recent years, rising real estate prices in Germany - particularly in urban areas - might have demonstrated the investment value of owning your home, but it has made getting on the property ladder unaffordable for many. 

In Germany’s seven largest cities, house prices almost doubled between 2009 and 2018

Mulder says that renting - while perhaps appearing cheaper at first, particularly for people who do not have a deposit - is culturally embedded in Germany but has long-term, negative consequences. 

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“This notion of the property ladder is not as much a part of the German culture. There is this huge discouragement of buying (property),” Mulder told The Local. 

“You have these huge transfer taxes that people pay, then you have these extraordinarily high real estate agent fees… what it in a way encourages is for people to have this ‘hand to mouth’ kind of life. 

“So you spend your income on your rent - what you have left you go and buy a big car, which depreciates quickly, and by the end of your life - you don’t have something left for your old age which gives you financial freedom and space.”

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Anonymous 2022/02/06 23:39
We don’t find homes here affordable at all. Homes we would turn our nose up at here run minimum €750,000. Anything worth living in is above €1,000,000. You can still by a new, great home in an urban center in the US for $500,000 to $600,000. It is crazy.
Anonymous 2022/02/04 16:51
Maybe some local Germans can comment on what they think of the acquisition costs of a home in Germany when buying. Being from North America i laughed when an agent first shared the fees and taxes. over 6% for agent fees (who doesnt do most of their own homework with the internet these days) but by far the biggest turn off was the crazy level of transfer tax the government has their hand out for. As much as 6.5% just for the privilege of buying an over priced place in Frankfurt, not a chance. In total 15% of the purchase price is for the vultures out with their hands and its certainly not a value added fee, its theft pure and simple. They having a reasonable fee for the purchase and transfer and maybe more Germans would buy a home vs renting. Also, with the tax incentive for corporate landlords, the government has created its own problem with larger inner city rents. Its not that hard, just stop being greedy with taxes in this country.
  • Anonymous 2022/02/05 16:26
    I couldn’t agree more. The agents, the Government’s and the notary taxes and charges add approximately 12% to the buying process, which at inflation rate of 3% means 4 years before you breakeven. Both the agents and the Government just don’t seem to get that by reducing their fees/taxes to 1% they would massively increase market activity and actually increase revenues. And as for a notaire charging a percentage, this just makes me angry - no competition and the same amount of work irrespective of house price.

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