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PROPERTY

Renting versus buying in Germany: What is actually cheaper?

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

'For Sale' sign.
'For Sale'. Photo: DPA

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. 

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”.

“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. 

“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.”

Member comments

  1. 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.

    1. 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.

  2. 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.

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RENTING

EXPLAINED: How to sublet your apartment in Germany

If you’re going away for a period of time or want to cut your living costs, subletting your flat can seem like an appealing option. But there are a lot of things you need to consider first. We break them down.

EXPLAINED: How to sublet your apartment in Germany

What is subletting?

A subletting arrangement is when a subtenant is allowed to use the main tenant’s apartment, or part of it, in return for payment.

Having visitors in your home, even for a period of up to six weeks, does not count as subletting and you do not have to inform your landlord. But be careful: If the visitor starts paying rent, this becomes a sub-letting arrangement and if the visitor stays more than six weeks in a row, you have a duty to inform your landlord.

READ ALSO: The most expensive (and cheapest) cities in Germany to rent a room

If close family members such as parents, children, partners or spouses move in with you, this is also not a subletting arrangement and is considered part of the normal use of the rented property. 

However, you should inform your landlord of such a change in circumstance, not least because at some point the new person living in your apartment will at some point need to register with the local authorities.

Do I have to tell my landlord?

Yes. Regardless of whether you are just subletting a room or your whole apartment, you have to inform your landlord and, in most cases, you are required by law to obtain the landlord’s permission to sub-rent. This applies for whatever time period you want to sublet for: whether it’s for a weekend or for six months. 

One exception to this rule is if you rent a room in a WG (shared accommodation) and all of the tenants are equal parties to the contract. In that case, it’s possible to sublet individual rooms without having to get permission from the landlord, but you should still inform them.

If you try to rent out your place or a room without your landlord’s permission and get found out, you could face legal action, or be kicked out of your apartment before the agreed notice period. 

READ ALSO: REVEALED: The most – and least – popular landlords in Germany

Can the landlord refuse to let me sublet?

If the main tenant has a so-called “justified interest” in subletting part of the apartment, they can demand that the landlord agrees to the sublet and even take legal action or acquire a special right of termination of the rental contract if they refuse.

However, this right only applies to a sublet of part of the apartment and not the entire space within the four walls – in this case the landlord is within their rights to say no to the sublet. 

When subletting part of an apartment, a justified interest must be for an important reason such as a needing to move abroad temporarily for a job or personal reasons, or a partner moving out and the tenant no longer being able to cover the rental costs alone.

In general, landlords shouldn’t refuse your request to sublet unless there are good reasons – for example if the apartment is too small. 

The landlord can’t reject your subletting application without good reason and if they do, you can gain a special right to terminate your rental contract, and can even sue for your right to sublet. 

What information will I need to give my landlord? 

Whether you are subletting a room or the whole apartment – you’ll need to give your landlord the following information:

  • Who is moving in
  • How long you will be subletting for
  • For what reason you plan to sublet

If you want to set up a WG (Wohngemeinschaft or shared flat) as the main tenant, you should discuss this with the landlord beforehand, as it may be worth changing the apartment status to a shared apartment in the main rental agreement. That way, you won’t have to send a new application every time a new roommate moves in.

Do I need a special rental contract?

If you are going to subrent your apartment, it is definitely worth having a contract. 

A contract between the main tenant and the subtenant is completely separate from the contract between the main tenant and the landlord, so all responsibilities arising from the sub-rental contract will fall on you and not the landlord. 

A man fills in the details of a rental contract by hand. Photo: picture alliance / dpa | Armin Weigel

At the same time, as the main tenant, you will still be liable to your landlord for any damage caused by the subtenant, so it is best to put a clause in the sub-rental agreement that outlines how this will be covered, and also to make sure that your subtenant has personal liability insurance. 

There are plenty of websites that offer templates of sub-rental contracts for you to use, and you should make sure your contract includes the following information:

  • The personal details of the subtenant
  • The sub-rental cost and any service charges
  • When these are to be paid
  • Which rooms may be used
  • How many keys have been handed over
  • Details of a possible deposit
  • The condition of the rented apartment
  • House rules, such as no smoking, pets, etc.
  • Liability for possible damages

How much can I charge?

You can usually negotiate the sub-rental price yourself, but you should be careful not to overstep the rental limit per square metre for your area. If you charge over this amount and your subtenant finds out, they have the right to demand the local square metre rental price and you may have to refund them the total amount of overcharged rent.

If you sublet a furnished apartment, you can add a surcharge based on what you will be leaving in your apartment. You should also factor in the energy and water costs.

READ ALSO: Everything you should know about renting a furnished flat in Germany

Do I have to get consent from the local authorities?

In some cases, you will also need to get permission to sub-rent from the local authorities to rent out your place. 

If you sublet in Berlin or Frankfurt, for example, and you want to advertise your flat for holiday rentals, you have to get approval first.

A wooden judge’s hammer lies on the judge’s bench in the jury courtroom in the Karlsruhe Regional Court. Photo: picture alliance / Uli Deck/dpa | Uli Deck

If you go ahead and rent on a site like Air BnB without approval, you can expect to pay a hefty fine. Though the highest possible fine of €500,000 is unlikely, there are numerous reports of people getting fines in Germany of several thousand euros.

Another important thing to remember is that, if you make more than €520 profit in a year from sub-renting, you have to include this in your tax declaration.

Can the landlord demand I pay extra?

If a landlord allows subletting, they can also demand a share of the extra income from the main tenant. The amount of the surcharge cannot exceed 25 percent of the sublease, however.

Useful Vocabulary

to sub-let – Untermieten 

sublease agreement – (der) Untermietvertrag

termination without notice – (die) fristlose Kündigung

ban on misuse – (das) Zweckentfremdungsverbot

special right of termination – (das) Sonderkündigungsrecht

justified interest – (das) berechtigtes Interesse

personal liability insurance – (die) Haftpflichtversicherung

We’re aiming to help our readers improve their German by translating vocabulary from some of our news stories. Did you find this article useful? Let us know.

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