Wednesday, May 19, 2010
Ever wondered why germany doesnt have house price booms and crashes
Anglo Info: Buying and selling property in Germany
In Germany the costs of buying a house can be up to 12%, you need to show a pattern of regular savings for six years and if you sell a house less than 10 years after you have bought it, you have to pay a tax of 15% of the profits. If the seller, sells more than 3 pieces of property in 5 years then they have to pay a commercial tax.
Germany haven't had house price booms, reckless buy to lets or priced the younger generation out of the market.
Posted by britishblue @ 10:27 PM (1541 views) Add Comment
16 Comments
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1. devo said...
Whilst staying with a family in Stuggart, I enquired as to why the gardens were comparatively small when compared to the size of the house.
I was told that in Germany one pays a premium for the land on which the house is built on, rather than the cost of the house itself.
2. Devo said...
i have also had the pleasure of staying in Stuttgart
blame the wine, not me
3. matt_the_hat said...
but you do get tax back on renovations ;-)
4. mander said...
Germany's property market is an example that all the countries have to follow. At least US is doing it.
Also it prooves that people only buy property if it goes up as not a lot of investors are buying right now even though the German properties are genuinely priced.
5. markj69 str05 said...
I thought Germany had a high rent to purchase ratio? Do those policies stated above promote renting???
6. doomwatch said...
This sounds truly progressive unlike the new blood suckers at the treasury. I bet his Rothskinder pals don't have to worry about CGT or
loop hole "clampdowns"
7. Wageslavex14 said...
I find it truly depressing that a large proportion of the population would be behind these kinds of measures, but that the media would never allow any politician in the UK to propose them.
Imagine the howls from the Express, the Mail and the Sun?
8. Bulgariaproperty said...
"Germany's property market is an example that all the countries have to follow " - I'm totally agree with this.
9. fjcruiser said...
Property prices in Germany have been going down for the past 10 years in real terms. The entry cost to buying are very high in comparison to the UK, even to France.
10. britishblue said...
Its now cheaper for Polish people to buy a house across the border in Germany and then commute back to Poland. What the German system has done is made it culterally stupid to use houses as a speculative asset. Therefore they never move up or down in big swings. In 2007 the average price per square metre in Germany was 1/5th of the UK. Even in Poland were there has been a huge speculative boom you are taxed at 20% on the sale value of a house unless you sell the house to an immediate relative. If we are ever going to stop the booms and bust in the UK and bring houses in line with true value it is going to have to be through changing the entry criteria, costs and taxes. Naturally this will hurt many people very hard to start with and almost every home owner will see it as unfair, otherwhise houses should be seen as a speculative asset that you just happen to live in as a bi product
11. growler said...
I've connections to Germany and have a passport.
The culture of saving to buy a house as a luxury is the way the market works. Buying and selling houses does not make individuals money due to taxation and the high fees. Mortgages are only available on short terms - 25 years and 80% would be seen as crazy. Renting is very secure and generally well managed. Properties are also generally of a much higher standard. Doors fit. Systems work. Floors are solid. Stud partition walls are found in stables. Major DIY bodge jobs don't exist as electrics, plumbing and services are not possible to do without certificated tradespeople. Thus your rented house won't have major poor maintenance flaws apart from maybe needing paint and decoration.
All that means that far from beign regarded as a "2nd class dwelling" - which the vested interests in the UK do little to counter - a rented house is a sensible idea. Rents are also very reasonable - only the inner cities such as Duesseldorf, Cologne, Stuttgart, Munich, Hamburg, Berlin and holiday hotspots attracting higher rents.
So people not able to pay high rents live out of town... and get reliable trains run in a coordinated transport system. If you want to see how integrated Germany railways are, hit www.db.de (the national rail operator site) and bang in Glasgow to Falmouth. You'll get info faster than the same enquiry in the UK without the excruciating advertisements.
Add the above together and the answer is - there are many factors that play a part. But taxation is the root difference. Hence my mantra about CGT....
12. mark wadsworth said...
Be warned, there is a lot more to this than meets the eye - I worked in tax on Germany for four years and I wrote my degree thesis on taxation and subsidies to land or home ownership in Germany and the UK.
For example:
1. Germany does not have council tax (well they have Grundsteuer, but it is pennies per year).
2. There are massive income tax breaks for BTL landlords who buy from new, which of course pushes up prices very high, which as always feeds through into land prices.
3. Rents are surprisingly cheap compared to the UK.
4. They have VAT on new build (which is even wierder - why slap VAT on a new build but then give an income tax break to purchasers?)
5. For inheritance tax purposes, land and property is assessed at a historic value that is about a quarter of today's value.
6. Twenty years ago, German house prices were ludicrously high compared to the UK - at least twice as much, but since then they have been fairly stable - probably not even kept pace with inflation, and so at the moment are slightly cheaper than the UK.
7. German flats and houses are infinitely better built and bigger than in the UK. Their planning laws are much more liberal.
8. Renting a flat is absolutely no shame or disgrace, it is perfectly normal.
9. German buildign societies ask for a deposit from an owner-occupier of about 40%, but for BTL the deposit is much lower as it is financed out of future tax breaks.
10. As a final flourish, the tax breaks for BTL are so much bigger than for owner-occupation that my boss and I once had a client and his mother come in, they told us they wanted to buy a flat in each in a new block that was being built. We told them, with a straight face because it was true, that they would be better off if the son bought a flat and rented it to his mother and the mother bought a flat and rented it to her son. Crazy but true.
I'll stop now, but I hope that I have illustrated that a like-for-like comparison is nigh impossible.
13. drewster said...
Thanks Mark, always impressed by how much you know!
The big question to me is, why were banks all over the world handing out 100% LTV mortgages to anyone who could spell their name, except for banks in Germany? Did they persist with this 40% deposit (=60% LTV) throughout the bubble years?
14. mark wadsworth said...
Drewster, I think they still have the 40% deposit requirement, I haven't asked recently. Growler seems to think they do. Why not in Germany? I don't know, it's just the way they do things, and yet again, they have been vindicated - they had no property price bubble.
Problem is, the German banks then just lent loads of money to US banks who were dishing out 100% mortgages...
15. Shazza said...
@8 Growler - you are absolutely right. I always use that system when travelling by train in the UK. British Rail's page is a nightmare. "Vorsprung durch thinking it through properly".
16. growler said...
Marks point 9 is the key. People see the income stream as the business case, not the appreciation of value by time alone. In Germany, a BTL'er is nothing like the architype in the UK. A lot are housing associations. Because the quality of housing is miles better and rent much more affordable pe sqm than here, the government rightly seek to support people investing in affordable housing. It's all professionally managed and run and tenants have security of tenure and rights that amateur UK landlords would find difficult. Note AMATEUR.
The outcome. Pleasantly, the high street is not littered with second-hand house salespeople here today and gone tomorrow. The banks act as agents, and the make sure that properties are fairly described and affordable as they will carry risk if they lend unscrupulously.
In the UK, the same person will be treated differently every time he/she walks into the lenders office. UK lenders look at the commission they earn from fast throughput and therefore drive their margins down to shift loans. If money is tight for the lender, the buyer pays. If money is plentiful for the lender, the buyers is given rope with which to hang himself since the risk is with the buyer. If it all goes wrong, in the UK the lender can sue the buyer for any shortfall on disposal. Given a max LTV of 60%, the borrower in Germany knows if it all goes wrong, he won't get hounded to hell for someone elses convincing sales patter.
We should limit the max LTV in the UK, prevent lenders from sueing for any negative equity, tax gains on capital via LTV or CGT, ban all interest only mortagages unless a simultaneous replayment facility is drawn up that cannot be cancelled unless the house is sold, subject estate agents to examination and regulation - they after all flog you a huge debt with no obligations to look after you if the make a bad call, and review Landlord and Tenant regulations.
Money is the simplest of tools. Manage it's lending and tax the gains just like everything else. The rest will follow.