Residential real estate investments

Real estate investments in the form of a freehold flat or multiple-family dwelling have become one of the most popular pension provisions (“land register instead of bankbook”). Investors are protected against inflation and therefore against the loss of assets through sustainable lease proceeds, which are usually obtained tax-free.

Factors that favour real estate as an investment product:

• General linear amortisation option for leased real estate.
• Amortisation option for landlords and owner-occupiers of properties subject to the preservation of historical monuments.
• Owner-occupied housing is exempt from the final withholding tax which has increased to 25% percent.
• Riester subsidy for the acquisition of owner-occupied residential real estate.
• Tax-free profit from disposition after the end of a ten-year holding period.

ESTAVIS offers access to various types of real estate investments:

• Real estate that offers tax advantages (preservation of historical monuments / redevelopment areas).
• Residential unit acquisition under the maintenance cost model.
• Freehold flats as a “real estate pension”.
• Tenant privatisation or occupation by the owner.

Why do owner-occupiers acquire residential units?

The most important reasons to acquire a residential unit for private use is to protect against future lease rate increases and to create a pension provision. Owner-occupied housing is the most important form of retirement planning – even for households with a relatively low monthly net household income below € 1,250. The main counter-argument – that the financial burden would be excessive – is often unfounded: For 40% of buyers, the financing costs are lower than the rent they were paying.

Why do investors acquire properties subject to the preservation of historical monuments?

Tax laws offer significant income tax advantages to the owners of architectural monuments under Section 7i of the Income Tax Act (EstG): The buyer is permitted to deduct the cost of construction measures for tax purposes at a rate of 9% in the first eight years and 7% in the next four years. Residential units in architectural monuments offer additional income potential for the owner: Depending on the location, up to 52% of tenants are willing to pay higher lease rates for a residential unit in a restored property subject to the protection of historical monuments.

Why do investors acquire existing leased residential units?

Tenanted apartments offer long-term secure lease revenues – because in good or bad economic times, people always need a place to live. This makes the yields for the owner less volatile than, for example, an investment in shares. 

The conditions for market entry are favourable: Interest rates are low and the price level for residential units is attractive due to the economic situation. In addition to lease revenues, the owner benefits from the appreciation of real estate investments: From 1998 to 2007, the rate of appreciation plus the increase in rental and lease income was 48% while consumer prices only rose by less than 13% during the same period.