House prices in Germany

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There are plenty of arguments for and against owning your own place. As I said before, the tax treatment in Germany does not favor homeowners. Nonetheless, if you're sure you're going to stay in one place for at least ten years, then buying may make sense for you. But those coming from the UK, US and Australia should forget about their native model of buying a "starter home" and then upgrading every 3-5 years. Prices in Germany are far too stagnant (with a few exceptions, but those are outliers) and transaction costs - in excess of 10% - are far too high for that to be a good financial strategy.

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Bah... you can get a nice little detached house in move-in condition (no handyman special) with a decent sized yard around here for 100,000 euros.

 

Cold rent for such a house tends to run around 500-600 euros per month. So about 15-17 years of renting would pay for the house.

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I own my apartment outright. That does not in any way make it "free" for me. Its cost is 12-14k a year (call the capital value = 300-350k). That's how much income I'd get (minimum) if I sold up and had the capital earning interest or rented it or something. This is the big lie that home ownership is sold on of course. That your housing is "free" once the mortgage is paid.

 

 

IMVHO there are so many logical flaws, or conclusions based on unlikely assumptions that you don't state, and selective readings of data, in your arguments I hardly know where to begin...

 

I do not come down on one side of the rent/buy decision but without wanting to be overly critical you really didn't do a good job of reasoning there.

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Probably much the same as the interest or investment income you would forego on having capital tied up in your house.

 

I own my apartment outright. That does not in any way make it "free" for me. Its cost is 12-14k a year (call the capital value = 300-350k). That's how much income I'd get (minimum) if I sold up and had the capital earning interest or rented it or something.

 

 

Of course there are still fees and costs, but once you have paid off the property, you have much less to pay than renting. When renting, you have to pay the full amount each month and that is much more than just the hausgeld and other fees.

 

My folks are a perfect example of this. They have paid off their mortgage and now are retired. They pay so little each month, that on their small pension they can still afford to live in a lovely London apartment. If they were renting all their lives, there is no way they would be able to live in a London apartment like theirs on their pension.

 

Likewise, when they do pass away, the sale of their property will be inherited to me, of which I can after the set period of time, fully pay off my apartment with no penalty (The conditions of my mortgage has a set period where we can pay a Sondertilgung each year, but until that period described is complete we would have a penalty if we wanted to fully pay off the place, after the agreed period there is no penalty).

 

If they rented, I would have no inheritance. That is one hell of a wonderful final gift to give your family and loved ones. Likewise, we will have the same opportunity when we pass away.

 

The last thing I want to do is be paying rent when I retire all those years ahead. Just look at how rental prices have increased in the last 40 years and imagine what they will be 40years from now. A renter on pension will have a hard time. I will not.

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There are also opportunities to sell before hand. In most cases, one makes an increase as house prices to generally trend upwards. But yes, there is always a chance of having to sell in a recession and make a loss. That loss though is NEVER as high as the loss in renting. The loss in renting is 100%.

 

 

Wrong. Often people, especially during the start of their loan, pay much more in pure interest than they would to the bank. Take this example.

 

The apartment I live in now costs 800 euros cold a month. It would cost however 350,000 euros to buy. A loan at 4% (amazingly low at the moment), is 14000 euros "100% wasted" money. Rent is only 9600 euros though.

 

And how long is it going to take to until my rent hits 14k a year? At a 5% hike per year, you're looking at 8 years, and had you put that money aside each year you'd have 30k cash, probably 40k with interest on top. Meanwhile, the guy that buys the house has quite likely still not broken even on his investment considering the costs involved in buying (10%) and repairing a house including the depreciation. He'd be lucky to sell it for what he bought it for.

 

So now who's looking better? The renter with 40k in his pocket, or the guy the 8 year old house that's worth no more than he's put into it?

 

The fact is, it always costs you something to live in a house - whether you own the house and you're losing out on the money that capital would make you elsewhere, whether you are renting, or whether you have a mortgage. It's all about where you choose to invest your money, and it is definitely not automatically bad financially to rent.

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If they were renting all their lives, there is no way they would be able to live in a London apartment like theirs on their pension.

 

I'm not sure you've read the thread properly, or at least not understood the other side of the argument. Your parents probably poured around £150,000 of your inheritance down the drain by giving it to the bank in the form of mortgage interest payments, money that could have been invested elsewhere and then later used to buy the property in cash. (Or they could have used it for a larger pension to pay their rent upon retirement.) Even your inheritance will look a little less healthy once the government has taken their 40%. You also make the mistake mentioned several times on this thread: property prices in Germany are stagnant, so the British logic of getting onto the property ladder ASAP doesn't apply here.

 

I agree that owning a property upon retirement is probably the most desirable scenario, but in Germany there are other ways of attaining this than paying the bank vast sums of cash. You're taking British logic and applying it to Germany, which doesn't necessarily make sense.

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Of course there are still fees and costs, but once you have paid off the property, you have much less to pay than renting. When renting, you have to pay the full amount each month and that is much more than just the hausgeld and other fees.

 

My folks are a perfect example of this. They have paid off their mortgage and now are retired. They pay so little each month, that on their small pension they can still afford to live in a lovely London apartment. If they were renting all their lives, there is no way they would be able to live in a London apartment like theirs on their pension.

 

Likewise, when they do pass away, the sale of their property will be inherited to me, of which I can after the set period of time, fully pay off my apartment with no penalty (The conditions of my mortgage has a set period where we can pay a Sondertilgung each year, but until that period described is complete we would have a penalty if we wanted to fully pay off the place, after the agreed period there is no penalty).

 

If they rented, I would have no inheritance. That is one hell of a wonderful final gift to give your family and loved ones. Likewise, we will have the same opportunity when we pass away.

 

The last thing I want to do is be paying rent when I retire all those years ahead. Just look at how rental prices have increased in the last 40 years and imagine what they will be 40years from now. A renter on pension will have a hard time. I will not.

 

 

Like I said above, this is completely flawed thinking. In the case of your parents, it might have worked this way because prices in London property have been a great investment - their gamble has likely paid off well. But this has nothing to do with buying houses in general. It's like saying that your parents bought Apple stock in 2008 and have tripled their money, so investing in any stock in the stock market is a great idea - a sure fire way to make money!

 

If they'd have bought in a place where prices remained stagnant, your inheritance would have been a lot larger had they rented and put the extra money they saved over having a mortgage into stock market. I don't understand how people can't get their head around this, it's not a difficult concept to understand.

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The apartment I live in now costs 800 euros cold a month. It would cost however 350,000 euros to buy. A loan at 4% (amazingly low at the moment), is 14000 euros "100% wasted" money. Rent is only 9600 euros though.

 

 

Hmm... an average of 800 euros rent a month over 50 years is 480,000 euros. You say that you could buy the place for 350,000. With interest and fees let's say that house costs you 400,000 to buy. Doesn't that mean the renter has spent 80k more than the owner for lifetime housing?

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Hmm... an average of 800 euros rent a month over 50 years is 480,000 euros. You say that you could buy the place for 350,000. With interest and fees let's say that house costs you 400,000 to buy. Doesn't that mean the renter has spent 80k more than the owner for lifetime housing?

 

 

Fees alone would be 35k at the outset for the 350k house. You're dreaming if you think 15k would cover the interest payments, it would be more like 20 or 30 times this. In any case, there are so many variables you aren't taking into consideration (like rising rent as Allershausen says). My comparison above is much more accurate.

 

Anyway, I and others have pointed out a hundred times above now why it doesn't always make financial sense to buy a house. If you can't understand it by now, well, I think you might just be stupid.

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Like I said above, this is completely flawed thinking.

 

Based on your own arguments and examples it is most definitely not completely flawed thinking. It's simply that the "rule" cannot be applied in every case as conditions are different and conditions change

 

 

I don't understand how people can't get their head around this, it's not a difficult concept to understand.

 

 

It's a very simple concept to understand but you are adhering to rigid logic which is in itself wrong. In certain cases it is better to buy, in other cases it is better to rent.

 

In my case, when I bought a house in Dublin ten years ago and my apartment here outright five years ago it made much better sense than renting. In hindsight it still makes perfect sense as I could not have gotten anywhere near the return on investment through other means unless I was some sort of financial expert which I am not.

 

 

Anyway, I and others have pointed out a hundred times above now why it doesn't always make financial sense to buy a house. If you can't understand it by now, well, I think you might just be stupid.

 

Not exactly a grown-up method of arguing your corner there, Hutcho. You're coming across like a bit of a dick.

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You say that you could buy the place for 350,000. With interest and fees let's say that house costs you 400,000 to buy. Doesn't that mean the renter has spent 80k more than the owner for lifetime housing?

 

Even assuming only a 50% mortgage at a low interest rate of 4%, your interest payments will come to €140,000 over 20 years, so in fact it will cost you €540,000 to buy the property, which is €60,000 more than renting, according to these calculations. Then add on a lifetime's worth of insurance and maintenance costs on top of that.

 

 

Naw, I'm just rich and didn't have to worry about interest.

 

If you can afford to buy a property in cash then do it; I said above that purchasing makes sense if you don't need a mortgage. Most people however don't have €400,000 lying around.

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Hmm... an average of 800 euros rent a month over 50 years is 480,000 euros. You say that you could buy the place for 350,000. With interest and fees let's say that house costs you 400,000 to buy. Doesn't that mean the renter has spent 80k more than the owner for lifetime housing?

 

 

I'm all for looking on the bright side of life, Bipa, but I think you're moving slightly in to the realm of unreality here.

 

Not disputing the arithmetic. The two factors that hit me first were both related to the 50 year time frame.

 

Statistically most people don't qualify for €350K loans below the age of 23, IIRC.

That puts them right at the statistical average EOL* at the other extreme.

 

OK, there are members of the aristocracy, farming families and possibly industrial magnates who occupy their country seat for 100+ years, but do you actually know of anyone who has stayed in one property for 50years? I'd probably die of frustration sooner than that if I stayed in one place so long.

 

*EOL = End Of Life.

 

2B

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Most people however don't have €400,000 lying around.

 

Neither did we. Try getting out of the city sometime.

 

 

OK, there are members of the aristocracy, farming families and possibly industrial magnates who occupy their country seat for 100+ years, but do you actually know of anyone who has stayed in one property for 50years? I'd probably die of frustration sooner than that if I stayed in one place so long.

 

 

 

This is Germany. People buy a house and tend to stay put. I know several families who have stayed in the same property for generations, including my own in-laws. They are not aristocrats nor industrial magnates, nor do they own a farm. They are currently into the third generation in the same house.

 

As I've mentioned a few times before, the family has lived in the same little village since at least 1598 though not in the same house the whole time. My sis-in-law, however, did buy the oldest house in the village which was built by an ancestor back around 1700 (or maybe even earlier). Does that also count?

 

 

I'm all for looking on the bright side of life, Bipa, but I think you're moving slightly in to the realm of unreality here.

 

 

My reality is that we bought a house in move-in condition, built in 1980, with full finished basement, geo-thermal heating system, and 2000 sq meters of land for well under 400k. Less than half that, actually.

 

Welcome to the reality of rural Germany.

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Based on your own arguments and examples it is most definitely not completely flawed thinking. It's simply that the "rule" cannot be applied in every case as conditions are different and conditions change

 

 

The completely flawed part I was referring to is that it always makes sense to buy rather than rent.

 

 

It's a very simple concept to understand but you are adhering to rigid logic which is in itself wrong. In certain cases it is better to buy, in other cases it is better to rent.

 

 

If you've read my posts properly, you'll realise this is exactly the point I'm making. It is an investment, like any other, and can be good or bad. It is not always good like a lot of people seem to believe.

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This is Germany. People buy a house and tend to stay put. I know several families who have stayed in the same property for generations, including my own in-laws.

 

Times are changing and so do the germans. But in the past, germans didn´t simply buy houses (like many expats seem to consider) - instead they bought a lot of land and had a house built. They did a lot of work themselves and in rural areas often had the help of friends and acquaintances, all to keep the costs down. This might be a reason, why the situation of a german house owner is not comparable to an expat, who wants to own a house in germany.

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In my case, when I bought a house in Dublin ten years ago and my apartment here outright five years ago it made much better sense than renting. In hindsight it still makes perfect sense as I could not have gotten anywhere near the return on investment through other means unless I was some sort of financial expert which I am not.

 

I am curious what sort of return on investment you have made on your apartment in Munich. Has the price really appreciated? Have you had it valued recently? Or are you just referring to rent saved?

 

I think it all comes down to whether you expect house price appreciation. The English speaking world has until recently expected house prices to go up indefintely. In Australia, they still seem to think that it is a law of nature or something. In Germany, since the wall came down at least, things have been different. Who knows what the future holds, though?

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Rent saved is definitely an aspect of it but unrealised return for the most part. Knowledge of what similar apartments in the same building have recently gone for compared to what I paid. Of course if I decided to sell it could be completely different at that point but one can only go on the current trends when valuing.

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If the value of your property rises in line with the market in general then you haven't really gained anything, because unless you plan to live under a bridge then your next property will cost more as well. ovbg misunderstands this aspect as well. You don't "lose" anything when you move home and sell for less than you purchased because your next property will presumably also have lost value and therefore be cheaper to buy. In fact it's precisely during a recession that is the best time to move into a larger property.

 

 

But yes, there is always a chance of having to sell in a recession and make a loss.

 

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