Bavaria and the real estate bubble

260 posts in this topic

 

Hello Eric, I would prefer to spend much less, like €300k on a house, but the market doesn't have anything in our price range. I honestly don't know how everyone else is doing it. I am an engineer making a pretty good wage, and I know a married doctor couple who are also having difficulties in trying to find a viable option. I think most people have "old money" from their parents or grandparents.

 

Oh well, If we can't find a good option financially, we will be forced to remain renters.

 

Are you the only earner then? €3500 net is a good enough wage for one and does fit the salary of an engineer with some years of experience, but of course if you're married and your partner has no income the situation is different, and if you have kids on top you'll be counting your money with that level of income, at least in Oberbayern, A married doctor couple, on the other hand, is very likely to have an income above €6000 net, even if one works part time because of the kids, and shouldn't have problems with a €500.000 loan. Just like a married couple of, say, engineers.

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One can bring down the timeframes for repayment pretty fast by paying sondertilgung(i.e special principal payment apart from monthly ones without any fine). Upto 5% Sondertilgung per year is quite common with most bank

 

You have to ask yourself however if you really want to pay Sondertilgung on a really cheap loan?

 

We've agreed a deal from a building society that works out at 1.46% APR fixed for 17 years and 2 months, by which time the whole 270k loan will be completely cleared without Sondertiltung. The total cost over the 17 years will be just over 36k (peanuts!). Do I really want to pay down a cheap loan like that faster? No, I'll invest the money somewhere else where I can expect to get more than 1.46% (likely more property, but if not that then I'll just put it into a well diversified global ETF or 2, that could reasonably be expected to deliver 5% over the longer term and all they have to do is beat 1.46% for me to be up).

 

Sondertilgung makes sense when rates are higher, but they are just so low right now (if you have the right LTV) you would need to really consider if paying the loan down early makes sense! I have annother (small) mortgage on a rental property in Dublin and I have a tracker which follows the ECB(!) rate + 0.75% so it's been costing me buttons for years and I have no intention of paying that down a day early either.

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The €3.500 net is what I earn per month, plus Kindergeld. My wife isn't and won't be working for the next few years, and even when she does go back it will only bring us an additional €800 at most. It's a shame housing is so damned expensive, because with these low interest rates and stability in the region, I really think it would be a good investment. I don't know what else intelligent to do with the money we have saved.

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@ murphaph , post #65

 

I agree with your point in financial terms.But my point was, one always have an option to reduce the repayment period using Sondertilgung .. Repayment period has psychological effects which many people dont like and besides that it also effect ones house buying decision making difficult in the first place .For e.g Mortgage Repayment period of 35 years always sound daunting than a Repayment period of say 15 years(using Sondertilgungs) irrespective of intrest rate.

 

Some people (like me) dont like to live with loan irrespective of Interest rate.

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My point was....the roar in prices is NOT in any way related to business, or population growth, or immigration. It is simply down to MATHS. Interest rates are superlow so everyone in rented has done the same maths equation we are all doing here and figured they can afford to buy.

 

If the rate sneaks up to 5% the prices rises will stop dead. Actually I think we are getting close to equilibrium on the equation as can be seen from the postings here - so if you haven't already purchased you missed the boat.

 

p.s. Johnnies Top Tip - electrification of the S4 to Lindau is going ahead so Kaufering out West my way will join the S-Bahn to Munich in the next few years, maybe as soon as 2017.

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It is so different up here. We live (weekdays) in a town within a half hour commute of Hannover, and the mortgage recently negotiated for us by the incomparable Paul of Starshollow's firm has us paying 500 euros a month whereas the rent on those houses is a chunk over 1000 a month. Less than 20 years of rent and the house is ours, but then it will probably not be worth more than now in my lifetime, or maybe ever.

 

Such a different mathematical landscape. Interesting.

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Interesting discussion

 

As someone from the UK buying a house is so ingrained it seems that renting is just the wrong thing. However I think we are poorly educated in how to think about borrowing costs, renting, compounding, long term decisions etc. There are some good comments on here from both sides of the rent vs buy debate that highlight this, and everyone should understand what these mean and how to calculate before they start on a mortgage.

 

There was a comment that said the UK way of mortgaging over a term period instead of by interest and tilgung terms was better - this shows up the lack of understanding we generally have in the UK, as they are the same thing expressed in different ways.

 

I didn't understand what I was doing when I took out a German mortgage, but then again in the end it hasn't mattered. However I wish I had taken the time to understand it as I would have made better decisions and payed less interest.

 

For the record I borrowed 100%, 4 times my then salary here in BaWu 12 years ago from a local bank - so blowing the myth about not being able to get 100% in Germany. At the time the mortgage was scheduled to run 28 years. I did have to pay the makler, notary, tax myself (8.5%). In 3 years it will be paid off. Long term you cannot know what will happen with your salary, inflation, interest rates. So if you are optimistic it will be in your favour, and pessimists should rent :)

 

The value of the house will be up by about 70% or more, the rent on the place I had before will be similar to the interest paid. You could argue that during this time I could have invested the tilgung and made more - if I was a good investor.

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Murphaph - that sounds like an amazing deal.

 

Yes I think so too. It is a Kombikredit (often frowned upon because of a lack of transparency) and it is through a family member who is giving up his commission which reduces the cost to us by approximately 12k over the term of the mortgage. I played around with the numbers myself and then had the APR calculation confirmed using the Stiftung Warentest excel macro that's floating around here. we are bringing a substantial bit of Eigenkapital to the table though, site of 60k is already bought and paid for and we will bring a further 30k or 40k cash and the old "Muskelhythotek of 15k or so, which I feel is conservative as I'm a reasonably competent DIYer and can definitely add value to the property myself) to the table, so the bank's risk is very low as we have a lot to lose if we fail to keep up with repayments!

 

We would essentially need to be quite mad not to buy (or in our case build) given how cheaply we can access the money and given that the repayments are fixed for the entire period. The repayments could actually be lower, depending on where interest rates are in 8.5 years. If the market rate the building society charges is lower than our agreed maximum, then that is what we will pay, if rates are higher, we pay our agreed max (which gives the 36k total cost above).

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dw, how can a responsible bank lend you 100% of the price and four times your salary? I think a piece of information is missing (winning lotto ticket, rich grandmother about to pass away, etc).

 

would you lend money under such conditions? normally the schwabs, well, you should know by now.

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100% mortgages are available to the "right" applicants but the interest rates are higher than if you bring in a good chunk of a deposit yourself.

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i just have to emphasize here that buying a property to live in is not an investment, it's a consumption. yes, it is NOT an investment. why? you don't receive any monetary returns on your home, just some perceived 'value'. you cannot do anything with that value, at least not in Germany. an investment means that there is a return to the capital you invest in. if it's negative return, then it is a bad investment.

if you sell your home, most likely you will need to buy a new one, at the appreciated value as your home has enjoyed. unless if you are willing to reduce your quality of life, or live in a smaller home.

if the value rises so dramatically that you somehow manage to make money out of the sale even after deducting the cost of a new home, then yes, it is an investment. but until it actually happens, buying a home to live in is a consumption. it's important to keep this in mind to manage your expectations and not overpay.

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The €3.500 net is what I earn per month, plus Kindergeld. My wife isn't and won't be working for the next few years, and even when she does go back it will only bring us an additional €800 at most. It's a shame housing is so damned expensive, because with these low interest rates and stability in the region, I really think it would be a good investment. I don't know what else intelligent to do with the money we have saved.

 

Your income is average middle class for a couple with children, and that's for Germany, not for Oberbayern. Instead of a single, detached house you could set your sights in a small row-house or big apartment in a small building.

 

 

i just have to emphasize here that buying a property to live in is not an investment, it's a consumption. yes, it is NOT an investment. why? you don't receive any monetary returns on your home, just some perceived 'value'. you cannot do anything with that value, at least not in Germany. an

Since living under a bridge on in the car are not desirable options, buying a property to live is more than consumption - either on rent or the loan you have to pay up anyway. We tied up our available income in paying for a house in the last years instead of investing it elsewhere, but that means that a couple of years from now we'll have a couple thousand of €€ extra per month to invest or spend instead of using them to pay the rent.

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In that case I would love to know of an investment that will make me 500K over the next 8 years.

 

Invest 2,500k in a restaurant and then sell after 1.5 years.

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i just have to emphasize here that buying a property to live in is not an investment, it's a consumption. yes, it is NOT an investment.

Disagree strongly. It is an investment RELATIVE TO living in rented. You are buying an asset which may appreciate or depreciate - if you stay in rented you most certainly are not. So although you also live in it - it is most certainly an investment.

 

At the end you have the option of selling the investment and moving back to rented (or a smaller/cheaper property). You have invested, maybe made a profit, and then sold.

 

You can buy shares in property companies on a bigger scale - would that also NOT be an investment? Only difference between your own home and buying shares in a property company is that all your eggs are in the 1 basket (controlled by you) and it is taxfree if you happen to win.

 

There are NOT many tax-free investments these days.

 

p.s. Normally in life to make money you need to accept a little risk to make money. I think property is a pretty good gamble, especially if you are only paying the same or less than the cost of renting. Sure - it may go down in price - but the odds (like the stock market) is that it goes up over a 20 year cycle. It's a small ticket to the lottery.

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I have to stress again that if you make money out of selling your home even after deducting the cost of a new home and lifetime maintenance, then yes, it's an investment. But until it happens a home is not an investment in traditional sense. Even after you pay off your mortgage you still need to pay maintenance costs for the rest of your life. It's a luxury consumption, not an investment.

REITs or real estate company shares are investment because you expect monetary returns, i.e. dividends, profits.

Don't get me wrong here. I still prefer buying over renting. But while keeping in mind that it's a luxury consumption, hence I buy only what I can afford.

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Yeah but a REIT or any other stock market based investment vehicle can also tank on you, but they are still investments. You can't say an investment is only an investment if it turns out to offer a return.

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I have to stress again that if you make money out of selling your home even after deducting the cost of a new home and lifetime maintenance, then yes, it's an investment. But until it happens a home is not an investment in traditional sense. Even after you pay off your mortgage you still need to pay maintenance costs for the rest of your life. It's a luxury consumption, not an investment.

REITs or real estate company shares are investment because you expect monetary returns, i.e. dividends, profits.

Don't get me wrong here. I still prefer buying over renting. But while keeping in mind that it's a luxury consumption, hence I buy only what I can afford.

 

Saying that a home is a luxury consumption is like saying that having enough food to eat is certainly nice, but not strictly necessary. Who do you think pays the maintenance costs if you're renting? Hint: unless you're renting from Opa and Oma, it's still you, as those costs are covered by the rent.

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I cant or dont understand why some folks here insist that Buying a property to live in isnt an investment...

 

The main problem I can see is is the purchaser defaults on payments and loses the property..

 

ALL of the properties that I have bought would have cost about 100-200euro a month less to rent!

 

If I rented the properties, I would not have saved the 200 yoyo, but bought a faster car or a sluttier woman!...

 

If I saved 200 euro a month for lets say 25 yrs...I would have saved 60k euro..

 

As it is... when I curl my toes and my Estate is sold, my daughter would inherit 4 times that!

 

And she wouldnt have to fight any cunty landlord for any deposit!

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