Housing Market Report Berlin 2020

Berlin polarises like no other city. Nevertheless - or precisely because of this - it is still a magnet for many people from  all over the world. The influx into the metropolis is unbroken and there is a lot going on in Berlin’s economy: Tesla is coming, the BER Airport will (hopefully) soon start operating, and Siemensstadt 2.0 will open up new possibilities. Also, relocation for the entire federal government from Bonn to Berlin is repeatedly being discussed. All this affects the Berlin housing market that has been tense for years.

Housing Market Report Berlin 2020

An outcry swept across the country when Berlin announced the implementation of a rent cap. According to the tenor of the real estate industry, the rent cap is expropriation, investments are on hold, and there will be a hail of bankruptcies in the real estate industry. That being said, many tenants and people looking for accommodation, who perceive the increasing housing prices as a threat, welcomed the initiative. In order to shed some light in the effects of the rent cap announcement in the Berlin housing market, we have postponed the publication date of the Housing Markt Report. Articles on the rent cap and other recent topics regarding the Berlin housing market can be found, in the familiar way, in our small-scale analyses.

The report is available directly from the site of BerlinHyp:

DOWNLOAD

Housing Market Report Berlin 2020

The Berlin Rent Cap, Rent Freeze, Mietendeckel Will Come Into Force On 23.02.2020

The Berlin City Government has worked over-time to ensure that there will be no rentals next weekend under the old legal conditions. The office for Urban Development has announce that the Rent Act "Mietendeckel" will be published in the Journal of Laws and Ordinances for the State of Berlin on 22.02.2020 and thus will come into force on the next day,

23. February 2020.

It will apply retroactively to the status quo as of 18. June 2019 when the Berlin Senate approved the key elements of a new Berlin law on residential rents, including the so-called "Mietendeckel", a combination of rent freeze and rent cap as its main features.

via GIPHY
There is a line of dates to keep in mind and take action upon:

31.12.2013

01.01.2014

18.06.2019

23.02.2020

23.04.2020 Your next action date.

23.11.2020

22.02.2025 

If you are a landlord in Berlin, owning a rental apartment older than 01.01.2014 you should be setting up your timeline, project plan and checklist to avoid trouble. In many cases you could actually get fined accepting a rent at more than 120 % of the table applicable to your property. The maximum is set at Euro 500,000.

We have installed a Newsletter for landlords affected by the "Mietendeckel" for support with these tools for their apartments.

Here is the opportunity for signing up to this "Mietendeckel" Newsletter.

Don't miss the opportunity.

The Berlin Rent Cap, Rent Freeze, Mietendeckel Will Come Into Force On 23.02.2020

Berlin "Mietendeckel" Is A Rent Freeze And A Rent Cap - What Happens When?

The now worldwide infamous "Mietendeckel" under observation by many big cities with housing issues has various aspects to it coming into effect at different times. There is also a differentiation between re-letting and existing contracts. I will give the collection of regulations some structure, later on adding a timeline to it.

	Rent Freeze	Rent Cap
Re-Renting	Rent on 18 June 2019 maximum but possibly restricted by the rent cap table	Rent Cap Table for any contract after the publication date of the law in the Journal of Laws and Ordinances for the State of Berlin Amtsblatt 1)
Existing Contracts	Rent on 18 June 2019 maximum but possibly restricted by the rent cap table. The landlord must actively inform the tenant about the “correct” rent defined by either the date above of the rent cap, whichever is lower. 2)	The rent cap requires a rent reduction by the landlord if the current rent exceeds the rent derived from the cap table by >20%. This action has to happen 9 months after the publication. 3)

1) Before the publication, there is no actual restriction except that rents exceeding the cap table by more than 20% will have to be reduced later.
2) As of 1 January 2022, the rent cap table will be subject to an annual review based on the percentage inflation determined by the Federal Statistics Office as of 31 December of the previous year but limited to 1.3%. The Senate department responsible for housing must define the relevant percentage by way of a legal order.
3) For more details about the cap table see https://germanproperties.blogspot.com/2020/01/the-berlin-rent-cap-mietendeckel-is.html

Applying the cap table and assuming the highest possible value of 9,80 €/m²/month with 0,74 € for a good location and 1,00 € bonus for top equipment and being completed between 2003 and 2013  your top rent is 11,54. Add 20% before it is deemed excessive by the "Mietendeckel" you end up at

13,85 €/m²/month. This is the Maximum!

It does not matter, whether the apartment is furnished or not, if it is older than 2014 this is the maximum rent you can possibly have. There is a time-line to be observed. I will publish a separate post on this subject. One very short time-line applies to current vacancies. For details on this matter please see https://germanproperties.blogspot.com/2020/02/action-required-you-can-optimize-your.html urgently.

Here is the opportunity for you to sign up to this free newsletter:

Don't miss the opportunity.

Berlin "Mietendeckel" Is A Rent Freeze And A Rent Cap - What Happens When?

Action Required - You Can Optimize Your Freeze Rent in the "Mietendeckel"

If you own in apartment building or apartment in Berlin completed before 2014 and currently have a vacancy, Swift action is advisable. The difference is 20% of the prospective net rent.

If residential space is or was re-let after the effective date 18 June 2019 and the lease continues to apply upon the Rent Act taking effect, the newly agreed rent will be relevant for the rent freeze. Thus, in such cases too, a market rent may be agreed before the Rent Act takes effect without the risk of the agreement being retroactively deemed invalid and the landlord being required to return any excess rent. At the same time, the tenant may, within nine months of the law taking effect, demand that the rent be reduced to the permitted cap (see The Berlin Rent Cap - "Mietendeckel" is here. What Do You Have To Do?)

In short: You can rent your currently vacant apartment at 19% above the cap table and that will be your freeze rent going forward, unless you re rent again within the next five years.

Sign-up for updates

To recap the latest main events:

The Berlin city parliament voted on Thursday, January 30, 2020, to pass the rent cap “Mietendeckel” draft into law. It will most likely come into effect at the beginning of March, possibly as early as the end of February when officially published.
This will trigger numerous deadlines for actions required to be taken by the landlord.
The answer to a much asked question:
Yes it does apply to furnished apartments completed before 2014.
We are offering a newsletter, starting with a summary and interpretation of the law as it went into the parliamentary hearing. going forward, we will be providing hands-on tips on the communication and the timeline that needs to be met starting with the information needed.
Here is the opportunity for you to sign up to this free newsletter:

Don't miss the opportunity.

Action Required - You Can Optimize Your Freeze Rent in the "Mietendeckel"

A Flood of Updates and Interpretations on The "Mietendeckel" Rent Cap To Be Expected

You are the proud owner of a residential rental property, a buy-to-let plan?

If you have not heard about it yet, you will soon from your property manager or tenant. There are already various interpretations going around and none less than the German Federal Government is planning to take the regulation to the Constitutional Court in Karlsruhe.

Sign up

To recap the latest main events:

The Berlin city parliament voted on Thursday, January 30, 2020, to pass the rent cap “Mietendeckel” draft into law. It will most likely come into effect at the beginning of March, possibly as early as the end of February when officially published.
This will trigger numerous deadlines for actions required to be taken by the landlord.
The answer to a much asked question:
Yes it does apply to furnished apartments completed before 2014.
We are offering a newsletter, starting with a summary and interpretation of the law as it went into the parliamentary hearing. going forward, we will be providing hands-on tips on the communication and the timeline that needs to be met starting with the information needed.
Here is the opportunity for you to sign up to this free newsletter:

Don't miss the opportunity.

A Flood of Updates and Interpretations on The "Mietendeckel" Rent Cap To Be Expected

Berlin Extends the Restriction on Title Splits, Division into Condos, For Another Five Years

The Berlin city government (Senat) has extended the limitations on title splits in social conservation areas by another five years. The regulation would have expired in March.

This is a map of the areas as of 30.06.2019

Soziale Erhaltungsgebiete Berlin, Stand 30.06.2019

More details about the individual areas are in our blog https://propertylocations.blogspot.com/

Legal Background

The German Building Code, Section 172, provides the option for cities like Berlin to define social conservation areas “Soziale Erhaltungsgebiete”, also known as “Milieuschutz” Gebiete. One of the measures within this regulation is the option to stop owners of apartment buildings in these areas from dividing them up into condos (“Eigentumswohnungen”) through a title split. For the other aspects see https://germanproperties.blogspot.com/2018/03/the-can-do-and-cant-do-renovating.html on this blog.

The Good News

However, there are 6 exceptions where the district office cannot deny the permit for the title split. They are listed in Section 172 (4) of the Building Code. Statistics on this matter show, that amongst the reasons, that were listed by the owner in the application for a conversion permit between March 14th, 2015 and June 30th, 2019, 92.7% of the 15,773 apartments an application for a conversion was made was based on the “voluntary commitment of the owner - sale only to tenants for a period of seven years” (sentence 3 No. 6).

Depending on the intentions of the owner or buyer, this can be an acceptable limitation.

Looking for help in your case? Please contact us, using the email address on the right.

Berlin Extends the Restriction on Title Splits, Division into Condos, For Another Five Years

Berlin Rent Cap - Mietendeckel - Actions Required Before The End of February

The Berlin city parliament voted on Thursday to pass the rent cap “Mietendeckel” draft into law. It will most likely come into effect at the beginning of March, possibly as early as the end of February when officially published.

It applies only to apartments completed before 2014! New property developments are not touched by this law.

There are three major aspects:

• A rent freeze 
• A rent reduction, where applicable
• A tenant rent refund

This article will focus on the rent freeze, the expected impact on the owner and the preparations to be made as the law applies with regard to landlords.

We assume that most of the discussions will initially be with tenants who received a rent increase after the cut-off date of June 18, 2019. Once the law comes into force, it can be checked whether there are any claims for recovery of the increased rent. Incidentally, this also applies to graduated rents (Staffelmiete) that have increased during this period.

The law stipulates that tenants can only request a reduction in rent nine months after the law comes into force. Any claims must be made by the tenants directly, the district offices (Bezirksamt) however may continue to take all measures necessary to enforce the law. This includes, for example, providing tenants with information about the legally permissible rent for their apartment.

However, landlords who have signed a new lease after the cut-off date and before the law comes into effect (end of February or beginning of March) can rest easy. According to a recent clarification in the draft law, this new contract rent will stand. Simple reimbursement of rent that has been paid too much is not owed.
Any rental contract signed between now and the date the law goes into effect is your “freeze rent”. However, the following also applies here: If the rent is inadmissibly high (more the 20% above the rent cap "Mietendeckel" table), a reduction can be requested under the terms of the new legislation.

Actions to take:

Get as many rentals of vacant apartments done by the end of February as possible, but keep in mind the 20% rent cap. More on this specific aspect coming up. 

This is a time critical issue, we can provide support in setting up your action plan and its execution. Contact us via the email address on the right.

Berlin Rent Cap - Mietendeckel - Actions Required Before The End of February

The Berlin Rent Cap - "Mietendeckel" is here. What Do You Have To Do?

Immediately after the law is published, probably in mid-February, a rent freeze applies as the first stage. The key date for this was June 18, 2019. Landlords are then no longer allowed to charge a rent that is above the value at that time. This rent freeze applies at least until January 2022.

Then, nine months later stage two, the most controversial section of the law follows with a rule that has never existed before: The Senate has established a rent table with prices that are based on the age group and fit out standard.

There are also surcharges: one euro for "modern equipment", for example with a fitted kitchen and high-quality flooring, and "location surcharges", a maximum of 0.74 euros per square meter in good locations. Including these surcharges, the absolute maximum price of a net rent in Berlin for a period of five years will be 11.54 euros - in this case for houses built between 2003 and 2013.

When the rent is 20% or more above the applicable table value the landlord has to take the initiative to reduce it.

What to do next?

If your property was completed 2014 or later - have a cup of tea and watch.

If your property is older, there are several things you have to comply with and they all require the landlord to become active or risk fines.

18 June 2019

This is the magic date of the rent freeze. When you are renting now, you are not allowed to exceed the rent of your property on that day. You are not even allowed to accept more if the tenant offers it (which is not unlikely in the current market situation). You would ave a long term legal risk because it is illegal.

Most likely in October 2020 you have to actively adjust your rent according to the table above with bonuses and reductions based on standard (e.g. fitted kitchen) or location, much like the rent table process already applied.

In a new post coming up we will explain in detail which steps a landlord in Berlin with residential apartments older than 2014 will have to take.

If you don't want to miss the updates, subscribe to this blog here on the right of the page.

The Berlin Rent Cap - "Mietendeckel" is here. What Do You Have To Do?

The International Monetary Fund: View of the German Housing Market

Germany : 2018 Article IV Consultation – Press Release; Staff Report and Statement by the Executive Director for Germany

In summary the IMF concluded that Germany needs to keep an eye on its property market.  House prices are most overvalued in Munich, Hamburg, Hannover, and Frankfurt, and are estimated to be more than 20 percent above their fundament level on average in major German cities.

A housing valuation model using Germany’s ten largest cities and twelve European peers shows that since 2010, house prices in Munich, Hamburg, Frankfurt and Hannover have increased by 25 to 50 percent above the levels suggested by economic fundamentals. The average overvaluation gap in the 7 biggest cities was 21 percent in 2017.

Annex IX. Is There a Housing Price Bubble in Germany’s Main Cities? 

IMF Country Report Germany, Annex IX 

As most studies are based on country wide price levels a view at city-level is important as they expose a risk level that does not shown at the housing market aggregate level.

     Kajuth, Florian, Thomas A. Knetsch and Nicolas Pinkwart (2016).
     Assessing House Prices in Germany:
     Evidence from an Estimated Stock-flow Model
     using Regional Data.
     Journal of European Real Estate Research Vol. 9(3), 286–307.

IMF Country Report Germany, Annex IX 

The IMF concludes that there is no cause for an alarm yet because there is no lending boom to accompany the price boom.

The economy surprised on the upside in 2017.

The findings of the IMF Report on the general state of the German economy is headed:  IMPRESSIVE RECENT ECONOMIC PERFORMANCE. Real GDP growth picked up sharply, reaching 2.5 percent, as exports rebounded and triggered a much-awaited pickup in investment. Strong private consumption, supported by a robust labor market, was offset by a slowdown in public consumption as refugee-related expenditures stabilized. Although both exports and imports grew strongly, the contribution of net exports turned positive again. The labor market continued to tighten: even though employment grew more slowly than in previous years, reflecting diminished migrant inflows, job creation was strong enough to bring the unemployment rate to a new post-reunification low of 3.6 percent.1 In the first quarter of 2018, growth slowed to 0.3 percent (qoq), reflecting a normal correction following unusually strong growth in late 2017 and temporary factors (strikes, a particularly nasty flu outbreak, and early Easter holidays), but the labor market continued to perform strongly.

Commentary:

The Germany : 2018 Article IV Consultation – Press Release; Staff Report and Statement by the Executive Director for Germany by the IMF shows Germany as a stable investment environment in the Housing Market.

The International Monetary Fund: View of the German Housing Market

Global Cities Index Posts Weakest Property Price Growth Since 2015

Globally, urban prices are rising at their slowest rate since the third quarter of 2015. The Global Residential Cities Index, which tracks the movement in average residential prices across 150 cities worldwide, rose by 4% in the year to March 2018, down from 6.4% a year ago.
According to a new report by international real estate consultant Knight Frank, despite the global economy's strong performance, increased government activities to fight inflation in the real estate sector have slowed the price increases to some extent. While last year's report saw 12 cities with a growth of more than 20 % this years there is only one left in this bracket: the Indian city of Surat.

https://content.knightfrank.com/research/1026/documents/en/global-residential-cities-index-q1-2018-5666.pdf

Europe's growth path continues as 11 of the top 20 cities in the ranking for growth are in Europe. Previously in the top ranking Berlin (14.9%), Budapest (14.4%) and Reykjavik (11.8%) are now joined by Rotterdam (14.8%), Edinburgh (12%), Porto (11.7%) and Sofia (11.3%).

In Canada Vancouver continues to outperform with annual growth of 15.4% as tracked by the National Bank of Canada.

In the US Seattle (12.9%) continues to lead the 15 cities tracked by the index.

Southern Europe is increasingly polarised. Whilst Italian cities are well-represented at the foot of the table, Spanish and Portuguese cities are registering stronger growth. Porto, Malaga and Madrid all sit high in the rankings with annual growth of 11.7%, 10.4% and 10.3% respectively.

https://content.knightfrank.com/research/1026/documents/en/global-residential-cities-index-q1-2018-5666.pdf

The report also contains interesting insights in the bandwidth within countries which can go from + 22% to -5% within one economy.

For the full report just click on the graph or table above.

Global Cities Index Posts Weakest Property Price Growth Since 2015

Berlin Remains in the Top 5 of the Most Dynamic Cities in Europe

Savills Investment Management LLP has published their annual  "Savills IM Dynamic Cities Index" for Europe.

Europe stands among the most urbanised regions on the globe. Trends
in urbanisation are increasingly important for investors. However, not
all cities are equal. With the predicted growth of disruptive technology,
it is vital to identify locations that will show resilience to change. 

The Savills Investment Management Dynamic Cities
index incorporates cities’ longer-term upwards growth
potential rather than focus on the one- to two-year,
shorter-term real estate cycle.
Using 60 indicators across 6 subcategories, Savills
Investment Management has identified London,
Cambridge, Paris, Amsterdam and Berlin as the top
five European cities for real estate investment.
KIRAN PATEL Global Chief Investment Officer Savills Investment Management

http://www.dynamiccities.savillsim.com/

London, Cambridge, Paris, Amsterdam and Berlin remain the five most dynamic cities in Europe, according to Savills Investment Management. They claim their position in the new edition of the "Savills IM Dynamic Cities Index", for which 130 European cities and city regions were evaluated according to the criteria of innovation, inspiration, inclusion, networking, investment and infrastructure. The index is led by cities that are successful in attracting and retaining talent, promoting innovation, and increasing productivity, which in turn drives prosperity and population growth and thus has a positive impact on the commercial real estate markets. Most of the locations investigated achieved better results than in the previous year. In Germany, especially Frankfurt (+4 in 17th place) improved.

The full report is available at this link:
http://www.dynamiccities.savillsim.com/resources/documents/Dynamic_Cities_ResearchPaper_2018.pdf
And an interactive presentation with visualisation of the the results and their components allowing direct comparison and search is available at this link:
http://www.dynamiccities.savillsim.com/city-rankings

Berlin Remains in the Top 5 of the Most Dynamic Cities in Europe

Eight Percent of Office Space Turnover in Berlin are Accounted For by Flexible Workspaces.

The average share of Workspace as a Service (WaaS) take-up in Europe reached 7.5% in Q1 2018,
up from 7.2% in 2017 and almost three times higher compared to 2016, corresponding to a total volume of 680,000 m² according to Savills.

“The effect of 'on-demand' economy on the office sector, is bringing the expectation for higher flexibility, shorter leases and personalised services.” 

Eri Mitsostergiou, Savills European Research

Briefing note Workspace as a Service (WaaS) Trend or necessity?

The largest market over the past five quarters was London (217,000 m²), followed by Paris (126,000 m²) and Berlin (81,000 m²).

Eight percent of space turnover in Berlin are accounted for by Flexible Workspaces.

Eight Percent of Office Space Turnover in Berlin are Accounted For by Flexible Workspaces.

Cash in The Attic - Rooftop Developments in Berlin

The Urban Land Institute Leader Summit 2018 in Frankfurt in May touched on the subject of repurposing roof space in Berlin. Be it your classic attic rooftop development or installing completely new units on top of existing buildings:

In Brief: Repurposing Rooftop Space as Values Climb in Berlin

With property in high demand in Berlin—it had the largest year-over-year real estate price increase of any city in the world last year—it makes more sense than ever to look up for new opportunities. A number of developers have found success (or are hoping for a top return) from add-on projects atop existing structures in Germany’s capital.

For the full article and video: https://urbanland.uli.org/development-business/brief-repurposing-rooftop-space-values-climb-berlin/

This is especially interesting in "Mileuschutz" protected areas as there are no "luxury" limitations for the new apartments and the rent is not limited. You just cannot integrate existing apartments into the development. For more information on "Milieuschutz" see The Can Do and Can't Do Renovating Apartments in Certain Areas of Berlin in this blog.

Cash in The Attic - Rooftop Developments in Berlin

IBB Housing Market Report 2017 for the Berlin and Greater Berlin region

The annual IBB Housing Market Report has a different angle at the market situation than the commercial reports produced by big property agents and banks. Here is how they characterise themselves:

"IBB is the business development bank of the Federal Land of Berlin. With its business support, it actively contributes towards developing Berlin as a hub for business and industry. Our staff working in housing and real estate promotion are the people to contact for all issues related to real-estate financing."

Their viewpoint is policy based and not biased to talking prices up for business purposes (also available in this blog). The main report is in German and a volume of 121 pages with very detailed data and information. There is an 8 page summary available with all key findings of the report addressing these topics:

Selected Data at a glance

• Economic factors
• Housing demand
• Housing supply
• Rents and housing market
• More detailed data available in the German version of the full report

General situation and important trends

• Berlin’s economy – growth once again above the national average
• Trend in demand
• Trend in supply
• Market for detached and semi-detached homes
• Market for freehold apartments
• Market for rented apartments
• Key topic: The “Berlin and greater Berlin” housing market region

Downloads:

2017 IBB Housing Market Report - Summary, English

IBB Wohnungsmarktbericht - Full Report, German

IBB Housing Market Report 2017 for the Berlin and Greater Berlin region

Why Would I Divide My Apartment Block Into Separate Units, Condos?

Yesterday's post created many responses regarding the question: Why would or should I divide my property into separate units?

At the outset I would like to stress two big words: IT DEPENDS or as we like to say "How Long Is A Piece Of String".

List of possible reasons:

• sharing out a property between investment partners wanting to go separate ways
• sharing out a property between heirs wanting to go separate ways
• selling off a property in single units at a higher price per m² in single units
• increasing value for potential buyers
• increasing LTV for mortgaging as banks like divided properties very much
• ...

Areas of Concern

• Many of the angles have tax implications totally destroying the intent, for international investors possibly a double taxation issue.
• Is your property in an area where the division might be blocked by local authorities for fear of "gentrification" or is it already in a protected area.
• What is your investment goal?

One of the key variables in deciding on a strategy for your property is the time horizon you have set for yourselves. If you are looking for the long game, blocked areas are still feasible for a division, as long as you don't plan to sell within the next 7 years. So one investor's concern is no problem to the next.

One item everybody shares in this process is the cost as it does not depend on the intent, this is what yesterday's post was about. Developing a strategy for your property or portfolio based on the intentions of the owner(s) and the individual properties is one of the specialties required. So the main question is:

How Long Is A Piece Of String?

Which summarizes strategy if not approached deliberately. Are you an investor wanting annual income from your investment or are you investing in value gain and see what happened after 10 years? Both strategies are valid but need different approaches.

If you are interested in a cost estimate for dividing a 20 apartment "average" building have a look at yesterdays post on this block.

http://germanproperties.blogspot.com/2018/06/how-much-does-it-cost-to-split-my.html

If you want a cost estimate for your specific situation please contact an expert.

Why Would I Divide My Apartment Block Into Separate Units, Condos?

How much does it cost to split my apartment block into condos?

Many owners of apartment buildings in Germany are contemplating a title split for their property. There are various reasons why property owners might want to divide a property into separate legal units and this is not limited to apartment buildings. However, the purpose of this article is to cast a light on the steps involved and their cost based on an “average” building in an average location.

Profile of our “average” building:

• The rental area is 1,660 m².
• There are 20 apartments.
• The monthly rent is 6.00 €/m² resulting in an annual rent of 115,000 €.
• The fair market value is 115,000 € annual rent x multiplier 25 = ca 2.9 MM €
• The gross floor space is 2,000 m² (including ca. 17% construction and traffic area).

As-Built Measurements

The single largest cost is producing exact plans and measurements if not readily available. This will mostly be the case with pre-war buildings. The first step would be checking the archives, including the local council’s archives for building permits. If plans and measurements are not available there is no way of getting around having a surveyor take every measurement of the building and drawing up new plans. There are different cost models for this type of work; a widely used one refers to the actual measured gross floor space.

Photo by Lorenzo Cafaro from Pexels

In the case of our “average” building, this could be 6.00 €/m² gross floor space = 12,000 € plus VAT = 14,280 €.
As all apartments need to be accessed by the surveyor there is a great coordination requirement with the tenants by the property manager which he might well want to charge for but this is not included in this calculation.



The next cost items are incurred in any case, independent of the origin of the plans and measurements.

Plans and Certification

A set of plans including the land surveyor plan of the plot have to be prepared according to specifically defined requirements issued by the local council. The cost for the production and submission of the application for the certification of the partition plan (ger. Abgeschlossenheitsbescheinigung) will in our example be about 2,000 €.
The charges levied by the local council for issuing the certificate for the partition plan depends on the level of complication, for our “average” building I am estimating 10 € per unit = 2,000 €.

Declaration of Division

The declaration of division (ger.Teilungserklärung) is a notarized document based on the plans as certified by the local council which also includes statutes of the owners association. It refers in most parts to the code of the Wohnungseigentumsgesetz (WEG). An English translation of the code is available here: https://www.gesetze-im-internet.de/englisch_woeigg/index.html
The draft of the declaration of division should be done by an experienced lawyer/notary in conjunction with someone knowing the strategy for the property. e.g. planned rooftop development, expansion of an existing building or a separate new building on the plot, parking lot spaces, garages etc..

The fee scale for the notary (assuming he produces the draft) is based on the fair market value of the property, in the case of our “average” building it would be ca. 6,200 € incl. VAT and sundries.
The execution of the title split in the register is also value based and would be 2,450 € in our example case.

Project Management

I strongly suggest engaging a project manager experienced in this field to manage the process if you are not in the position to confidently deliver the task yourself. Poor concepts for the declaration of division can create big problems, are costly to rectify and in some cases irreparable once only one unit is sold to an external owner. ANY change to the Declaration of Division or the statutes needs 100% votes. A new co-owner might demand payments to agree to the changes. Even if changes can still be made, it will produce further, unnecessary cost.
In the case of our “average” building the project management cost is estimated at 3,800 € incl. VAT.

Cost Summary

Notary	6,200.00	Based on value incl. VAT and sundries
Register	2,450.00	Based on value
As built measurements and plans	14,280.00	6 € per m² gross floor space
Producing split plans for the property register	2,000.00	Time fee and reproduction and submission of application at local authorities
Certified Partition Plan by local authorities	2,000.00	Ca. 100 € per unit, depending on the level of complication
Property Management for access coordination with tenants	?	Depends on contract and relationship with the property manager
Management of the project	3,800.00	Estimated 4 days at a daily rate 800.00 plus VAT
Estimated total cost	30,730.00	With new measurements and plans

Conclusions

The cost of the conversion of your apartment block into a condo building is roughly 1 % of the value. This is not a formula for the estimation just the outcome for our “average” building but it provides an idea of scale to “plug in” your preliminary business plan. As mentioned at the outset, the motivation for the process and the timescale are central elements to the decision.
Further considerations
There are areas in big cities in Germany where title splits are blocked to prevent “gentrification”. However, this block can be avoided when the strategy for the property is long term. More information about the legal block: http://germanproperties.blogspot.com/2018/03/thinking-about-dividing-apartmentblock.html. Please contact me if you are interested in long-term strategies as the level of detail would go far beyond this article.

Glossary

Here are further terms describing the process of dividing a property into individual, legally tradeable independent units

• declaration of division
• declaration of apportionment and the apportionment plan
• statement of partition
• title split
• Teilungserklärung (ger.)

How much does it cost to split my apartment block into condos?

The Berlin Property Market Has Much More Scope

The Berlin Property play has more to give

Demand for rental properties remains strong, as the city continues to attract people from other parts of Germany and the rest of the world. However, supply of rented accommodation is unable to keep up with demand. As property prices remain lower than other major cities, the costs of building new homes is higher than current prices, which means supply of new homes is low.

Phoenix Spree: The #Berlin property play with more to give http://citywire.co.uk/…/phoenix-spree-the-berlin-p…/a1117964

The Berlin Property Market Has Much More Scope

Berlin, March Against Displacement and Rent Madness

More than 180 organisations and group initiatives have called for a "March against gentrification and rent madness". The march starts at Potsdamer Platz in Berlin on 14. April 2018 at 2 p.m. and was registered for 4,000 participants but 10,000 have already announced their participation via facebook.

Photo by Darko Pribeg on Unsplash

85 % of Berlin's population are living in rented accommodation which makes changes is rent levels felt by the overwhelming majority. Families have to leave the areas where they have lived for years, where they have formed social ties and where their children have been going to school. They just can't afford the rent increases anymore and in some cases have to move out of the city altogether.

Most of the declining numbers of newly built apartments are in the luxury segment out of financial reach for the local working population. Social housing has been neglected, affordable housing is not available.

Of the existing apartments many have been modernized in recent years and the organisers of the march are criticizing that those modernisations play a big part in the rent increases and displacements. E.g. a new lift and energy saving new facade easily run up to 20,000 € per apartment which will allow the owner to raise the rent by 11% or 2,200 € per year for this apartment.

Regulations like "Milieuschutz" are trying to put a limit on the type of modernisation that will be allowed in protected areas amongst other things, more details here: http://germanproperties.blogspot.de/2018/03/the-can-do-and-cant-do-renovating.html. But the organizers say that there are not enough protected areas especially in the inner city districts.

The federal government has already announced a new initiative to increase social housing but also to expand the regulations for local authorities to protect social structures in their cities.

Berlin, March Against Displacement and Rent Madness

The Federal Government Plans to Tighten The Restrictions on Rent Increases in Germany

Katarina Barley, new Justice Minister, about future Housing Policy of the Federal Government

ARD "Bericht aus Berlin" 18.30 , 25.03.2018

Immediately in Barley's area of responsibility, is the rental price brake, which is to be tightened according to the coalition agreement. Barley announced that in the future the landlord should provide information about the amount of the previous tenant's rent. If it turns out that the new rent is too high according to the rental price break regulations, tenants should get the opportunity to reclaim the rent, including retroactively and have the current rent adapted. The Minister intends to present a draft bill before the summer break.


The Interview in German

"Outmodernizing" can be expensive

Barley also wants to prevent tenants from being burdened with modernization measures "beyond reason". In many cities, one can see that long-term tenants are specifically "modernized out" of their apartments, the minister said. Such a "targeted" procedure should be punished in the future as a violation. Tenants should also be given the opportunity to assert claims for damages.

Barley rejected the argument that this would impede housing construction. The apportionment of "normal modernization" should even be facilitated, that is, stripped of hampering bureaucracy. The minister suggested fines in a range of up to 10,000 Euros. She also emphasized: "Where luxury modernization is abusive, we will make it harder, and that's right."

Commentary

Rental Price Break and limitations on "luxury" modernisation are at the top of the agenda of Germany's new Justice Minister Katarina Barley. It seems to be a tribute to the political base of the SPD for joining the coalition against a substantial number of members wanting to stay in the opposition.

Both topics are full of legal traps. While the current version of the Rental Price Break has been challenged by lower courts and is on it's way through appeals, a new version is being hammered out. An upgraded version is planned to be presented to parliament before the summer break.

The limitation of "luxury" modernization seems an even bigger legal minefield. The definition of "luxury" depends on many factors. Most likely it will pick up on the norms used in regulated urban development areas called "Milieuschutzgebiet". These norms are orientated on average sizes and standards, e.g. a new balcony added in a modernization is not allowed to be bigger than 4 m². More details here: https://germanproperties.blogspot.de/2018/03/the-can-do-and-cant-do-renovating.html.

The Federal Government Plans to Tighten The Restrictions on Rent Increases in Germany

The Can Do and Can't Do Renovating Apartments in Certain Areas of Berlin

Preservation Statute Areas -. “Mileuschutzgebiete” in Berlin. What can I do, what can’t I do with my property.

The prevention of so-called “gentrification“ is a central issue for the Berlin city government. The term “gentrification” is describing the process of displacing parts of the current population of inner-city areas through rent increases beyond their reach. This development completely changes the social structure of entire boroughs and destroys social networks and the associated support functions for its members.
The Federal Building Code (Baugesetzbuch, BauGB) includes a regulation that provides local authorities with a tool that is intended to avoid such a development. More details about the split of apartment blocks into individual condos and the English version of the building code can be found here:
https://germanproperties.blogspot.de/2018/03/thinking-about-dividing-apartmentblock.html

Section 172 of the code allows for the definition of protected areas under certain statistical conditions and for a specific time period of up to 5 years. There is a widespread consensus that after 5 years another 5 year period can be proclaimed and so on. It would be highly speculative and dependent on political significant changes to expect a change after 5 years.

There are two different criteria for protection which can be applied separately or in combination,
Social Preservation area § 172 (1) Nr. 2 BauGB and/or Erhaltungsgebiete with unique urban character § 172 (1) Nr. 1 BauGB

The map below shows the Berlin areas that are currently covered by individual Preservation Statutes (Milieuschutzverordnungen)

Source: Senatsverwaltung für Stadtentwicklung und Wohnen

For detailed information about the individual districts please visit our Blog: https://propertylocations.blogspot.de/

Social Preservation area § 172 (1) Nr. 2 BauGB

Examples of renovations or modernizations that are not allowed (examples)

• Floor plan changes
• Merging or splitting apartments
• Extension of balconies, conservatories, loggias or terraces with more than 4 m² of floor space
• Extension of second balconies, conservatories, loggias or terraces
• Fitted kitchens
• Installation of a second toilet, complex bathroom renovations

Examples of renovations or modernizations that are allowed (examples)

Refurbishments that only produce the "state-of-the-art" equipment of an average apartment must be approved. The resulting rent increases must be borne by the tenants in most cases.

To be approved by authorities (among others):

• Initial construction of a central heating with hot water supply
• Initial construction of a bathroom
• Upgrade of an existing bathroom with modern equipment
• Basic equipment with plumbing, water and electrical installations, antenna, cable TV and intercom systems
• Replacement of existing windows according to the Energy Saving Ordinance (Energieeinsparverordnung EnEV)
• Obligatory energy conservation renovations
• Attic conversion and new construction

A post like this one is always restricted to general examples and can never provide an all-inclusive overview of all aspects. Before any action is taken and money spent we recommend a consultation with the local authorities.

We provide advice and guidance for these types of projects for our clients from the first steps of a feasibility study through to a business plan and completion of the project. For inquiries about our services please use our contact page .

The Can Do and Can't Do Renovating Apartments in Certain Areas of Berlin