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.

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

Winning in Growth Cities - Cushman Wakefield Report 2017 and Outlook 2018

Key global cities are winning the race for investment – but which ones? The ‘Winning in Growth Cities’ report, published today, is an annual survey looking at global commercial real estate investment activity.

Key Highlights

• Global property investment rose to $1.5tn in the year to June.
• Led by New York, the US dominates the ranking of global cities but Asian markets made the most impressive gains in the past year.
• London is still the number one global market for cross border players. Paris closed the gap in third place but German cities are the ones to watch.
• While gateway cities again dominated, with the top 25 taking nearly 50% of the market, tier two cities have taken market share.
• The economic background is more encouraging for real estate than many expected, with global growth forecasts raised by the IMF for the first time since 2011.

One of the key factors determining which cities will out perform is technological change. Developments such as virtual reality and big data are set to enable more rapid change and will start shaping cities and tenant demand within months rather than years.

This report aims to identify some of the key enablers and emerging technologies and looks at what will determine which cities are the winners in this radically shifting environment.

For Germany and especially Berlin we support all activities regarding property investment with our experience and specialized network of property professionals.

Download the PDF

Winning in Growth Cities - Cushman Wakefield Report 2017 and Outlook 2018

International Property Handbook - Trends 2017

The International Property Handbook from Deloitte’s Global Real Estate & Construction group tracks real estate capital flow, and provides a view of investment trends and key deals in the most active international markets. It reflects back on 2016 analyzing economic data and real estate investment in 21 countries around the world to provide insights on potential trends in 2017.
Key trends include:

• Overall economic outlook is stronger, and there’s a significant increase in cross-border investments, especially in Europe.
• While the total investment volume remains stable, countries with positive investment volume growth are those in which investors expect growth due to macroeconomic indicators, expectations of rental growth, and yield compression.
  
• Offices continue to be the preference for investors.
• Private and unlisted funds are the most active net investors, followed by institutional funds.
• The capital raised continues to increase and investors are exploring new alternative markets.

Download the handbook to learn about the trends in the market.

International Property Handbook - Trends 2017

Are You Paying Too Much Tax For Your Property in Germany?

Through our consultancy assignments, we are frequently coming across avoidable mistakes resulting in unnecessary tax payments. A conversation with your Tax Consultant/Accountant could be a worthwhile investment but it only works if you are prepared to provide the right information and ask the right questions. Depending on how long ago you bought your property, there are different aspects to be considered: Pre-Acquisition phase, Operation phase and Sales phase. In this article, I will focus on the Operation phase, whilst provide some general background on the other two areas.

Pre-Acquisition

In most cases, the documentation of costs incurred before the purchase of a property, we call it Pre-Acquisition phase, is very poor as there is no certainty about the success of finding the right property. This is amplified when the process involves a tax period other than the one a property was bought in.

Here are some examples of items that could be used as deductions on your tax return:

• travel expenses including rental car, taxi and reasonable restaurant expenses;

• advisors for research and due diligence on properties, even if it is for properties not bought in the end.

If these cost items were not part of your returns you might want to find out if the tax assessments for the years concerned are final yet. Frequently tax authorities issue the assessment reserving the right to review documentation at a later point (“Vorbehalt der Nachprüfung”). In this case, you might be able to correct the tax return. For details, you would have to refer to your accountant.

Operations

The focus of attention is on this Operations phase of the property cycle because as with any other issues during the operational phase of a property, any mistake is likely to be repeated year after year. This provides the biggest opportunity secure the financial outcome of a property investment.

Here is a list of items deductions could come from, it is not comprehensive and in some cases might not apply. It is up to you and your accountant to determine your individual situation.

• Travel expenses including car rental, taxi and reasonable restaurant expenses.
  It is recommended to include some notes on property inspections, meetings with the property manager, bank, accountant etc. to document the relevance of these activities for the investment.

• Banking. This might not be obvious to everybody but the cost for a banking account solely for the management of the property for receiving surplus, covering indirect cost etc. can be used as a deduction.

•  Financing. In many cases, funds used as “equity” in a property investment are partially or completely financed through a different source with different collateral at home. If the direct connection with the investment can be shown the related cost can be deducted in your German tax return.

• Investments and payments to tenants. By applying different rules which relate to the size of investment and time proximity to the purchase date, investments can be either written off over a defined period or deducted immediately. Here it is important that there is an established process to ensure that all costs are fed into the tax return. More details on this follow in the next section.

Setting up the Right Processes

Let us start this section with a little case study. We recently received this real life message:

Hi. Having purchased 2 tenanted apartments in 2007 due to old tenancy agreement on one of these properties I eventually had to pay 10k to Tennant to vacate property then I refurbished & sold it. However, the accountancy firm failed to file this with my yearly accounts and I failed to obtain any credit for this outlay. Most frustrating. Is it possible to have a reputable management company & accountancy firm combined? Which would handle all the requirements of a foreign investor’s property in Berlin?

Don’t let the size of the investment distract you from the problems here, as we have plenty of examples of bigger investments with similar situations, I will quote one later on. Back to our little case study:

Paying off a tenant for moving out can be a commercially clever move as in most cases the value of a vacant apartment is significantly higher than a tenanted one. In most cases, the management account with the property manager will not have the necessary funds available (or there is something wrong with the cash management) but if the payment to the tenant is not funnelled through the management account there is the danger that the accountant will never know about it. I wonder what happened to the refurbishment cost in the case above. The suggested solution of a combined management company & accountancy firm would most likely not have solved the issue either unless there was a process in place involving the two and the owner.

Here is another example from our recent consultancy work:

We were representing a client’s interest in a malpractice court case against a property management. The owner received an invoice from his solicitor for an initial fee and filing cost for the court. He paid it from his private account, end of story. Had we not intervened the accounted would have never known about it and it would not have been included in the tax return. Especially painful as the reimbursement by the previous management company (we won the case) will be taxed as income.

There are two very simple processes to choose from to avoid paying too much tax due to lack of appropriate processes and management by the owner:

• Funnel every single cost item through the management account. If there is not enough funding, provide it as you have to pay it anyway. If it is a reimbursement it will flow back to you straight away. There is no better documentation of the relevance for the investment. If your property manager is moaning about it, give me a call I will find a better one for you.

• Provide all relevant invoices and documents for your property directly to your accountant at the beginning of the year for the previous year and check back that everything has been considered and if not why.

Another option could be a service provider like an asset manager who knows your property and everything going on around it. A well-focused service specification could more than earn the fee related to the service.

Unsurprizingly this is a service we provide for our clients. The benefits go far beyond having everything included in your tax return: Most important is controlling the property manager in the client’s interest. Our cost benefit ratio is 25:75, meaning that our clients receive three times the benefit of our cost.

Are You Paying Too Much Tax For Your Property in Germany?