Why Germany? The Real Estate Investment Case

Germany's real estate market has long attracted both domestic and international investors seeking stability, legal certainty, and long-term capital preservation. Unlike markets in some other jurisdictions, German property law is characterised by a high degree of formality — transactions must be executed before a notary, title is registered in a public land register (Grundbuch), and the rights and obligations of all parties are carefully documented. This formality, which can initially appear burdensome to foreign buyers accustomed to less regulated markets, is in practice one of Germany's greatest strengths as an investment destination.

Frankfurt, Munich, Berlin, Hamburg, and Düsseldorf remain the primary targets for international real estate investment in Germany, with Frankfurt in particular attracting significant institutional and high-net-worth individual investment given its role as the EU's financial capital post-Brexit. However, secondary cities — Nuremberg, Stuttgart, Leipzig, Cologne — are increasingly on the radar of investors seeking better yields without sacrificing the fundamentals of the German market.

The Legal Framework: Notarial Requirement and the Grundbuch

The single most distinctive feature of the German real estate transaction process is the mandatory involvement of a notary (Notar). Under Section 311b BGB, every agreement to sell or buy real property in Germany must be executed in the form of a notarial deed — an oral or written contract that is not notarised has no legal effect. The notary in Germany is a legally neutral officer whose duty is to advise all parties impartially and ensure that the transaction complies with the law.

The notary drafts the purchase agreement (Kaufvertrag), conducts the notarial appointment at which all parties sign, applies for registration in the Grundbuch on behalf of the parties, and manages the payment process through a trust account (Notaranderkonto) in transactions where this is appropriate. The notary's fees are statutory and calculated on the purchase price — there is no room for negotiation, and the same tariff applies regardless of which notary you use.

The Grundbuch — Germany's land register — is the authoritative record of ownership and encumbrances in respect of German real property. It is maintained by the local Amtsgericht (local court) and is divided into three sections: the first records ownership; the second records encumbrances other than mortgages (such as easements, rights of way, and pre-emption rights); and the third records mortgages and land charges (Grundschulden). A thorough review of the Grundbuch extract (Grundbuchauszug) prior to signing any purchase agreement is an essential step in any real estate due diligence process.

Purchase Costs: Taxes, Fees, and Ancillary Expenses

Foreign buyers in Germany are frequently surprised by the total transaction costs associated with a German real estate purchase. In addition to the purchase price, a buyer should budget for the following: Real Estate Transfer Tax (Grunderwerbsteuer), which varies by federal state from 3.5% (Bavaria, Saxony) to 6.5% (Brandenburg, North Rhine-Westphalia, Saarland, Schleswig-Holstein, Thüringia); notary fees of approximately 1.5% to 2% of the purchase price (covering both the notarisation and the Grundbuch registration); and real estate agent commission (Maklerprovision) where applicable, which is typically split equally between buyer and seller at 3% each plus VAT following the 2020 reform of the broker commission rules.

In total, acquisition costs in Germany typically amount to between 7% and 12% of the purchase price depending on the federal state in which the property is located. For a €1 million purchase in Hesse (where Frankfurt is located, and where Grunderwerbsteuer is 6%), a buyer should budget approximately €90,000–€100,000 in transaction costs above and beyond the purchase price.

For investors acquiring real estate through a corporate structure — which is common for larger or multiple-property acquisitions — share deals rather than asset deals are sometimes used to mitigate Grunderwerbsteuer liability. The rules governing share deals have been significantly tightened in recent years following legislative reform, and specialist legal and tax advice is essential before structuring any acquisition in this way.

Due Diligence: What to Check Before You Buy

Thorough due diligence is the foundation of any successful real estate acquisition in Germany. Beyond the Grundbuch review, buyers should obtain and review the energy performance certificate (Energieausweis), which is mandatory and must be provided by the seller; the building permit documentation and any record of planning violations; the building file (Bauakte) held by the municipal building authority; declarations of any known defects; information on any heritage listing (Denkmalschutz) that may restrict renovation; and, for apartments in condominium ownership (Wohnungseigentum), the minutes of owner meetings for the past three years and the current financial reserves of the owners' association (Wohnungseigentümergemeinschaft).

For commercial real estate acquisitions, due diligence is considerably more extensive and should include a review of all lease agreements and the financial covenant of tenants, planning permissions and permitted use, environmental liabilities, existing financing and any cross-collateralisation, service contracts, and the status of any pending litigation or regulatory proceedings affecting the property.

LexBerg's real estate team, led by Benjamin Koch, provides comprehensive legal due diligence support for both residential and commercial property acquisitions in Germany, including reviewing documentation, advising on risk allocation in the purchase agreement, and coordinating with tax advisers, surveyors, and environmental consultants.