One of the biggest benefits in the German residential market, that is a crucial factor for any buy-to-let investor is the ability to attract long-term tenants. If compared with any other country in Europe, Germany has a long-standing tradition of people renting their homes for all of their lives, even generations. That creates a very stable environment for the rental market, meaning that tenant rotation is slow and they take good care of their property like it’s their own.
In total, about half of the German population lives in rented accommodation, in some biggest cities, like Berlin, the estimate goes up to 84%. With generous social security policies, secure pensions, and a propensity to save rather than speculate, many Germans are content to rent throughout their lives and typically stay in a rented property for a decade or longer. At Investix we are managing over 5200 tenants across over 2,500 properties and our data shows that:
- 30% of all current tenants are living in their property over 10 years
- 10% over 20 years
- 5% over 30 years
- 2% over 40 years
No other countries in Europe has such a long-term tenancy rate. For us, it also gives the ability to build a long term relationship between tenants and property management agents, be flexible and fair when managing the business and predict income from rentals with more accuracy assuring stability for future.
There are several reasons the rental culture is so different in Germany. The cost of renting is relatively low and this encourages renters to stay in rental accommodation even if they do have to pay the community fees, property tax, and insurances. A lot of buildings historically has subsidized rents which helped to moderate the growth. The regular application process for an apartment can be time-consuming and complicated. Tenants would need to go through interviews with a landlord, provide employment contract and salary statement, references from previous landlords and common solvency check of the General Credit Protection Agency (SCHUFA) which would show if a tenant is blacklisted for any debts. There are blacklists of “bad tenants” and every tenant dreads to be on that list. As rule of thumb, apartments come without any furniture so every tenant can create their own home but it also requires a certain investment of money, therefore the decision to change or move isn’t taken lightly.
Tenants are protected
In the German residential market there are legal protections for both tenants and owners to ensure that the market operates in a fair and stable manner. Each local council operates a rental price guide called the “Mietspiegel” which lists the average rental prices in their district based on year of build, size, condition etc. An owner is allowed to increase the rent in a 3 year period by up to 20%, except Berlin where a lower rent cap was introduced in 2015. However, in any case, the rents can’t be increased more than their local “Mietespiegel” allows. These tenant protections provide the comfort to renters and ensures that rents are controlled yet allow owners to increase in a fair manner in line with market conditions.
According to German tenancy law, it is up to the landlord to maintain the rented property in a suitable condition as well as to bear all the costs resulting from necessary maintenance works and repairs. Nevertheless, it is lawful and usual to shift the costs for minor maintenance works (Kleinreparaturen) and for cosmetic repairs (Schönheitsreparaturen) to the tenant. For landlords, there are no real “blacklists”, but there are similar mechanisms. The tenant may, for example, obtain information about the landlord from the local tenant association. Apart from that, a website exists on which tenants can rate landlords as well as neighborhoods.