The German residential property market is one of the most attractive in Europe for institutional investors. However, it is also characterised by intensive regulation, including rent control and other tenant protection, construction and energy standards relating to residential buildings.
Following the conclusion of the coalition agreement, the CDU/CSU and SPD coalition government is set to introduce numerous regulatory changes. In light of this, Cushman & Wakefield and the international law firm CMS have summarised the changes relevant to investors in tenancy law, the conversion ban, municipal pre-emptive rights, subsidy measures, and the Building Energy Act. They have also classified these changes in terms of legal and residential real estate economics.
Stefanie Kern, a real estate law partner at CMS, comments: 'Tighter restrictions on certain laws, particularly those protecting tenants from displacement, were already apparent in the last legislative period. Even though the new government wants to increase construction activity in Germany, it is sticking to the trend of regulating tenancy law.' Dr Julius Städele, a real estate lawyer at CMS, adds, 'The new government has shown that it wants to implement its tenant protection plans quickly. It is hoped that the measures set out in the coalition agreement to promote and relieve the real estate industry will be implemented just as quickly. Only these measures can stimulate new housing construction and ensure a sustainable improvement in supply.'
'While some of the changes require investors and owners to pay closer attention, others present interesting opportunities,' says Jan-Bastian Knod, Head of Residential Investment Germany und Head of Healthcare Advisory at Cushman & Wakefield.
The strengthening of municipal pre-emptive rights in protected areas, in cases of ‘junk properties’ and share deals, is one such change that should be highlighted. According to the authors of the study, the extension of the ban on converting rental apartments into condominiums could also influence investment planning and may require swift action in the case of new buildings.
‘Despite these tightening measures, the new government's focus is primarily on extending existing regulations. We do not expect any drastic cuts for investors interested in the German residential property market. Nor is the recent improvement in market sentiment likely to be affected,’ says Jan-Bastian Knod.
He adds, 'The regulation of furnished and temporary rentals could put pressure on serviced living providers in terms of rent pricing. In addition, not only has the rent cap been extended for another four years, but it is also to be enforced more strictly in future, with penalties for violations. A possible cap on index-linked rents would also impact pricing.’
Potential investors would be wise to consider the subsidies available for new construction and modernisation, which are intended to reactivate construction projects and improve housing quality. Jan-Bastian Knod: ‘This will also draw attention back to the potential of existing properties. Hundreds of thousands of square meters of old or unfinished buildings stand empty in Germany. If these were to be modernised, they could provide significant relief for the housing market. This could be achieved by recognising and exploiting the pent-up demand for modernisation and decisively pushing forward completion after years of hesitation in project development.
