Structural changes in the real estate market: how politics is causing private landlords to sell

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Rental as an investment

Berlin is a tenant city. 83% of Berliners live in a rented apartment. This means that 83% of Berliners have a landlord. The rate across Germany is 54%.

More than half of all rental apartments, namely 60%, are rented out by private individuals, the rest of companies and the public sector. As a rule, private individuals do not have extensive property ownership, but rather one or two condominiums or an apartment building. When it gets bigger, corporations are often founded and the houses brought in for tax reasons. If the statistics tell us that 60% of the rental apartments are held by private individuals, it means that the German rental apartment market is largely owned by small owners.

The motivation for this is usually pension provision. For more than 20 years we have known more or less that the statutory pension will in future only be a basic security, but nothing more. Anyone with 40 equity capital to finance an apartment or house can hope that the retirement loans will be paid off enough to generate income from the property that improves the pension. The return on real estate, minus all associated costs for operation and maintenance, was approximately 4% in the past over longer periods. From 1.000 euros of rental income, 40 euros remained for the landlord. Of course, the bill is not correct for every building and every situation: if a tenant stops making payments and has to process them, the apartment may need to be refurbished afterwards, this can destroy the return for a decade or more. On average, the calculation worked.

increasing regulation destroys the calculation

For several years now, this calculation has been disturbed by external influences, namely increasing regulation. The politicians stated that the measures were temporary because of a special exceptional situation. Initially, it was necessary to wait until the new regulatory state had gotten used to before the screw was tightened one turn. In the meantime, this has accelerated considerably. Which effects result in which interventions is no longer evaluated at all. It would probably no longer be possible.

It started with the first and second housing promotion law in the early 70s. Here the limitation of tenancy agreements was abolished and protection against dismissal for tenants was introduced. In return, landlords were given the opportunity to increase the rent in the current lease, either after modernization or when the market level had changed. There was soon a decoupling of the market level and inventory rent changes when only a 30%, later a 20% cap was introduced every 3 years, as well as a fictitious market level through rent levels. An increasingly sophisticated "control" of the rent index statistics resulted in a parallel level for rent index rents that hardly had anything to do with new rental rents. The 2019 rent index for Berlin shows that we would have had an average rent of 6,72 euros. If you wanted to rent a new apartment in Berlin in 2019, you would have to expect 12 euros upwards. The promise that landlords would not suffer any disadvantage as a result of the protection against dismissal, or that they could at least adequately adjust their inventory, had long been undermined.

This resulted in evasive movements. Landlords who only allowed short-term contracts had advantages because they were able to rent new properties at the market level and thus remained close to the development, while the others were always lagging behind. Short-term contracts work best when the tenant does not want to stay long. This created a growing market for holiday apartments and furnished living space for people in the intermediate stages of their lives. Berlin countered and enacted in 2013 Prohibition of misuse. The furnished rental to holiday guests was prohibited. Vacancies of more than six months, initially more than three months later, were also banned so that no one can escape.

This compulsion to rent was a major turning point. Until then, apart from economic constraints, owners were more or less free to decide whether and when they wanted to deliver themselves to the heavily regulated housing market. With the introduction of the ZwVbG Bln, the free decision was over. Anyone who does not abide by it has risked fines since then.

The next major cut came in early summer 2015 with the rental price brake. Now, the owners were not only forced to rent, but also to do it at a regulated price, up to a maximum of 10% above the standard rental price according to the rent index. Since the rent index is a fictitious price level, which hardly has anything in common with the actual market level, this actually led to a compulsion to significantly lower prices for new rentals than before. This in turn destroyed all laissez-faire models that were previously common among private individuals. Many small landlords had never increased during the current tenancy, but at the end of the subsequent contract agreed an adequate market rent. Over time, you saved yourself a lot of stress and processes, and on average the earnings fit. All those who had never increased their rents were now left behind, because they still had to stay low when renting out again and were therefore not allowed to compensate for the relaxed handling of the past. However, landlords who had always maxed out the maximum had an advantage because the rent brake promised to protect the existing rent level: less than before was not necessary.

In addition, the rent brake reduced the rent increases from 20% to 15% every three years. Pity was limited in the press, because 15% every three years is still a lot. However, the fact that this increase was additionally capped by the notional rent index values, so that in many cases cannot be increased over 10 or more years, was often left unmentioned.

Politicians promised that the rental price brake would only apply for 5 years, in order to have time to remedy the particularly tense situation on the housing market through massive government and private construction.

The rent brake had such an economic impact that many owners did not stick to it. The house costs and the handicraft prices rose disproportionately from 2015, the yield of the houses melted. Through a more critical selection of tenants and increased avoidance models in the gray area between misuse and long-term letting, many tried to maintain the lease as a private pension in the hope that everything would only last as promised for 5 years and that one could then return to the previous solutions. When apartments became vacant, they were also renovated more frequently than before for a lot of (loan-financed) money, because this also represented a way out of the rent brake and subsequently allowed better renting. The other apartments were cross-subsidized with the more expensive apartments.

The State of Berlin put a stop to this by excessive application of a regulation from public building law not intended as tenant protection (§ 172 BauGB): Areas that are particularly worthy of protection can therefore be placed under conservation or environmental protection. There may then not be modernized and the division of houses in residential property is restricted. A large part of Berlin is now under this protection, as if a large part of Berlin were particularly worthy of protection and would therefore have to be frozen at a construction stand. Here, public building law is openly misused, which is also communicated on the district's websites: Politicians are not concerned with protecting areas, but with protecting tenants from otherwise existing property rights. The missing balconies and the substandard of these apartments are now noticeable in Corona times when people are no longer allowed to go out the door.

The rules on the rental price brake were tightened at the beginning of 2019. Since then, landlords have to disclose to new tenants if they breach the rental price brake, making circumvention difficult. In addition, the modernization levy was reduced to 2 for low rents and 3 euros for 6 years for higher rents. At that time, building permit applications began to decline, and prudent owners began dividing their homes into condominiums. Over the course of 2019, this led to a discussion about nationwide distribution bans, which were decided by the grand coalition in August 2019, are now (March 2020) in the form of a law and will soon become law. In addition, an expropriation debate in Berlin and the discussion about a rental cover began in early 2019.

This was actually decided after several readings and changes and has been law since February 2020. It freezes rents to June 2019 and lowers changes in the meantime. Immediately for new rentals and from December 2020 for all Berlin leases, the law will lower all rents in Berlin to a level that was last seen 15 years ago. The exact calculation is incomprehensible, but the reason given for the law explains that the 2013 rent index was used as a guide. This was based on the values ​​from 2008 to 2012. However, new letting values ​​were only partially included, the remaining values ​​were the rents from the existing portfolio that were already regulated at that time. In addition to the rental interventions, the rental cover law implements such an immense administrative burden that private landlords either have to incur considerable legal costs to understand what is expected of them and what they have to do now, or they have to incur significant additional administrative costs for their external administration because they have to do so who simply cannot do overtime without additional resources. The law will massively reduce the income from the houses while the costs explode.

Parallel to the discussion about the rental cover, there was a federal one renewed tightening and extension of the rent brake decided by 5 years. Politicians had not sufficiently ensured that the situation eased in the past five years. Those owners who until then had had confidence in predictability based on political promises were now disappointed. It is clear: it goes on like this. Another decision was made Intervention in the rent index statistics Hardly any more significant: in future, rent indexes should average the values ​​of the last 6 instead of 4 years, which further distances the fictitious rent level in the rent index from the actual rent level in the market.

During the discussion about the Berlin rental cover, the supply market for rental apartments in Berlin dried up. Apartments that were becoming empty were increasingly sold or, despite the prohibition of misuse, left empty when the owner would soon need them for himself, for children or grandchildren or other family members. Anyone who wanted to rent something in Berlin, for example because he came from outside, the space requirement changed or because he flew out of his previous apartment, had a problem in view of the now barely available offer. It is currently the case that there are about five times more sales offers for apartments in Immoscout than rental offers, and that in a city in which 80% of the apartments are rental apartments.

It is now the case that quite a number of tenants themselves own a rented apartment for reasons of retirement provision. In the absence of an alternative, the number of terminations of such tenancies for personal use has risen constantly in the second half of 2019 until today. In addition, rented apartments have been and are increasingly being bought with the aim of giving them notice for personal use, because otherwise in Berlin you can no longer find a suitable apartment. This in turn resulted in calls from politics to exclude or at least massively restrict the right to terminate the contract for personal use. The Greens, the SPD and the Left all have this on their agenda. Depending on the outcome of the next federal election, such further restrictions could very quickly become law.

Corona: the last impulse for sale

As if that weren't enough, Corona protection is now available for tenancies: from April to September 2020, tenants no longer need to pay rents, the right of termination for landlords in the event of such arrears is abolished, the burden of proof for the non-connection of the loss of rent with Corona should lie with the landlord. According to press reports, it is planned to extend this moratorium to July 2021 if necessary. Over a year of lost rental income. At the same time, a moratorium on loans for landlords and landlords is being introduced: banks are also not allowed to terminate their loan contracts for as long.

Now interest and repayment on the real estate loan are only part of the running costs. Condominiums oblige to ongoing home payments. If something breaks in the apartment, it needs to be repaired. The tenant continues to use water, the house must remain insured. All of these things are not suspended. The landlord must continue to pay them. Where should he do that from?

It is unclear whether landlords who lose their income due to the rent moratorium will receive basic security in future so that they have something to eat. Are assets taken into account, ie do they first have to sell their property before they are eligible? And what about all the people who make a living from the landlords' current income, such as their families, studying children or grandchildren, property managers along with their employees, caretakers and craftsmen.

The very much appreciated Dr. Daniel Stelter has one Moratorium for the entire economy proposed, almost freezing everything, pre-financed by the state. The rent moratorium implements part of it - and in the end nothing or something completely different. The burden of the corona crisis is unilaterally unloaded from banks and landlords.

What is still in the conversation?

The rent brake from 2015 and the following legislation has resulted, among other things, in the fact that the desire for further building insulation has declined significantly in recent times. About a rising CO2 price that Prohibition of allocating these costs to tenants and through that Ban on oil heaters, which forces the expensive replacement of heating systems, owners should be motivated to continue investing in energy reduction. The incentive here is no longer the opportunity to earn money, but rather to avoid rising costs, of course by spending money.

The desire of the left parties to continue the discussion is: Levy property tax on tenants in operating costs. You will find the Greens' bill for the corresponding “Property Tax Relief Act” here . Once you have done this, the property tax can be increased at country level. In Berlin, such tax increases would not affect the majority of the population, namely the 83% tenants.

The city of Hamburg has one through the Federal Council Legislative initiative introduced that rent increases from 15% to 10% should be reduced. A grace period payment should also cure timely terminations.

There are a number of requests from the left and the green party spectrum that go far beyond the content, about which I here had already reported.

The lessons for practice

What does all this mean for the long-term investor? For retirees? For private investors?

Without Corona, the status achieved was that those who own a residential property that they do not use themselves are forced to rent it at prices of 15 years ago, with exorbitantly increased administrative costs and much higher maintenance and maintenance costs then at that time. Buying a property for rental purposes therefore carries the risk of economic suicide, at least for all those who do not do this to avoid negative interest on their equity, but instead privately increase their wealth in order to live on it in old age.

The situation with Corona is that these rental prices are only fictitious anyway and the tenant will no longer have to pay anything in the near future if he claims that he has too little money due to the epidemic.

Furthermore, the current status is that the distribution ban will come. Owners of apartment buildings can then only sell them to those interested who do not acquire them because of the return. Without such a buyer, the owners stay seated and are allowed to shoulder falling revenues with rising costs. If you can sell your property piece by piece as a condominium, on the other hand, you will meet a lot of interested parties who want to move in themselves. I already had it in August 2019 here  It is recommended that buildings that have not yet been divided be divided up as soon as possible in order to keep the possibility of selling open, even if you are not currently planning to sell. I also believe that the desire to get rid of the cost factor of rented property may come up quicker with some private owners than he foresees today.

Finally, the current status is that the rental of furnished apartments in Berlin no longer works well at periods of rental cover and misuse. The portals still exist and there are also offers. However, threats of fines of up to 500.000 euros per apartment and month and legal sanction for non-payment of rents put the risk out of proportion to the benefits.

A number of private owners are currently coming to the conclusion that it is now time to sell rented properties.

This applies at least in the Berlin market regardless of whether it is a rental house or a condominium. The rental model as an investment is now not only unattractive, but also has a high legal and political risk.

Just think about what to consider if you currently have an empty apartment and want to rent it:

  • The rental regulations force you to do legal pull-ups and an enormous formal effort. Errors can trigger fines of up to EUR 500.000.
  • Rent increases are unlikely to be feasible over the next 10 years, as there will be no rent index from 2021 and local tenancy law will not allow you to adjust them.
  • At the same time, all of the world's major central banks are flooding the markets with money of unprecedented magnitude. At the same time, a reduction in the supply of goods can be expected, which will drive prices (example here ). What is your rent you agree on today worth in a year?

The big funds and property companies, especially international ones with a diversification of their locations across different markets and legal systems, hold up better than the private small owner in Berlin. Reduced cash flow in such companies primarily affects investors, and prices and dividends may fall temporarily. However, the stocks do not have to be sold off because of this.

Many small owners, on the other hand, have now decided to sell or are currently doing so. Accordingly, the content of the advice in my practice has been changing for some time, away from tenancy law issues to those that concern the sale or purchase of a self-used unit.

This leads to a structural change in the real estate market. The rental market is shrinking and the share of large owners in the remaining rental market is increasing. The private individuals get out of the rental. The proportion of owner-occupied (and no longer rented) condominiums is increasing. In my view, the latter is a healthy development because it stabilizes the population as a whole against crises. At the same time, it will change voter preferences and, in the longer term, also political structures. For the time being, however, it is disadvantageous because more tenants than usual lose their apartment due to their own needs and then no longer find a new apartment to rent.

Is the right time to sell?

If everyone now wants to sell at the same time, one should assume that it will depress prices. I hear the opposite. The reason is that the demand is so high that it is not about the price that is sold, but about the property itself, ie whether it fits the needs of the interested party. There are more prospective buyers than there are suitable objects, so that the highest bidder receives it. Since it is a structural cause that is due to politics and a lack of offers in the rental market, this will probably not change that quickly.

Recommendation: sales only with brokers

If you want to sell as a private owner, I recommend that you use the services of a broker whom you trust and who knows the market. Those who offer too low give away money, those who offer too high have no prospects, have to lower the price and may get into a downward spiral because all observers are waiting for the price to drop even further. In addition, you only have professional marketing through a broker and, with that, no effort.

If you don't have a broker in Berlin yet: call Michaela Beer (, I have so far received only enthusiastic feedback from all of the customers recommended to them.

What do you do with the money?

I've asked this question to many clients recently.

Rented real estate is an investment. It doesn't matter that you can see them every day. She can also be abroad. Those who want to invest in real estate in the future should consider whether they find Austria attractive. The ancillary purchase costs are lower than in Germany, the tenancy law protects both the tenant and the owner, the political situation suggests that it will stay that way, and German is spoken, ie you understand both documents and your tenants.

Some have replied that they will invest their money in Britain because they are expected to develop more independently and more stably than in the EU and, above all, not to be held liable for the public debt of the southern countries. Because to pay these, some fear access to intra-European real estate assets, for example through compulsory mortgages or levy charges.

Finally, a not inconsiderable number of clients answered: gold.