REAL ESTATE UNDER HERITAGE PRESERVATION
NEW BUILT PROPERTY
Its extensive experience enables the company to provide comprehensive advice to investors and to support them on their way to a successful investment. In doing so, the company manages a portfolio of properties throughout the whole of Germany.
The team around Andreas Schrobback has focused on the listed structural redevelopment and the subsequent marketing of buildings of historical interest. Buildings with a listed building structure offer a very particular charm for the residents. Centrally located for the most part, these buildings are often architecturally and/or particularly outstanding buildings, which after being redeveloped, from a modern point of view, result in an above-average luxurious living environment. Demand and rental return is equally high. Vacancies, on the other hand, are rare and redevelopment costs can be claimed by exploiting tax advantages.
Even the other real estate sectors have quite particular features, which can be advantageous to investors. So, for example, the sharp rise in demand for nursing care facilities – triggered by the demographic shift in Germany – will continue. Nursing care facilities include old people’s homes and care homes, retirement homes and other establishments, all of which are more and more in demand due to the ever-increasing average age of the population. Here, rental income is even state-protected – even when the tenant does not have sufficient, financial means.
AS UNTERNEHMENSGRUPPE is also heavily involved in new builds and asset portfolio.
A historically listed property is an exceptional investment not just because of its history. As a result of the special regulations in taxation law, historically listed property is primarily of interest for professional investors. A listed object is a property that has a cultural and historic importance. Therefore, the building has such relevance that it may not be destroyed and may not have considerable alterations made to it. Additionally, the owner must guarantee that the building structure will be retained. The cultural monument could be an individual house or alternatively, entire roads could be under heritage preservation. The properties are identified by a monument preservation plaque and are also sometimes offered for sale.
In Germany, there are around one million buildings that have been classified as being worthy of preservation by the historic monument preservation association. Many of these are located in major cities and are used for a variety of different purposes. Some of the most well-known buildings are the Cologne Cathedral, the Prinzregentenpalast palace in Munich or the Brandenburger Tor gate in Berlin, which are however of no relevance as a capital investment. Private investors can however invest in heritage listed residential buildings and also in commercial properties. The properties that are offered are frequently owner-occupied apartments in building complexes that have been completely redeveloped and are, as a result of their special character, very popular with tenants. In the capital city, some of the largest projects are the Hufeisensiedlung “Horseshoe Estate” in Berlin-Britz or the Lentze-Siedlung estate in Charlottenburg. Additionally, historically preserved factory buildings are offered that can be rebuilt into modern loft apartments.
There is a special fascination that emanates from making capital investments in historically protected properties. The properties provide a high level of security as an investment, the expected yields turn out to be rewarding and the aspect of the increase in value is also persuasive. The decisive criteria are those which should be of fundamental interest for every property. Historically preserved properties are mostly situated in prime locations and are characterised by their exclusive architecture. Furthermore, great effort is taken to ensure that the structure of the building is preserved and the properties are of a very high quality as a result of the comprehensive maintenance work. These features all represent the quality criteria that ultimately affect the value of the property. As the owner of such a property, who is letting the apartments and commercial units for tax saving purposes, you should also however weigh up the regulations of the historic monument protection association. Construction measures cannot be carried out to the same extent as with normal properties. Conflicts of interest can arise as a result as the authorities frequently do not have the same goals as the investor. Furthermore, the energy requirements in older buildings are not always desirable, as the historic preservation regulations forbid the retrofitting of heat insulation or the installation of new windows. The tax advantages of historically protected properties should however be considered to be a definite plus.
To be able to take advantage of the high level of write-downs for historically preserved properties for tax optimisation purposes, your property can either be let out or you can use the property yourself. In law, upon being let, up to nine percent of the costs for building projects in historic buildings may be written off in the year of production and in the following seven years. Subsequently, for the next four years, there is an increased deduction of seven percent. As a result, when carrying out the purchase, you will be receiving a considerable tax advantage which should not remain unconsidered when selecting a capital investment. With the write-downs, you will be reducing your personal tax burden on the income for a total of twelve years. If using the building yourself, the write-down rate is somewhat lower at nine percent for ten years so that up to 90 percent of the restoration costs will be taken into account for taxation purposes. Alongside the specific write-downs for heritage protected properties, the normal levels for the existing buildings can also be used. Furthermore, there are higher write-downs for properties that are located in urban development zones or redevelopment areas. With this guideline, investors who are working with and helping the interested parties of the city and who can use their capital to provide support for the planned urban development should be encouraged.
New builds are buildings that have been constructed recently and that have mostly not yet been occupied by inhabitants. Furthermore, projects that have not yet been completed and that can be built to the requirements of the owner are also designated as new builds. Newly built properties are interesting as capital investments because, in comparison to older properties, the building structure has not been subject to any wear and tear. Furthermore, a new build can generally be inhabited immediately. Under these circumstances, there are clear benefits that arise for the purchaser.
When purchasing a new build property, you can assume in normal cases that the building structure will be in perfect condition and that there will be no need for modernisation or repair work in the near future. Therefore, the costs of a new build property are significantly easier to calculate than for a building with high maintenance requirements. A further advantage for newly constructed building shells is the energy aspect. New houses are constructed using modern materials and taking account of energy efficiency. The directives of the Energy Saving Ordinance dictate which standards must be adhered to when a new building is built. As a result, the properties consume less energy for heating and save on operating costs, which also benefits the environment. Additionally, the living environment in new buildings is often better, as there are no cold draughts blowing through the single-glazed windows and the walls do not cool down quickly. Additionally, new properties gain points from their contemporary architecture which takes account of the modern way of living and modern decorative styles. Whereas in older buildings, the kitchen is in a separate room, in new build properties the kitchen is often integrated into the living area and hence is able to fulfill the demands of modern life.
A newly built property is also of interest for private investors who would like to purchase a property and then subsequently let it. Newly built apartments achieve a higher rent in comparison to older properties at the same location, because the standard of living is better and, as a result, the demand for such properties is greater. Furthermore, there will be no additional expenses necessary after the purchase price has been paid to make the property inhabitable. As newly built properties are mostly not yet inhabited, the property owner is able to select their tenants themselves. This is completely different in the case of existing buildings, where the tenant can only be given notice under certain conditions and additionally, has a right of first refusal for the property. If the new building has not yet been constructed, then you as the owner will have a great deal of influence and will be able to determine the floor plan along with other aspects yourself. As a result, there is also the opportunity to use the property yourself in the longer run. Furthermore, you will be able to monitor the construction work and, as a result, can guarantee that any building defects are avoided or are repaired immediately.
As is also the case with older buildings, there arise advantageous opportunities with newly built properties to set off expenses against tax liabilities and to have to pay less tax on the profits. As a commercial real estate owner who is letting their properties, you pay taxes only on the surpluses. Consequently, the rental incomes will be reduced by the deductible costs when the tax assessment takes place. Among the costs that are relevant for taxation purposes are the credit interest costs and the costs for the administration of the property, among others. Particularly during the lengthy repayment period for the credit, it could certainly happen that the expenses are greater than the income and that the owner can use their newly built property as a tax saving plan. A further component of the tax characteristics of new buildings are the write-offs than can be carried out that take account of the wear and tear of the property over the course of time. The write-off can take place for up to 50 years at an annual rate of two percent. Therefore, the value of the property is reduced mathematically even though the building could, of course, in reality have shown an increase in value. The write-offs are however only for newly built properties that are let out. The purchasing costs and costs of production will be used for the property in the calculation, however the expenses for the land will not be taken into account. Take advice from your tax advisor when preparing your tax return as the tax law is very comprehensive and sometimes offers a number of options.
The purchase of an existing property is preferred by investors who see the lower costs involved compared to a new-build property as an important criterion in the decision-making process. In addition, the properties are an interesting alternative to building land at locations where there are virtually no undeveloped building plots left any more. As their name suggests, existing properties are properties that have already been completed and thus do not require a lengthy time for building until they can be used. The properties are a firm part of the owner’s portfolio and generate income through the renting of apartments or commercial spaces. Some of the properties are also used by the owner themselves if they do not primarily buy the property as an investment. If a building is available in its completed form, this does not, however, necessarily mean that the space can be used without work beforehand. The age and the quality of the construction create factors that you should take into consideration when buying the property.
Even though a house may look wonderful in the brochure, the first defects will soon become visible during the viewing. However, most properties have weak points, which is why constructional defects should not constitute a criterion for ruling out that property. The correct approach is to record all the repairs and measures needed to modernise the property. The capital required in addition to the purchase price can then be calculated. For private investors without specialist knowledge, however, it is virtually impossible to identify detects without assistance. If you are interested in a property, contact an expert who can also calculate the costs for you. However, you are advised against buying existing properties that have signs of mould and wood-destroying fungi. Such defects can only be eliminated at disproportionately high cost.
In addition to the actual building structure, you should also take a good look at the floor layout. If the division of the rooms and their size no longer corresponds to modern usage requirements, this will have an impact on the property’s value. It will be more difficult to rent out the property or more costly work is required to adapt the floor plan. Also ask to be shown what heating system the building has and ask about when the electronics were installed. In addition, you should ask for the energy record of the property and the extract from the land register in order to assess the value and to identify any land charges.
One of the many criteria for the purchase of a property is the tax component. The financing of the purchase price results in high charges for the new owner which they can offset in their tax declaration. In addition to the loan amount, the tax-relevant positions also include costs for maintenance work to the building. Special tax circumstances arise for real estate owners who rent out their property and thus generate income. German tax law recognises numerous cases that a qualified tax consultant will be familiar with. They can help you to fill out your tax declaration correctly.
You can offset any costs for your existing property with your taxes that are declared as advertising expenses. These are expenses incurred for purchase and maintenance. Please therefore keep all invoices that you receive from tradesmen or for the purchase of materials. In addition, write-downs are to be made for properties that constitute a calculative loss in value. For these, however, only the purchase costs for the property, not for the land, are taken into account. Existing properties are written off using the straight line method of depreciation over a period of a maximum of fifty years. Use every possibility offered you by tax law to reduce tax. With an existing property, it is possible to claim expenses in your tax declaration and thus have less tax to pay. The highest tax savings can be achieved when the property makes calculative losses. This circumstance, for instance, occurs when more is spent on repairs than is received in income in the fiscal year.
The growing demand for retirement homes and care homes is testimony to the fact that life expectation in Germany is continuously on the rise. Demand in Germany could be described as sustainable and with prospects over the long term – a good opportunity for investors to secure a reliable yield in the long term. A few facts should, however, be considered, since conventional properties on offer for senior citizens and persons in need of care require different approaches now than they did in the past. Here, a key determinant is not just the frequently-quoted “location”. The requirement for furnishings (e.g. furnishings that are adapted to the needs of senior citizens or disabled persons) and the necessary background (e.g. from doctors or electronic devices), depending on the state of health of the individual residents, are a prerequisite for a suitable care facility. Here, quite different living concepts can be available, for example apartment complexes or also large homes with different residential units. Investors can thus expect greater security of their capital investment: letting is carried out by the operator of the property and not by the resident themselves. Should they not be able to pay for the residential unit, for example, due to insufficient funds, social security will step in.
The average life expectancy 100 years ago was about 45 years. Baby girls born today will live to an average age of 82 and boys to around 76. Fundamentally, medical care and the very healthy nutrition available today has also contributed to a steady rise in the number of people whose age is in three figures: 35 years ago, there were only 265 people over 100 in Germany; the number currently lies at more than 10,000 with a continued upward trend. Thus, over the long-term there continues to be very attractive potential yields for capital investment in care facilities. Many people get upset that the planning and implementation of care facilities are only carried out from the perspective of economic efficiency. However, that is the wrong way of looking at it: if older people with or without a disability and/or care needs require accommodation in a comfortable home environment appropriate to their age and where they can be well looked after, it can only happen if there is also an attractive equity base as a foundation. For investors who see a good investment opportunity in such an venture, this has advantages for all parties involved.
Investing in care facilities, such as a care home or retirement home, is a particular form of investment that, from the investor's point of view, is worth looking into in more detail. Currently, rental agreements with very long terms – sometimes up to 29 years – are nothing unusual. In addition, investments here are protected from inflation by the underpinning of its intrinsic value and also remain independent of economic conditions due to the fact that rental income is ultimately guaranteed by the state. A considered choice of the location and effective building management ensures continual growth of the investment. The demographic change in Germany can be described as being very beneficial to such an involvement, which also has a very good socially-responsible element to it. If you look at the existing care facilities, many investments are now 30 or more years old; not really very modern any more. Experts in nursing care insurance estimate that more than 4,000 new care homes need to be built (read in “4. Altenpflegebericht” [4th report on the care of the elderly] which was created on behalf of the German government). Eligibility criteria for the care facilities is of particular importance in this context because the operator is reimbursed here for the care costs through the social security office via an allocation key. A prerequisite for eligibility in addition to independent management is that full-day care is given by appropriately skilled workers.
Investment in care facilities is particularly attractive for investors because the rental flow is underpinned by the state and profitability is safeguarded by a huge excess in demand. The investment offers an attractive yield, independence from inflation and the economic situation, and also combines a socially-responsible element. Here, where eligibility, location and management are taken into account, nothing else should stand in the way of an integral, comparatively very secure capital investment offering an attractive rate of interest.