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Investment climate

What is the general climate of real estate investment in your jurisdiction?

The German investment market has been experiencing an extraordinarily strong and sustained period of growth over the past decade. The strong German economy, market size and variety of assets available continue to draw investors to the German real estate market, which is still considered a safe haven despite the continuing increase in prices and various political challenges. However, high competition and low interest rates put pressure on real estate yields. Therefore, many investors are looking for opportunities to invest in:

  • B or C locations;
  • value-added real estates;
  • project developments; or
  • special assets (eg, hotels, healthcare properties and student accommodation).


Who are the most common investors in real estate?

The German investment market is highly attractive on an international level and both domestic and international investors are active on the German real estate market. The capital invested by foreign investors originates not only from neighbouring European countries and North America, but also increasingly from Asia and the Middle East. The German real estate market has remained attractive for investors of all kind. Specialised funds remain the largest group of institutional investors, followed by private equity or real estate funds and listed real estate companies. 

Are there any restrictions on foreign investment in real estate?

Apart from the general restrictions resulting from anti-money laundering regulations and UN or EU penalty lists, there are no restrictions on foreign investment in real estate.

Investment structures

What structures are typically used to invest in real estate and what are the advantages and disadvantages of each (including tax implications)?

When investing in German real estate, a number of structures can be used. The type of structure depends not only on the type of asset, the location of the investor and its exit strategy, but also on the selling entity and, in particular, its financial situation and corporate structure.

In some cases, the purchase of real estate may be structured as an asset deal or as a share deal (ie, the sale and transfer of the shares or partnership interests in the entity owning the real estate). The disadvantages relating to the acquisition of shares are mainly risks assumed on acquiring the target entity, including liabilities for:

  • outstanding taxes;
  • disadvantageous contracts with third parties to which the target company is a party;
  • hidden reserves and trade tax risks; and
  • share capital protection rules.

On the other hand, a share deal may be advantageous in respect of mitigating German real estate transfer tax (between 3.5% and 6.5%) as a result of:

  • tax structuring or in cases of pre-emptive rights or rights of first refusal (which usually relate to the real property itself and are not triggered if shares or partnership interest is acquired); or
  • the closing process in cases of a portfolio transaction.

However, German tax regulations are due to change, increasing the percentage of shares held by an unrelated party (and, in the future, remaining with the seller) to 10% and extending the holding period – thereby making the share deal structure less enticing for many investors.

German real estate investments can be made directly or indirectly, and using a domestic or foreign special purpose vehicle (SPV) (ie, a corporation or partnership, which acquires title to the land and in which the investors (indirectly) hold shares or participation interests). In commercial transactions involving foreign investors, an SPV domiciled in an EU member state other than Germany (eg, the Netherlands or Luxembourg) is often used in order to limit German income tax and mitigate German trade and withholding tax risks. The domiciliation and corporate form of such an SPV is usually determined by the location, the aims of the investor and existing double taxation treaties. 

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