Investing in German Real Estate: Understanding the Market, Risks, and Real Opportunities

Published on January 17, 2026 and written by Cyril Jarnias

Investing in German real estate is attracting a growing number of French and international savers. A market known for its stability, a predictable rule of law, an economy still powerful despite cyclical bumps, a chronic housing shortage, a large majority of tenants… on paper, it all seems to tick the right boxes. But behind the safe-haven image lies an extremely regulated market, with moderate profitability and significant differences between “premium” metropolises and high-yield secondary cities.

A market in a phase of cautious recovery

After more than a decade of almost uninterrupted growth, the German residential real estate market experienced a real correction. Between the peak in early 2022 and mid-2024, average prices fell by about 13% nationwide, with a drop of 3.9% in 2022 and then 7.1% in 2023, the sharpest decline in decades. This correction is mainly explained by the sharp rise in interest rates, the end of cheap money, and high inflation that derailed the ultra-cheap loan model.

In other words, the cycle low seems to be behind us, without signaling a new boom. The consensus among major research firms anticipates a price increase within a narrow range:

Year	Average Forecast for Residential Price Change (Nominal)
2025	+3.5 %
2026	+3.2 % (range 2–4 %)
2027	+2.8 % (range 2–3.5 %)

These figures have two major implications for an investor considering investing in German real estate. First, the dominant scenario is neither a bubble burst nor a major fire sale: we are talking about a slow-recovery market, rather predictable. Second, most segments remain 8 to 15% below their 2022 peaks, offering a more reasonable entry point than a few years ago, but not “cheap” in the strict sense.

A structural housing shortage that supports prices

If Germany is not in a speculative overheated phase, it is less due to natural moderation than to a chronic supply deficit. All studies agree: the country has a massive housing shortage, especially in large cities.

Annual demand is estimated at around 350,000 homes, while construction starts and completions are falling sharply. In 2024, only 251,937 homes were completed, a decrease of 14.4% year-on-year. Building permits fell to 215,920 units, their lowest level since 2010, and projections are even more pessimistic: around 205,000 completions in 2025, then 185,000 in 2026, with a slight recovery to just under 200,000 units in 2027.

Annual needs in major cities illustrate this tension well:

City (Top 7)	Estimated Annual Need for New Homes
Berlin	~23,000
Munich	~11,300
Hamburg	~10,200
Cologne + Frankfurt + Stuttgart + Düsseldorf	~15,000 combined

Under these conditions, the risk of overproduction is almost zero; problems stem rather from a lack of construction, rising material costs (over 60% cumulative increase since 2010), and new energy requirements. For an investor, this structural deficit acts as a “floor” under values: even in an economic slowdown, demographic pressure and low vacancy rates (often below 1% in major cities) limit declines.

A nation of renters: favorable ground for rental investment

A fundamental feature of the German market is the rental culture. Less than 50% of households own their primary residence, far from the European average of nearly 70%. More than 52% of households are tenants, making Germany the EU champion in renting.

Several factors shape this reality: high acquisition costs, inability to deduct mortgage interest for a primary residence, social housing tradition, and very protective tenant rights that make renting comfortable and stable.

For the investor, this means two things:

Very low vacancy rates in major cities work as an asset for landlords. The median rent for existing apartments in the seven largest metropolises reaches about €16.35–16.45/sq.m., up 4 to 4.5% year-on-year in mid-2025, while new construction rents are around €21.8/sq.m. The average financial burden for a tenant in the Top‑7 represents nearly 35% of net income.

Rents have therefore been rising faster than overall inflation for years, especially in major cities, with cumulative increases of over 50% nationwide since 2015, and more than double in Berlin over the decade.

A-cities vs B-cities: two German real estate markets

The German market is far from homogeneous. The main dividing line is between the so-called “A-cities” metropolises (Berlin, Munich, Frankfurt, Hamburg, Cologne, Düsseldorf, Stuttgart) and “B” and secondary cities: Leipzig, Dresden, Magdeburg, Nuremberg, Augsburg, Mannheim, Karlsruhe, Duisburg, Chemnitz, etc.

“A” Metropolises: security, liquidity… but modest yields

The major metropolises concentrate international capital, skilled jobs, and migration flows. They embody security and liquidity: properties are easier to sell, often with long-term capital gains, and these markets remain the most analyzed by large institutions.

In return, prices per square meter are high and gross yields are often below 3%. Some benchmarks (existing apartments):

City	Average Existing Price (€/sq.m.)	Typical Gross Yield
Munich	~8,476–8,580	2.3–2.7 %
Frankfurt	~6,116	2.5–3.0 %
Hamburg	~5,560	2.8–3.2 %
Berlin	~5,451	3.0–4.0 %
Cologne	~4,759–4,961	3.2–3.9 %
Düsseldorf	~4,583–4,833	3.4–3.5 %
Stuttgart	~4,838–5,890	2.6–2.9 % (up to ~4.5 % in some segments)

Munich illustrates the model well: an ultra-tight market, prices easily exceeding €9,000/sq.m. for existing apartments, and over €11,000/sq.m. for new builds. New lease contract rents there frequently reach €22 to €25/sq.m., but the average gross yield remains around 2.5-3%. Price growth there is steady (+3.7% per year over five years), but overvaluation risks are monitored.

Hamburg, Frankfurt, Cologne, and Düsseldorf offer similar profiles: dynamic economies (finance, logistics, media, industry), high rents, but rent-to-price ratios that cap rental profitability.

For an investor focused on asset security, these markets remain very attractive in the long term, but one must accept net yields often limited to 2.5–3.5% after expenses, local taxes, management, and maintenance fees.

“B” Cities: the Germany of yield

At the other end of the spectrum, secondary cities or “B-cities” offer a completely different profile: lower entry prices, higher yields, but less liquidity and visibility.

Leipzig has established itself as the typical example of this new generation of markets: a “new Berlin” for some observers, the city has seen its economy double since 2000, driven by tech, logistics, creative services, and a huge student population. Prices there are around €2,800–3,200/sq.m. for existing properties, with gross yields of 4–5% in some student neighborhoods (Plagwitz, Südvorstadt). Price growth there is about 5% per year over five years.

Other cities push the logic further:

D’autres villes

City	Average Price (Existing, €/sq.m.)	Typical Gross Yield
Magdeburg	< 1,900	~4.5–5 %
Duisburg	~1,750	~5 %
Chemnitz	< 1,400	>5 %
Dortmund	~2,500	~4.2 %
Dresden	3,200–3,600	3.5–4.0 %
Nuremberg	~4,200	3.2–3.5 %
Augsburg	4,000–4,700	3.0–3.3 %
Mannheim / Karlsruhe	4,000–4,500	3.0–3.5 %

These markets are attracting more and more investors seeking rental income, particularly Magdeburg (boosted by a giant semiconductor mega-factory project), Duisburg (logistics platform on the China-Europe rail corridor), or Chemnitz (automotive/robotics industry, European Capital of Culture).

The downside: these are markets more sensitive to economic shocks, with a risk of a more pronounced price drop in case of a recession (adjustment scenarios of -8 to -12% considered for secondary cities in a severe crisis scenario). But in the long term, the risk/return trade-off is clearly more attractive than in A-cities.

An adapted portfolio strategy

Market analyses increasingly suggest a diversified approach for 2026‑2027: a “core” asset in a major metropolis (for example, a well-located small apartment in Berlin or Munich) coupled with one or two more profitable properties in B-cities like Leipzig, Magdeburg, or Dresden.

With a budget of around €500,000, it is thus possible to acquire either a high-end unit in an A-city, or two to three units in secondary cities, or a mix (a small apartment in Berlin + one or two units in Leipzig). It all depends on the priority given to liquidity/resale security or annual cash flow.

Real profitability: what the numbers show

On paper, German gross yields seem modest. 2024‑2025 studies show an average range of 3 to 5% depending on cities and segments, with a national gross yield around 3.5‑3.8%.

Some rough estimates:

Segment / Location	Estimated Average Gross Yield
A-cities – prime neighborhoods	2–3 %
A-cities – secondary neighborhoods	3–4 %
Attractive B-cities (Leipzig, Dresden, Nuremberg)	3.5–4.5 %
High-yield cities (Magdeburg, Chemnitz…)	4.5–5 % and above
Prime residential (Top‑7, multi-family)	~3.4–3.8 %

After taking into account expenses (property tax, management fees, maintenance, insurance, condominium fees, etc.), you must subtract 1.5 to 2 percentage points. A gross yield of 4% therefore often translates to 2–2.5% net before income tax.

Rules of the game: taxes, fees, and regulations

Investing in German real estate means accepting a specific level of transaction costs and taxation. Purchase costs are significant: property transfer, notary, registration, agent commission… In total, you need to add on average 8 to 12% of the purchase price, sometimes up to 15.5% in some states (Länder).

The main items are:

– Grunderwerbsteuer (property transfer tax): from 3.5% to 6.5% depending on the state

– 3.5% in Bavaria (Munich)

– 6.0% in Berlin and Hesse (Frankfurt)

– 6.5% in states like Brandenburg, Saarland, Schleswig‑Holstein, Thuringia

– Notary and land registry fees: generally 1.5 to 2% of the price

– Real estate agent commission: most often 3 to 7% of the price, plus VAT (19%), shared between seller and buyer in most residential transactions.

Rental income taxation and depreciation

Rental income is taxed at the progressive income tax rate (approximately 14 to 45%), plus a solidarity surcharge of 5.5%. But Germany offers a decisive advantage to investors: broad deductibility of expenses, notably:

– mortgage interest related to the rental property,

– management and homeowners’ association (HOA) fees,

– maintenance and repair costs (with specific rules if expenses exceed a certain threshold),

– accounting depreciation of the building, generally 2% per year for existing structures, 3% for recent constructions for the first eight years.

Annual taxes and other costs

During ownership, the investor bears, among other things: the risks associated with asset ownership, market fluctuations, and related fees.

– the Grundsteuer (property tax), calculated on a recently reformed cadastral value, typically between 0.3 and 1% of the tax value, which often translates, for an average apartment, to a few hundred euros per year;

– management fees (in-house or via a specialized company), frequently 3 to 7% of collected rents;

– ongoing maintenance costs (often estimated at 1–2% of the property value per year) and building insurance.

In total, it is common for 1 to 2 percentage points of gross yield to evaporate into these recurring costs.

Highly protective tenant rights

One of the major pitfalls for those wishing to invest in German real estate while thinking “like a French investor” is the level of protection granted to tenants.

The legal foundation is provided by the Civil Code (BGB), supplemented by numerous laws and ordinances (building code, energy regulations, rules on recoverable costs, etc.). Leases are in principle indefinite; fixed-term leases are only possible in specific cases (future occupancy by the landlord, major planned work…) and the reason must be stated in writing at signing.

Rent regulation: Mietpreisbremse and other safeguards

In many tight areas, new leases are governed by the famous “Mietpreisbremse” (rent brake). This mechanism limits the initial rent to 10% above the local reference rent (ortsübliche Vergleichsmiete), calculated from comparable leases of recent years and documented in an official table (Mietspiegel).

This limitation now applies to almost all major cities, except for a few states, and has been extended at least until the end of the decade. Non-compliance exposes the landlord to retroactive claims from tenants, who can demand repayment of overcharges for several years if overcharging is proven.

Alternative models exist, such as graduated rents (Staffelmiete, where future increases are fixed in the contract) or rents indexed to the price index (Indexmiete), widely used in recent years to protect against inflation. But in all cases, the law regulates the frequency and terms of increases.

For a landlord, the idea of “freely revaluing” a rent during the lease is therefore illusory. The strategy must be designed from the acquisition, taking these caps and local rent structures into account.

Loan access conditions and financing for foreigners

Good news: there are no nationality restrictions for buying property in Germany. A foreign investor, whether European or not, can purchase an apartment or building on the same terms as a resident, with no automatic right to a visa or citizenship in return.

For financing, the picture is more nuanced. German banks gladly lend to stable resident employees, sometimes up to 100% of the price, but are more cautious with non-residents or non-Europeans. In practice:

Rates rose after 2022, exceeding 4%, before gradually declining. By the end of 2025, a 10-year fixed-rate mortgage is negotiated on average around 3.6–3.8%, with forecasts of stabilization between 3 and 3.5% for 2026. So we are still far from the 1–2% of the 2015‑2019 period, but the burden remains bearable for a long-term investor, especially as rents rise.

For a foreigner, it is often useful to go through a broker specialized in non-resident financing, who is familiar with both documentation requirements (income, assets, tax situation) and how to present a file to banks unaccustomed to international profiles.

Where to invest based on your profile?

Market data allows us to identify several major strategic profiles for investing in German real estate.

1. The “asset preservation” investor: secure before seeking yield

This profile favors major metropolises, “prime” locations, and asset quality (recent building, good energy performance, sought-after neighborhood, proximity to transport and employment hubs).

A studio or two-room apartment in Munich, Frankfurt, or Hamburg, or a nice apartment in Berlin in neighborhoods like Prenzlauer Berg, Friedrichshain, or Charlottenburg, fits this logic. The gross yield will often be below 3%, but vacancy is almost non-existent, rental demand is deep, and resale is easy, even in tougher times.

2. The yield hunter: turn to B‑cities

For an investor aiming for a more comfortable income stream, the numbers point towards Leipzig, Dresden, Magdeburg, Chemnitz, Duisburg, even Dortmund or certain industrial medium-sized cities. In these cities, gross yields of 4.5 to over 5% are common, sometimes more on renovated small units.

One must accept a higher risk: greater sensitivity to the economic cycle, less liquid markets, more active property management. But the fundamentals of some cities (job growth, large-scale industrial projects, attractive universities) make them real growth relays.

3. The mixed strategy: one safe asset + two yield assets

More and more specialized advisors recommend a combination: one property in a metropolis for asset anchoring, and one or two properties in secondary cities to boost the portfolio’s overall yield.

For example:

– an apartment worth €250,000–300,000 in Berlin or Hamburg,

– two small apartments worth €120,000–150,000 each in Leipzig or Dresden.

With an overall envelope around €500,000, the investor thus acquires a very liquid asset, backed by a globally recognized market, and a more generous rental income stream from the B‑cities.

Very real risks to factor in

Despite its reputation for stability, Germany is not a risk-free paradise for real estate investors.

At the macroeconomic level, the primary threat is a prolonged slowdown of Europe’s leading economy: sluggish growth, industry struggling against Asian competition, high energy costs, dependence on exports. In a severe recession scenario, studies mention potential price drops of around 5–8% in major cities, and up to 10–15% in rural or fragile areas.

At the micro level, the most underestimated risk by foreign investors is often regulatory and legal risk:

– possible tightening of rent regulation,

– new energy renovation obligations with compliance costs of €15,000 to €50,000 per dwelling in some cases,

– long and costly eviction procedures in case of a dispute with a tenant,

– strong restrictions on short-term rentals (Airbnb, etc.) in most major cities.

Finally, for a non-resident, there are issues of currency exchange (for investors outside the eurozone), double taxation, and operational management (finding a good property manager, overseeing work, understanding HOA rules and reporting obligations).

How to approach an investment project concretely

For a French-speaking investor, the key is to consider Germany as a long-term market, with moderate but robust profitability, closer to a “real estate bond” than a speculative bet.

Before investing in real estate in Germany, a few principles emerge from field studies:

The typical timeline between offer and final registration is around 8 to 12 weeks. The transaction must go through a notary, who reads and explains the contract, then proceeds with registration in the land registry. Most steps can be delegated via power of attorney, allowing for a remote purchase.

In summary: a market for patient and structured investors

Investing in German real estate means betting on a nation of renters with a chronic housing shortage, a solid rule of law, a strong currency, and taxation that, despite a non-negligible tax level, offers effective tools (depreciation, interest deductibility, capital gains exemption after ten years).

It is not, however, the ideal playground for the impatient speculator: rental yields remain moderate, credit leverage is less spectacular than in the era of 1% rates, and the regulatory arsenal limits landlords’ freedom of action.

For an investor who accepts a 10 to 15-year horizon, who carefully chooses locations, and who correctly structures financing and taxation, Germany nonetheless remains one of the most coherent European markets: neither a jackpot nor a minefield, but a demanding environment where the rigor of analysis and the quality of execution make the difference between mere capital preservation and a truly profitable wealth-building project.