Valuation Methods for Real Estate in Germany
In Germany, the valuation of real estate is conducted using several methods, depending on the type of property, its location, and the purpose of the valuation. The main methods are the Comparative Value Method, the Cost Method, and the Income Method.
1. Comparative Value Method
This method is based on comparing the property being valued with similar properties on the market that have recently been sold. It is commonly used for valuing residential properties (apartments, houses) in areas with a developed market.
- Influencing Factors:
- Location: The most important factor in the comparative value method. The value of properties in large cities such as Berlin, Munich, and Hamburg is significantly higher than in small towns.
- Type of Property: Apartments and houses are valued differently. In cities, apartments are generally more liquid and their market value is higher than that of houses.
- Condition and Age of the Property: New and recently renovated properties are valued higher than old and dilapidated ones.
- Infrastructure and Transport Links: The availability of good transport links, shops, schools, and parks affects the value of the property.
- Cities and Districts: In large cities in Germany like Munich, Frankfurt, and Hamburg, property prices in central districts are particularly high. The value of properties is influenced by supply and demand in specific districts. For example, in Munich, prices in districts like Maxvorstadt and Schwabing can be significantly higher than in the outskirts.
2. Cost Method
This valuation method is used when there is insufficient comparable data available (for example, in the valuation of unique properties or commercial real estate). The method is based on assessing the value of the property based on construction costs, taking depreciation into account.
- Influencing Factors:
- Construction Materials and Technologies: The higher the quality of materials and construction methods, the higher the estimated value of the property.
- Age and Depreciation: The value of the property decreases with its age due to wear and tear.
- Market Value of the Land: This aspect is particularly important for single-family homes and commercial properties, where the land can often be worth significantly more than the building.
- Type of Property: The method is often used for valuing new properties or unique commercial real estate.
3. Income Method
This method is used for valuing income-generating properties (e.g., multi-family houses, office buildings, shopping centers) and is based on calculating the potential income that the property can generate. It is important for investors who purchase real estate with the aim of generating regular income.
- Influencing Factors:
- Rental Prices: A key factor is the level of rental prices in a specific area.
- Occupancy and Income Stability: The stability of tenants and the prospect of long-term income are assessed.
- Operating Costs: The costs of operating the building (repairs, maintenance, management) are considered, as they affect the net yield.
- Yield of the Property:
- Residential Properties: The rental yield from residential properties in large cities (Berlin, Munich) typically ranges from 2% to 4% per year. In cheaper and less popular areas, the yield may be higher, up to 5-6%, but this comes with the risk of lower demand and tenant stability.
- Commercial Properties: Office buildings and retail spaces can achieve yields between 4% and 7%, depending on location and the type of tenants. In prestigious districts of Berlin or Hamburg, the yield will be lower (due to high costs), but more stable.
- Warehouse and Industrial Properties: Yields can range from 6% to 9%, especially on the outskirts of large cities or in industrial areas.
- Yield by Property Type:
- Multi-Family Houses: The yield may be lower if the property is in a high-value location, but in cheaper areas, it can be higher.
- Retail Spaces: The yield varies significantly depending on location and the type of tenants. Spaces in central urban areas are likely to have more stable income, but with lower yield.
- Offices: Typically a stable type of property with a yield of about 4-6%.
Influence of Liquidity on Property Value
The liquidity of properties depends on their location, type, and market demand. More liquid properties generally have a higher value and sell faster.
- Cities with High Liquidity: In cities with high demand for real estate, such as Munich, Berlin, and Frankfurt, the liquidity of properties is higher, making them more attractive to investors. In central districts of these cities, properties sell faster and have stable demand.
- Type of Property: Apartments in central urban areas of large cities are generally more liquid than single-family homes in the suburbs or rural areas.
Conclusion
The valuation of real estate in Germany depends on many factors: the type of property, its location, market conditions, and the purpose of the valuation. Properties with high liquidity are usually found in large cities and central districts, while the yield of properties depends on the type and location of the rented spaces.
