Buy or rent?

Frankfurt Many Germans quarrel with themselves: should they buy an apartment? Or have the prices become so expensive after the year-long boom in the real estate market that one would rather stay a tenant?

The online portal Immowelt tried to find an answer to this question and compared purchase prices and rents in 75 major German cities in a model calculation. The result: tenants in 51 cities have to pay less than they would have to allow for a monthly loan installment.

In the popular cities in particular, purchase prices have fallen far short of rents. In 35 cities, the monthly burden of the buyer is even more than 100 euros higher than that of the tenant.

However, there are also cities in which buyers have an advantage. And the bill completely ignores one important aspect: As a buyer, you may have paid money to the bank for decades, but you live in your own four walls and have saved up something for old age. Experts therefore advise you to carefully consider your decision for or against owning a home.

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For the analysis, Immowelt calculated the monthly rates on the basis of the offer prices (rent and purchase) for a family-friendly apartment between 80 and 120 square meters. In addition, 100 percent financing with a term of 15 years with a current market interest rate of 1.6 percent and an initial repayment rate of 2.0 percent was assumed.

With 100 percent financing, 100 percent of the purchase price is financed through a loan – but not the ancillary costs that are incurred in the transaction and that should not be neglected. Ultimately, these costs add up to up to 15 percent of the property price – including for property transfer tax, notary and possible brokerage costs and the entry in the land register.

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The real estate prices reflect the median of the apartments offered on immowelt.de from March 2020 to February 2021; these are net rents. After the loan expires, a residual debt – of varying amounts – remains in all cities.

Rent in Munich up to 660 euros cheaper than loan installments

Those who do not yet live in their own four walls have a particularly difficult time in Munich: Both as a tenant and as a property buyer, you have to dig deep into your pockets. And so in the analysis by Immowelt, the difference in the monthly load is greatest.

The repayment installment costs 660 euros more than the rent. An apartment costs a median of 1,740 euros in rent, while the annuity is around 2,400 euros. “With an average purchase price of 800,000 euros plus ancillary purchase costs, real estate acquisition can only make sense in individual cases from a financial point of view,” therefore the real estate portal experts conclude.

In addition, there is a large remaining debt after the 15 year loan term – in the case of Munich around 530,000 euros. And even if experts do not see the end of the phase of low interest rates yet, it is not certain that the conditions for loans will be as good as they are until then.

But the rising purchase prices have not only led to big differences in Munich: In Hamburg tenants live 440 euros cheaper, in Frankfurt 420 euros. Even in smaller cities, buyers have to expect a high monthly rate: in Potsdam they pay 520 euros more, in Ingolstadt and Lübeck it is over 300 euros more.

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Don’t forget the advantages of buying a property

But there are many cities in which the additional burden is within limits. In Cologne, tenants pay just ten euros less than owners in this model calculation. Even in the capital, the difference is small: in Berlin, buyers have to calculate 100 euros more than tenants for loan repayment.

In other large cities such as Essen (40 euros), Dortmund (50 euros), Bremen, Hanover (90 euros each), the differences are still relatively small. Even in Düsseldorf or Nuremberg (180 euros each), switching to home ownership based on this calculation can still make sense.

The experts from Immowelt also refer to the advantages of buying: “Although the burden of buying a property is higher than the rent, the way into your own home can still be worthwhile,” they write. “While tenants have to calculate high living expenses throughout their lives, many owners have paid off the loan by the time they reach retirement age, so that they have lower expenses in old age.”

In addition, buyers could change the appearance of the apartment and invest in their own four walls – and do not need the consent of a landlord. “The additional costs a buyer accepts for these advantages is a purely individual decision,” they conclude.

However, the aspect that real estate owners also have to factor in costs in addition to their loan is ignored. Similar to rent, an owner has to pay monthly house allowance (also called housing allowance).

According to the Immobilienverband Deutschland IVD, the rule of thumb is 2.70 euros per square meter and per month. This sum covers the running costs of the house, such as heating costs, the costs of waste disposal, house and street cleaning, building insurance, for the caretaker and property management.

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In addition, a part is saved in the form of the maintenance reserve for possible repairs or maintenance of the separate property. Finally, both tenants and property owners have to pay property tax. For the tenant, this is done via the utility bill, the owner pays the municipal tax directly to the tax office.

From Oberhausen to Chemnitz: Buyers live more cheaply here

And ultimately, in 24 of the 75 cities analyzed by Immowelt, the monthly loan installment in the model calculation is lower than the rent. Many of these cities are in the Ruhr area: In Oberhausen, an apartment with 80 to 120 square meters costs only 137,000 euros on average. With financing over 15 years, this would result in a monthly rate of 410 euros. On the other hand, there are average rents of 580 euros, 170 euros more than the repayment.

According to Immowelt, buyers would also have an advantage in Bochum, Gelsenkirchen and Krefeld: According to this extrapolation, owners are between 170 and 100 euros cheaper here. But not only in North Rhine-Westphalia are there cities where the annuity beats the rent. Kaiserslautern, Hildesheim (140 euros each), Saarbrücken (110 euros), Chemnitz (100 euros) and Mainz (80 euros) are examples of this.

More: Home Financing: Ten Mistakes Home Buyers Should Avoid.

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