No other form of investment is quite as popular among Germans today as real estate. The reasons for the popularity include low interest rates on mortgage loans, the lack of investment alternatives, and the attractive yield prospects. There is a general belief that owners of rental property earn higher returns than others because of their monthly rent revenues that could theoretically be boosted by raising rents. A recent survey, however, suggests that owners are mainly motivated by something else: Especially private landlords appreciate long-term lease relationships much more than the maximisation of returns. This is the gist of a representative survey conducted among landlords by the Haus & Grund property owners' association. The survey findings are based on the responses that 2,100 private landlords made in reference to 6,500 apartments. It turns out that landlords are actually loath to approach their tenants with rent increases: Out of all leases covered by the poll, 48 percent have not been subject to a rent increase since the signing. This is true even for many long-term leases. The national average for lease terms granted by private landlords is 11.7 years, according to the survey. The responses also reveal that 27 percent of the private landlords never raise their rents except when a new tenant moves in.
Rents Charged by Private Owners Tend to Undercut the Local Reference Rent
Apartments let by private owners are generally more affordable than the units let by large companies or institutional investors: According to the survey, the rents charged by private owners undercut the local reference rent by an average of 0.3 percent. Tenants signing long-term leases with private landlords benefit from the fact more than others. Because the longer the lifetime of a tenancy, the lower the rent is likely to be in comparison to the local reference rent, especially at a time like today when rents are going up in many regions of Germany. Nationwide, tenants pay nearly eight percent more than the local reference rent on average during the first two years after signing. But as early as five to ten years into their tenancy, they start saving 1.5 percent by comparison. After 20 to 30 years, their rates undercut the local reference rent by an actual eight percent.
Modernisation Rate of Private Landlords Equalled 3.8 Percent in 2013
Another finding of the survey is that private landlords do not shy away from modernisation measures. In 2013, the number of who undertook modernisation work equalled 3.8 percent, up from 2.7 percent the year before. The work consisted either of full modernisations or of energy upgrades that involved the replacement of heating systems, windows, roofs or the overhaul of certain building sections.