New-Build vs. Resale Property in Germany: Which Is Better?

Hello everyone. One of the hardest discussions with a buyer or investor is usually this: should you invest in a new-build, or in a resale, move-in-ready property? The answer is not simple, and there are many facts to work through before finding an approach. This article tries to set out the different facts that matter for this decision.

Generally, a property investment decision comes down to facts such as location, condition, return on investment and budget. Personal taste also matters, and this makes things harder, since taste is an emotional fact. Emotional facts, or “good instinct,” play an important role in every decision — but emotion can also be risky if it leads to the wrong call, especially in a discussion about buying new versus resale.

The Advantages of New Builds

• New buildings and current construction technology can last 80-100 years — very durable
• Payments during the construction phase are strictly regulated, so you only pay for work that has already been completed
• New homes meet all necessary environmental requirements, so you get a home built to modern standards
• The construction company or developer’s warranty runs for at least 5 years, mostly 10 years, after which no repairs should be needed
• New builds have modern floor plans and high standards of electrical and fit-out installation
• Strong tenant demand
• Attractive locations
• The home can be tailored to your own ideas

But Do Not Forget These Facts Either

• You need a good construction company to build a new home to the quality you want
• From project start to completion usually takes at least a year
• During this period you have almost no rental income, but a great deal of capital tied up
• You need a good property manager to handle leasing and to monitor construction quality
• Completion can be delayed (for example by a harsh winter, strikes, or other factors such as a pandemic); if you have a mortgage, this means higher interest costs
• There can be a gap between the fit-out specified in the contract and what is actually built in

The Advantages of Resale Property

• There is no completion risk — the building already exists, you can see the property, and it can be assessed by an expert, so you quickly know the real price
• You will find an existing tenancy agreement, so rental risk is low and your return on investment starts being calculated right away
• German buildings have a long service life (80-100 years)
• You will find that the standard of property management is high
• Resale properties are often attractively sized
• Necessary repairs or investment can also be an opportunity to raise the rent

Every Coin Has Two Sides — Resale Property Is No Exception

• Because you are buying an older property, most of the construction company or developer’s warranty has usually expired
• The property you buy may already have hidden issues — this could be tenant problems, unknown repairs needed, or disputes with neighbors and authorities
• Compared to a new build, the likelihood of needing to invest in a resale property is much higher — buildings periodically need new windows, roofs and general repairs, while a new build needs this far less often
• You need a good property manager, plus savings set aside for repair costs
• Resale property involves more work, and requires more experience and knowledge of the property market

The above list of facts is only a partial one.

But whether you prefer a new build or a resale property, this should help you make the decision. It may not be an easy decision, but most buyers still prefer a “simple” approach — understandable, since they are further away from the location and want the investment to be straightforward. Still, deepening your understanding of the German property market is also worthwhile in its own right.

Have a question about this guide? Leave a comment below, or ask Zagdim directly.