Monument real estate as an investment: What needs to be considered?

What needs to be considered?

Anyone who deals with the topic of monumental real estate as an investment should not only consider the topic from the perspective of return.

What requirements should a monument property meet?

In Germany, all properties that have been entered in the official list of monuments and listed accordingly are designated as listed properties or alternatively architectural monuments. In current practice, these are buildings that represent the time-typical style of their respective epochs and are therefore both structurally and visually worthy of protection. Monument real estate is a cultural heritage, the preservation of which is subsidised by the state by subsidies. For example, if a property owner wants to carry out remediation measures, tax advantages can be claimed for this purpose. However, there are very strict requirements from the Monuments Office, which are laid down by law. But also listed properties can qualify as investment properties and own themselves for investments.

The legal basis

There is a special law for listed properties. The DSchG (Monument Protection Act) regulates all admission requirements that a property must meet for registration in the list of monuments. The DSchG is a matter for the Länder, so that the requirements can vary from state to state. The pure management of all monument lists as well as the approval for renovation measures lies within the competence of the regional monument offices, which are located at the district or municipal level.

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Buying up monument property as an investment - Important!

For investors or investors, however, it is important to know that monument properties differ very clearly from the so-called renovation properties. In the case of redevelopment properties, the owner or investor has as much freedom as possible with regard to the refurbishment measure, whereas in the case of a monument property, the design and the visual representation may not be changed.

While it is true that redevelopment properties with comparable tax advantages are also promoted, the state has a completely different purpose. A refurbishment property is not about being able to preserve the old-historical building structure in its present form. Rather, refurbishment properties are about being able to remedy urban design problems. Unlike a monument property, the repair of a refurbishment property is subject to considerably lower requirements.

Why are heritage properties of interest to investors?

  1. Germany has made a commitment to promote the preservation of listed properties. For this purpose, the tax law provides for the tool of the Monument AFA, the so-called deposition for wear and tear. With this means, investors as owners of heritage properties can claim significant tax write-offs to ensure the renovation and preservation of the listed properties. In this context, however, it is important to mention that the tax depreciation may only be used for the preservation of the listed property. Since a renovation of a monument property involves a lot of effort and also very expensive assets, the state gives the owner the possibility of depreciation. If the listed property is rented out or even used commercially, this gives the owner the right to depreread the production or acquisition costs of the listed building on a linear basis.

    The amount of possible depreciation varies and depends primarily on the age of the monument property. For buildings built before 1925, the depreciation option is 2.5 over a 40-year period. For buildings built after 1925, the amount of depreciation is 2 over a 50-year period.

    If an owner owns a listed property that has been officially recognised as such, there is the possibility of deducting the tax of renovation costs to a particular extent. The amount of the tax advantages depends on whether the monument property has been declared for its own use or whether it is an investment object with the purpose of resale. For investors, it is possible to have the complete restructuring costs depreused for tax purposes. In the window of the first eight years after the acquisition of the listed property 9 and in the following four years 7 of the renovation and modernization costs can be depreciated for tax purposes. In addition, there is the possibility of linear depreciation, which refers to the pure acquisition value of the monument property. Owners who use their listed house can deprecrate 90 of all renovation or renovation costs for tax purposes. This applies for a period of ten years after the purchase of the monument property. However, the possibility of linear tax depreciation is no longer possible in the case of self-use. Of course, the use of tax advantages is also subject to strict conditions. If an investor or owner of a listed property fails to meet this requirement, this means that all depreciation claims may be completely lost.

What are the conditions for the tax advantages?

The most important prerequisite for the use of the tax advantages is that the building has an official recognition as a monument property and has accordingly been entered in the regional list of monuments. The other prerequisites are:

  • Planned refurbishment measures must first obtain approval from the Office for the Protection of Monuments.
  • The notarial purchase contract must necessarily have been signed and concluded before the start of the planned remediation measure.
  • A tax prior certificate must be obtained by the investor before the start of the renovation or refurbishment measures. If the measures are already in progress, no certificate may be issued, resulting in a loss of entitlement.

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What is the demand for heritage properties?

The attractive tax advantages have led to a very constant demand for listed properties on the German market. The number of existing properties available on the market has been significantly reduced by this demand, which has of course led to an increase in the price. It is repeatedly emphasized that in the so-called old federal states there are hardly any more available monument properties. In the new federal states, however, these listed properties still exist and thanks to constant demand, these listed properties have experienced an immense increase in prices. For all the advantages that a listed property offers to the investor, the focus should also be on the risks.

The risks of listed properties

High demand leads to massive price increases in a free market, which of course has a noticeable effect on the rental yield on rented properties. So-called black sheep, which are still present by developers, must of course first be explored from the existing offer. These black sheep lure their customers with sometimes enormously dubious yield calculations and, moreover, the refurbishment costs have to be calculated precisely. These costs should not be underestimated and some providers submit overvalued calculations in order to be able to sell listed properties profitably to the customer.

If the listed property is to be sold, it is imperative that the time limit is observed. If a listed property is sold prematurely, all depreciation claims are thus released. This has a negative effect on the pure value of the monument property, as the tax advantages are an integral part of a purchase price. In the case of a purchase with debt capital in particular, it should also be borne in mind that prepayment compensation must be paid to the banks or the investor, and the speculative tax, which is due in the event of an early sale within a period of ten years, must not be disregarded. For this reason, investors who are interested in the topic of monument real estate should carry out their own examination of the property in advance or secure this examination by means of an expert opinion.

Monument properties can offer good investment opportunities. Real estate is still considered a constant in Germany and a listed property can be considered a premium plus property. However, in order to be able to obtain all possible advantages from the monument property and thus to achieve an economically comprehensive use, numerous prerequisites are required. It is therefore important to make a very precise cost-benefit calculation in advance and, in addition, to carefully check your own financial possibilities. Especially when a listed property with debt capital is to be acquired by the bank as an investment, the realities of the economic market must necessarily be taken into account in this calculation. The development of interest rates plays an important role here, as does the movement of the real estate market. For this reason, a monument property as an investment is not a good alternative for every investor. Find out more about real estate financing options and how we can help you with this.

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