Shifts Sweep through Germany's Property Sector
Effective from February 17, 2025, the Money Laundering Ordinance will impose significant changes on real estate transaction formalities, aiming to combat money laundering in the sector more effectively. These changes will impact lawyers, notaries, and tax advisors involved in transactions.
One of the most impactful modifications pertains to cash payment in real estate purchases. From the aforementioned date, legal professionals must file a suspicious activity report if the consideration exceeds 10,000 euros and is paid in cash, gold, platinum, or precious stones, or if it's made through gold bars or cryptocurrency.
Furthermore, transaction prices that deviate by more than 25% from the actual market value of the property must be reported unless the difference is due to an officially declared donation.
A new reporting obligation is also applicable to real estate transactions where a consideration of more than 20,000 euros is provided by a person who is neither directly involved in the purchase nor an "economically entitled" person.
The subsequent sale within two years will be reportable if the price significantly deviates from the previous price and there is no reasonable explanation for this change. Previously, a period of three years applied.
Reporting is also mandatory if the consideration is to be provided more than a year after the land registry application has been made, without a justifiable reason, or if a party involved in the real estate transaction fails to provide proof despite a notary's request.
The German real estate investment market, after experiencing a decline for two consecutive years, stabilized in 2024 with a total of 34.9 billion euros, marking the first growth since 2021. Two-thirds of respondents expect an increase in transaction volume this year.
In 2025, 79% of respondents have residential property as their top investment focus, with moderate price increases anticipated, particularly in prime locations. Efforts towards densification continue to face challenges due to high construction costs and regulatory requirements.
Logistics remains a popular investment focus, while data centers have gained traction as a viable investment option. On the other hand, the popularity of office properties has significantly decreased, with landlords offering substantial concessions to retain tenants and tenant demand for flexible options increasing.
In relation to the Money Laundering Ordinance changes, it's worth noting that as of January 1, 2023, the reporting obligations for foreign companies to the Transparency Register in Germany have been extended. This includes foreign companies that indirectly hold shares in German real estate if their shareholding reaches a threshold of at least 90%. The reporting requirement applies to all companies in the investment chain, and there was an implementation deadline of June 30, 2023, for existing real estate holdings.
In light of the Money Laundering Ordinance changes, legal professionals will be required to file a suspicious activity report for cash payments exceeding 10,000 euros from February 17, 2025, when such payments are made in cash, gold, platinum, precious stones, gold bars, cryptocurrency, or through any other unconventional methods. Furthermore, there will be a new reporting obligation for real estate transactions where a consideration of more than 20,000 euros is provided by a person who is neither directly involved in the purchase nor an "economically entitled" person, effective from the same date.
