Consideration: Heritable Building Right vs. Property Purchase / Renovation

Hello everyone,

I have to elaborate a bit. We come from the northern outskirts of Munich (Nordallianz). We first learned in 2018 that our municipality (where we live in a rental apartment) was announcing 3 new development areas under the Einheimischen model. There was various information, development plans, sqm prices including discounts, etc. Everything was wonderful, and we already had initial financing lined up. Then in 2020 the "hammer" came. The new land reference values were announced and had increased by 34% in the main municipality and even by 74% !! in the branch compared to two years before, more like exploded.

At the end of 2020, the municipality said that the areas or parcels would no longer be sold but only granted under [Erbbaurecht] (ground lease). Just before Christmas, the conditions leaked out.

[Erbpachtlaufzeit]: 75 years
[Selbstnutzungsplficht]: 20 years
[Erbzins]: 12.50 euros/sqm per year (or 13.50 euros in the branch)

That means I am allowed to sell the house at the earliest after 20 years and can then only offer the buyer 55 years of remaining [Erbpacht] term. In addition, they want to veto if the sale price is excessive :(

Honestly, my mood got worse and worse about this. The only big advantage would be that we could stay in our home municipality, continue going to the usual sports, meet my wife's acquaintances from the music and dance school, etc., and we would still be relatively close to my parents and my brothers.

Or the alternative:

We search on our own or with a realtor or home-building companies for a suitable plot, possibly an existing property to tear down or renovate, although I would have strong reservations about the latter. I would prefer something new that can be planned well. But... plots (to build on, even before Corona but now more so) are very rare and if so, in cow villages with not even 100 inhabitants and no infrastructure. We need more space because child no. 1 is already here and no. 2 should follow in 2-3 years, a kindergarten including daycare, elementary school, reasonable shopping options, yes, the nice familiar "luxury" we already have here. And yes... our budget is about 500,000 for everything. But plots alone mostly cannot be found for less than 250k.

In "emergency," we would have to go really far away, towards Regensburg, Deggendorf, etc., because there is still affordable land there.

That is again like choosing between the plague and cholera. What should we do? Stay here under [Erbbaurecht] with miserable conditions and bind ourselves for 20 years and end up with a ruined house that no one wants or move out to the sticks, build the same house there, but always drive forever by car and live separated from everything. We don't want to move to a big city either, a suburb with 10-20,000 inhabitants in the commuter belt of a larger city would be ideal.

Your tips?

Best regards,
Harry

That means that I am only allowed to sell the house after 20 years at the earliest

very slowly. It means that a self-user must live in the house for 20 years and it is not intended for rental. You can definitely sell it after eight years.

Also, people want to veto overpriced sale prices :(

How are overpriced sale prices defined? The normal price is the one that emerges from supply and demand. Overpriced prices are not paid – otherwise no one would refuse to pay them.

The only big advantage would be that we could stay in our home municipality, continue to go to the usual sports, meet my wife’s acquaintances from the music and dance school, etc., and would still be relatively close to my parents and my brothers.

What would be the disadvantage?

We look for a suitable plot on our own or with realtors or construction companies, possibly an old building to tear down or renovate, although I would have serious concerns about the latter.

That is always the alternative, although demolition and new construction are not always cheap.

And yes... our budget is about 500,000 for everything. However, plots alone are usually not found under 250k.

Then you should quickly look for a larger rental apartment. With 250k for the house, 80-90 sqm of living space remain.

Staying here under hereditary building rights and accepting miserable conditions and binding yourself for 20 years and ending up with a ruinous house that no one wants

You just don’t want hereditary building rights. At least that’s how you write, without having dealt with it intensively. I already said something about the 20-year binding. 55 years remaining term on the hereditary building right is absolutely no criterion against a purchase. Any buyer over 30 will no longer experience the end of the hereditary building right.
Moreover, there is compensation upon expiration – the municipality will not be able to afford compensating houses from all building areas in 75 years (nobody does that even today).

Whether the €12.50 p.a. per sqm is cheap or miserable, I can’t tell you. For that, you would have to know the land value. I would guess around €350-400 per sqm, right?

You have to pay 650,- p.a. in the Munich area for a piece of land? You can build your house on it and have three quarters of a century of peace? And you hesitate? What else do you want?

You have to pay 650,- p.a. in the Munich area for a piece of land? You can build your house on it and have peace for three quarters of a century? And you're hesitating? What more do you want?

Where did you get that from? 650 / 12.5 = 52 m2 you can't even build on such a small plot in Munich.

Oh calculated 500 times 12.50 gives 6250,- Correct. Still, I would do it. How much does such a plot cost with you? 250 thousand and more? Then there is nothing left for the house. You pay the municipality almost 470 thousand at 6250. That is fair then. Because the lease price will be fixed, the plot could be worth a million or more in 75 years.

You just don’t feel like doing a leasehold. At least that’s what you write, without having dealt with it intensively.

I have dealt with it. Intensively, yes, but not down to the last detail, which is why I am asking the professionals here.

Directly from the Münchner Merkur:
"The lease rent is 1.5 percent. For the calculation of the ground lease interest, as decided in February 2020, a 40 percent discount applies on the standard land value of 1500 euros including the calculated development costs of 150 euros, resulting in an annual ground lease interest of 12.15 euros per square meter." That amounts to 3,500 euros per year for a 280 sqm plot for a semi-detached house.

You just don’t feel like doing a leasehold.

That has nothing to do with “not feeling like it”! So what bothers me about the leasehold, especially under these conditions:

1. I do not acquire land and soil, i.e. what at least retains its value (assuming I don’t pour my used oil in the garden every year), but will probably be worth more over many years than today. The same does not apply to the house. That will most likely be worth less due to wear and tear. Ergo, I lose the financial advantage of the combination land + house with this model.

2. You say I could just sell, for example, after 7 years. So why is there a “personal use obligation”? But even if. Here is an excerpt from the municipal meeting of 15.12.2020:
“Here, too, the ground lessee is the owner of their property and can sell it on the open market anytime after the personal use period has expired. However, the municipality, as the lessor of the leasehold, reserves the right in the leasehold contracts to refuse the necessary consent to the sale if the selling price significantly exceeds the value of the property (excluding the land, since it is a leasehold). This clause in the contracts was recently confirmed as lawful by the Higher Regional Court of Munich in a reference case of the municipality on 18.11.2020. Therefore, legal certainty exists for this practice.”

And this is what it refers to:
) Ground lease sale of the spouses XXX: The chairman informs about the now issued decision of the Higher Regional Court Munich from 18.11.2020. With this decision, the court upheld the appeal of the municipality of Eching against the decision of the district court Freising from 28.05.2019, with which, at the request of the spouses XXX, the court had replaced the consent to the purchase contract from 28.09.2018 previously refused by the municipality, and dismissed their application. The Higher Regional Court did not allow a further legal remedy against its decision, which thus became final. Therefore, the municipality of Eching can now assume the ineffectiveness of the purchase contract from 28.09.2018. What conclusions the spouses XXX will draw from this remains to be seen. With this decision, the municipality has gained more legal certainty for necessary restrictive contractual regulations in future leasehold granting according to the building land model.”

Uff... in short, even if after however many years I want to sell my own property, my house, in which I have invested a lot of money and time, at a good price, the municipality can thwart me. Just that alone I find extremely unattractive for this model.

3. As far as I have understood so far, I have to ask the municipality for permission for every change (even just a trivial) garden shed. Great! :mad:

4. Let’s stick with the 20 years’ personal use obligation. If I then sell, a buyer would only have 55 years remaining term. Yes, you wrote the municipality then does not want to dissolve. But who knows what happens in 20 years and whether they won’t do exactly that, and I end up with a house, well below value, that nobody wants?

Then you should very quickly look for a bigger rental apartment. With 250k for the house, there are 80-90 sqm of living space left.

I don’t understand that calculation. Incidentally, the 500k is a rough reference. It also strongly depends on how much equity we will ultimately have. It will only be between 30-50k, unfortunately. Nevertheless, rental apartments or even houses cost at least 1800 (cold rent) in our region (for example Eching), rather around 2200-2500 (cold rent). For the loan we have seen a repayment rate of 1500 euros as feasible. We could also be financed by a bank for up to 570,000 euros. In addition, there might be the KfW loan, although I would then subtract the loan amount from that again from the bank loan.

But yes... it’s already very tight. And a prefab house (which we aim for around 300,000, minus various own contributions such as painting, sanding, hanging doors, possibly floors + tiles) + plot unfortunately, as you can see now, is not feasible within a 50 km radius of Eching. Who knows how far we would have to move for that. Of course, other people also migrate completely to a new country without knowing anyone there, but I find that hard. On the other hand... I am 42 years old, my parents are 70 and 78, and in a few years the argument of proximity to them will also become obsolete :(

I just have the feeling that no matter what we do, it’s a mistake. Doing nothing would also be a mistake and then there would be no child no. 2 either.
:(