On 30 January 2020, the law on rent caps in the housing sector in Berlin (MietenWoG Bln) was passed by the Berliner Abgeordetenhaus (Berlin Chamber of Deputies), and on 23 February 2020 it already came into force. What is the rent cap, what is the current legal situation and what effects does the rent cap of Berlin have on real estate prices? Does it make sense to sell the property in Berlin - an apartment or a house? You can find answers to these and other questions here.
What is the Berlin rent cap?
What is the content of the MietenWoG Bln, and what effects does the Berlin rent cap have on property prices? This is the question that has concerned landlords of real estate in Berlin the most since the law came into force. It is therefore important to know the key points of the law, which provides for a public law cap on rents in Berlin for the next five years. There are some real estate properties that are excluded from the legal regulation, namely
- Dwellings which are subject to public subsidized housing
- Dwellings subsidised by public budgets for repair and modernisation and which are subject to the rent control
- Owner-occupied flats
- Dormitory and
- All new buildings ready for occupation since the beginning of 2014 or permanently uninhabitable dwellings that have been restored at an expense equivalent to that of a new building, for example former building ruins.
You will soon find out that none of the above-mentioned exceptions apply to you as a landlord. This is not the only bad news, the second follows on foot: Anyone who as a landlord violates the requirements of the rent cap is committing an administrative offence, and this can be punished with a fine of up to 500,000 euros. That is an unbelievable sum for a mere administrative offence!
However, there is still a hardship provision that protects you as a landlord. An increase in rent is exceptionally allowed if you as a landlord can prove that it is absolutely necessary to avoid permanent losses and endangering of substance - a proof that will rarely be crowned with success.
Landlord watch out: Effects of the rent cap Berlin on real estate prices
The fact is that the law limits rent increases for about 90 percent of all rental apartments in Berlin!
This means that you are also affected by the rent cover! But what concrete effects does the rent cap Berlin have on property prices? For around 1.5 million rental apartments in Berlin rents will be "frozen" at the level of 18 June 2019. This means that this law will apply to all rental agreements that already existed on the cut-off date of 18 June 2019 and still exist on the day the law comes into force, 23 February 2020. For all lease agreements concluded after the cut-off date, the maximum rent that may be demanded as rent is the previous rent of the same apartment or the lower rent ceiling. Only from 2022 onwards, rent adjustments are possible, which may not exceed 1.3 percent annually. As a landlord, you are obliged to provide your tenants with unsolicited information on the circumstances leading to the calculation of the rent cap within two months after the rent cap comes into force or before the conclusion of a new rental agreement. In general, it is forbidden to demand a rent that is higher than the rent on the due date when the law comes into force. Excessive rent is prohibited, although this prohibition takes legal effect only nine months after the law has been promulgated, i.e. from 23 November 2020. Excessive rent is deemed to be rent that is more than 20 per cent above the rent ceiling applicable in the relevant district. Tenants are expressly requested by politicians to report violations of the rent cap by landlords to the housing office of the respective Berlin district.
To the point:
When the rent cap came into force in Berlin, property prices were frozen at the level of June 2019. Only from 2022 onwards may rents increase by a maximum of 1.3 percent annually. The only exceptions to this principle are new apartments that are ready for occupancy from January 1, 2014.
What is the current legal situation regarding the Berlin rent cap?
The effect that the rent cap has on property prices in Berlin is not appreciated by landlords. This also applies, by the way, to the Berliner Landgericht (Berlin Regional Court), which considers the rent cap to be unconstitutional. According to the court, the reason for the unconstitutionality is the lack of legislative competence of the federal state of Berlin, so that the legal provisions of the rent cap are formally unconstitutional. For this reason, the 67th Civil Chamber of the Berlinder Landgericht (Berlin Regional Court) decided, in the course of an appeal procedure, to have the law examined by the Bundesverfassungsgericht (Federal Constitutional Court) in Karlsruhe. The Bundesverfassungsgericht also rejected an urgent application by Berlin landlords against the rent cap. The purpose of the urgent application was to ensure that violations of obligations to provide information and prohibitions would not be punished as administrative offences. It is still an open question when the decisions of the Bundesverfassungsgericht will be made. It therefore remains open for the time being whether the federal state of Berlin had the legislative competence to enact a rent cap at all. Increasingly, laws are being passed whose legal and constitutional basis is not secured. As a landlord, however, you want security, as the rental income is intended to protect you from old-age poverty. Therefore, it may make sense to sell the apartment in Berlin.
Selling an apartment in Berlin? – the meaning of the rent cap for landlords
As a landlord, you should consider the possible consequences of the Berlin rent cap, which was initiated by the red-red-green Berlin government under the head of government Michael Müller (SPD), who has been the governing mayor of Berlin since 11 December 2014. In the meantime, he has become one of the most unpopular heads of state nationwide. In this respect, it remains to be seen how long he will be able to remain in this position. In autumn 2021 the elections for the Abgeordnetenhaus in Berlin (Berlin House of Representatives) will take place. Franziska Giffey (SPD), the former mayor of Neukölln and current Bundesfamilienministerin (Federal Minister for Family Affairs), has long been a candidate in secret. She is expected to be able to win votes for the SPD, which is in a downward spiral.
It is important for landlords to know that the next election in autumn 2021 will probably confirm the current governing coalition in Berlin in its office. What does this mean for the rent cap in Berlin and for real estate prices? Regardless of whether the rent cap is considered to be constitutional or unconstitutional by the Bundesverfassungsgericht, the red-red-green government coalition will stick to its policy of capping rents. This is not only a matter of freezing rents, but also of restricting the rights of landlords. In this respect, the way to achieve this only plays a disorderly role. Whether it will be the rent cap or some other law, the goal will remain the same, and Berlin politicians make no secret of this. This should not only scare you as a landlord. Instead, it's time to deal with selling the house or selling the apartment in Berlin.
Falling real estate prices – goodbye to retirement provisions?
Therefore, as a landlord you should consider selling your house or apartment in Berlin. Let us first take a look at the development of real estate prices since the mid-1990s. After the real estate market reacted rather cautiously to the reunification, it really picked up speed from the mid-1990s onwards. Among other things, tax incentives and benefits were responsible for the price increase. As a result, revenues and prices fell in the years 1999 to 2000, reaching their lowest point in 2003, which was also due to the significant increase in supply. It was foreign investors in particular who shaped the years 2005 and 2006. The financial crisis in 2008/2009 represented a further turning point, since then property prices have climbed to their temporary peak in 2015, significantly exceeding the 2006 peak. The purchase price of apartments has risen since 2016 from 3,000 euros per square metre to 3,460 euros in 2017 and to 3,870 euros in 2018. The situation is similar for houses. Here the purchase price per square metre was 2,940 euros in 2016, 3,150 euros in 2017 and 3,570 euros in 2018. Accordingly, residential rents have also risen. Whereas the rent in 2016 for an 80 square metre apartment was still 9.10 euros per square metre, it rose to 11 euros in 2018 (source: https://www.immowelt.de/immobilienpreise/berlin/wohnungspreise).
These are peak values whose development is now being slowed down by the rent cap in Berlin or by further actions of the red-red-green coalition. This does not yet take into account the crisis caused by the coronavirus, which will have massive and as yet unforeseeable consequences for the economic development of this country and also of Berlin. It is certain that the hype of the past few years regarding property prices is over. Against this background, it is important that you promptly consider the idea of selling your house or apartment in Berlin. Make your decision in time before others do and before real estate prices start to fall rapidly.