Who Can Buy Agricultural Land In Germany & How To?

Introduction to who can buy agricultural land in Germany and how to buy agricultural land in Germany: Agricultural land is defined as land devoted to agriculture, in which other forms of life are used in an organized and controlled manner for raising livestock and producing crops. It is also called farmland or cropland. Germany’s agricultural sector is one of the 4th largest producers in the European Union.

The most important agricultural country in Europe is Germany. The approximate area of ​​agricultural land for Germany was 166,450 square kilometers. Farming is an essential agricultural product that farmers can buy or rent. German agriculture is represented by 2 different agricultural systems, with small-scale family farms in the west and large-scale corporate farms dominating the agricultural markets in the east of the country.

How to Buy Agriculture Land in Germany
Livestock Farming: Image Source: Pixabay

Agriculture land is an essential asset for agricultural production. Agriculture land is scarce, farmers can decide to either buy or rent a farm. Although agricultural economics has a long tradition of analyzing farm prices and rent rates, the recent rise in farm prices and rent rates in large parts of the world, and especially in Germany. 

The growing demand for agricultural commodities for food and energy purposes has accelerated the harmonization of landscaping, the negative effects of biodiversity, and the strengthening of landscapes, as well as the management of agricultural land, in the provision of ecosystem services. ۔ At the same time, the use of subsidized organic farming and extensive grassland helps to provide ecosystem services. 

A guide for who can buy agricultural land in Germany, can foreigners buy agricultural land in Germany, and how to buy agricultural land in Germany

According to the Present Value Model (PVM), the prices of agricultural land should be equal to the discounted range of expected agricultural profits. In experimental research on farmland prices, agricultural profits are usually calculated from rental rates that establish a direct relationship between farmland prices and rental rates. In agricultural areas, factors such as agricultural and other subsidies, commodity prices, and land productivity appear to be particularly important. Their important role is seen in backward and remote areas. In urban or semi-urban areas, however, these factors are less important in influencing changes in land use, even for agricultural land.

Advantages of investing in agricultural land 

Agricultural land has guaranteed long-term returns. Also, in the case of acquisition by the government, the compensation for rural lands is higher than for urban lands. You will be guaranteed a regular return from the pool if you become an owner under the Land Pooling Policy. Investing in agricultural land saves you from spending all that money and gives you the option to use the land for several purposes in the future within the limits of the law. 

High levels of capital security and low-risk levels – Investments in the agriculture sector are supported by a solid asset that is unlikely to depreciate. 

Farmland is an effective anti-inflation – Historically, agricultural values ​​have generally risen faster than inflation, making agriculture an effective means of controlling inflation and protecting capital. Becomes the source. This can be appealing to investors who are concerned about government policies regarding inflation. 

This is a stable income-generating asset – Farming provides regular income to the investor, which allows to make cash deposits due to low-interest rates and also makes a useful alternative to ‘risk-free’ earnings lost on bonds.

Farmland investment provides low-income fluctuations – When it comes to agricultural commodity prices, long-term growth trends are caught in the form of asset capital increases. However, fixed rents have the effect of reducing short-term recurring instability as the risks of pricing are borne by the tenant farmers rather than the landowner. 

Agriculture land investments provide higher total returns – Agriculture land investments offer operating and capital returns in the form of a combination of rental income and asset value addition. Total profits from farming have outperformed popular assets. 

Agricultural land use in Germany 

More than half of Germany’s territory (51%) is used for farming purposes, some 30% is forested, and 14% of the population, industry, and infrastructure. Of the area actively used for agriculture, 71% is used as agriculture for growing rapeseed, such as cereals, food crops, fodder, and energy crops. Approximately 14.2 million hectares are used for food. Permanent grasslands (pastures) make up 28% of agricultural land and the average farm size is 60.5 hectares of land. 

The use of agricultural land in Germany is facing new drivers and controversy. There has been a steady decline in the use of agricultural land since the reunification, and it seems that agriculture is rapidly shrinking due to various land use requirements. The agricultural sector is facing deteriorating environmental indicators and changing structures and concentrations of land use. For land prices in Germany, international agricultural prices have become a key determinant, contributing to the rise in land prices. Equally, new demands for nature conservation and conservation of natural resources under the Common Agricultural Policy have contributed to the scarcity of agricultural land, and the production of bioenergy under the Renewable Energy Act has contributed to the development of land in different regions has significantly affected demand and prices. In East Germany, some features of the land market have to do with the structure of the farm and the process of land privatization after reunification.

The land is a limited and scarce natural resource that faces competition and increasing demand. These demands include, primarily, the use of land for agriculture, conservation of nature and natural resources, industrial areas and human settlements, and infrastructure. As a result, land use disputes arise, and these disputes can change over time and are driven by a variety of factors. 

In Germany, land use is characterized by industrial development, population density, and also by agriculture. Trends in agricultural land use in Germany in recent years indicate that new land use disputes are ongoing and possibly new. These conflicts are likely to be the result of changes in the ground markets. We will then first look at the evolution of land market prices, and then turn to the major conflicts surrounding the use of agricultural land and the conservation of nature and natural resources. 

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Agricultural land use in Germany 
Farm Land: Image Source: Pixabay

Acquisition of ownership to buy agricultural land in Germany   

There are two ways to acquire property in Germany. Either the property can be acquired directly (asset deal) or the legal entity owning the property is purchased, with the transfer of ownership (share deal). To be valid, property transfer agreements must usually be in the form of a notarized deed. The process should cover all relevant aspects of the acquisition. Any side letter or agreement that verbally or in writing amends the contents of the notarial deed may result in the purchase agreement being invalidated. In addition, every property in Germany is recorded in the Land Register. 

The transfer of ownership is effective from the date of registration. In addition to permits and neutral certification, foreign investors who assign a legal representative to work in Germany must keep in mind the legal provisions regarding the power of representation. To be valid, these documents must be notarized like a purchase agreement. In addition, if they are certified by a foreign notary, a messenger must be attached to the documents. It is then a common practice to authorize the notary who notarized the transaction to make all necessary requests and announcements to affect the transfer of the property.

Tips for buying agricultural land in Germany

For a first-time buyer who wants to buy a property in Germany, the buying process can be difficult to understand. 

Buying agricultural land can be a huge investment for an individual. Assuming the buyer is planning to cultivate the land, you will need to consider many different things before making your purchase. Here are some of them;

Ensure ownership of the seller’s property – People have sold lands and properties that were not theirs. Look for the title, and look at the actions to make sure there is no right to the property. 

Check your affordability online – Before you start looking for your property, you must understand what the purchase (and how much) and how much debt you may be eligible for. Knowing what you can afford will give you the information you need to understand the prices. 

Research your market – Research your desired areas before starting a property search. This is because the growing population and the construction of infrastructure will be good for most property investors. 

Location is important for selecting an agricultural land – Success in property investment depends on where you buy. Buying the best location for your investment needs will pay off. Determine the fair value of the property. Buying property based on the seller’s price is not necessarily a wise move, since it is in his best interest to get the most out of the land. One way to estimate the value of a property is to look closely at the sale of a similar property, the other way is to involve a competent property appraiser. Have a property survey, and record the survey. The earth does not always have clear boundaries. Fences may exist, but they do not specify the property (most of the time), the legal description of the deed, or the title.

Determine if there is a right of way exist on land, and who owns the mineral rights, water rights, or other infringements. If you buy a parcel of land, and someone else owns the mineral rights, you may find that they have started mining or drilling on your land legally to extract these resources. Yes, it happened. In addition, the path of legal rights may allow someone else to build a road in your potential field. Water rights can allow anyone at the top of the waterway crossing your property to take the water you need for irrigation before it reaches you, and the person downstairs has access to water. There may be rights that limit the flow of the river to how much you can use for irrigation. 

Determine the quality of the soil if you plan to cultivate it. This can be done through observation if you have the opportunity to view crops or crop records during the previous growing seasons. Some farmers will eliminate essential nutrients even from good soil, and rebuilding soil fertility can be a long-term investment. 

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Tips for buying agricultural land in Germany
Agriculture Land in Germany: Image Source: Pixabay

Look at the productivity of your soil with local markets. If you plan to cultivate the land for a living, you must make sure that your land produces enough crops to produce your livelihood, as well as pay the mortgage on the land note. Even if you spend your life savings so that there is no mortgage on the property, the farm needs capital to plant crops, buy and maintain goods, hire laborers, and bring the crops to market. Spending your savings at zero, buying land, and then not being able to afford the first year’s crop can bankrupt your first year.

Meet your mortgage advisor – After calculating your maximum affordability, you should contact one of our independent mortgage advisors if you have an unusual situation or you want to increase your affordability. 

Finding the right property – Your affordability will set the price range for the (maximum) property you can afford. There are many ways to identify the right property depending on your personal and financial situation. Especially if you are expanding your affordability, you may want to test whether you qualify for a particular property through prior approval, and thus your ability to make tough offers and compete with other buyers.

Land markets and rising agriculture land prices in Germany

In Germany, 60% of agricultural land is cultivated under tenancy agreements. For the sale and purchase of agricultural land, it is necessary to be registered with the concerned agricultural authority at the local level. Under certain conditions (for example, if the buyer is rejected for being a non-farmer), the tenant farmer can vacate the land in advance. Land prices vary widely in different parts of Germany.

Efficient land transactions and a well-functioning land market play an important role in economic growth and development for many reasons. Firstly, they provide access to land for farmers who are most productive but have less land than they need. Next, they allow land exchanges as the off-farm labor market develops further. Lastly, they facilitate the use of land as collateral for access to credit markets. In the EU, agricultural land sales represent only a small fraction of all land transactions, as rental agreements are very important in most countries. 

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Land markets and rising agriculture land prices in Germany
Farming in Germany: Image Source: Pixabay

There are several reasons for this;

  • Energy policies promoting the renewable energy sector have made crop-based biogas production very attractive to farmers. This has led to environmental problems as well as increasing land prices.
  • Renewable interest in speculative capital and value stocks in agricultural lands. 

Rising land prices have made it difficult for start-ups and smallholder farmers to obtain capital from banks. Regular agriculture is not profitable because investment (cost per workspace) is much less related to business than other sectors. Agriculture often has relatively weak connections with the local community and the added value does not stay in the regions.

Can foreigners buy agricultural land in Germany? 

Foreigners have all the legal rights to buy land in Germany, as do German citizens. There are no restrictions or rules in Germany that discriminate against foreigners when buying land. Citizens of the EU and non-EU can buy land in Germany and use it for many purposes. However, they need to consider some rules and regulations that apply to all developments in the country.

Price regulations for buying agricultural land in Germany

In Germany, especially in some parts of East Germany, the government imposes a maximum selling price on former landowners, who are often current tenants and have a former GDR (German Democratic Republic). to enable them to buy land at a lower market price. These regulations are set out in the Compensation and Compensation Act and regulations relating to the acquisition of agricultural lands, which were adopted for the privatization and reorganization of state-owned areas. 

The sale of agricultural land is considered superior to rent because the sale of the land transfers full ownership rights to the new user. After that, the new owner can use the land as collateral to obtain a loan and buy the land. Provides excellent incentives for investment to protect rights. Firstly, the amount of agricultural land that the landowner can buy at a lower price was limited and depended on the land quality (e.g., 120 hectares of medium soil quality). Second, the buyer was obliged to use the agricultural land for at least 20 years, otherwise, the contract may be terminated. In NMS, there are no standard pricing rules. That being said, one should not conclude that only in markets where there are price regulations, the market result can deviate from the most effective results. 

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Agriculture Grains
Grains: Image Source: Pixabay

Prices may deviate from competitive results with free sale prices for agricultural land in competitive land markets. In competitive markets, buyers and sellers come together and negotiate the market price. But because different ground markets are locally separated from each other, for example, due to the proliferation of a large group of ‘absentee’ landowners in the NMS, there is an unequal bargaining power between different players and bargaining strength is usually on the side of the landowner. This difference in bargaining power can affect market results. The observed value and quantity of agricultural land sold may deviate from the results of a competitive market.

The agricultural social protection policy is also a creative, targeted policy for the benefit of active farmers and retired farmers who are still living in their fields, and consequently part of the rural development policy. With this support, the agricultural social protection system provides financial protection to farmers and their families against the ups and downs of life (illness, need for long-term care, work-related accidents, loss of earning ability, insurance), old age, and death of the deceased. Absorbing the financial effects of structural change is the responsibility of society as a whole and ensures that the country maintains a productive agricultural sector. 

Step by step process to buy agricultural land in Germany

How should you go about buying land in Germany? Here are the steps you can take to get a good deal. Pay attention to the property verification process and local regulations. 

Finding a suitable plot – Agriculture land in Germany can be found through the internet, agencies or also from local people. It will take time, the higher the search criteria you have, the longer it will take to find a plot that meets your needs. There are several ways you can find land available;

  • Ask the municipality in which areas of the city free plots of land are available. 
  • Search on websites 
  • Contact major construction companies in the region. 
  • Walk through the areas and look for vacant plots. 

Location – Again the location of the land is very important, after purchase you can’t change it just sell. The buyer should pay special attention to the access of the plot from the infrastructure of nearby cities and areas. 

Look in the Land Register – Before signing the contract, the land buyer should check the land register for any additional information which was not shared. There you can see the owner of the plot, but also if there are any mortgages or third-party claims on the land, and what rights are registered. Such rights can significantly limit the intentions of the building. 

Identify the value of the plot – Once you’ve found the right piece of land, you want to know if it’s worth the money. Because it is not always clear whether the price of the plot is reasonable. It is best to look at several plots in the same and different areas for later comparison. However, other factors are affecting the value of land, including;

  • The feasibility of the plot construction (taking into account the potential development plan and the shape of the plot), 
  • The degree of development (gas, water, sewerage, electricity), 
  • Location and surroundings. (Local supply, infrastructure) 
  • Soil conditions
Livestock Farming in Germany
Livestock: Image Source: Pixabay

Restrictions on agricultural land ownership in Germany

Restrictions on the property itself often have a direct effect on land prices and/or constitute existing patterns of land use. Restrictions are governance measures, which may include the following;

  • Property sizes may be limited in urban areas where municipal construction and zoning regulations regulate urban land use. Determine the minimum and maximum property sizes to create. 
  • Property size restrictions can be applied to agricultural land. For example, the maximum area of ​​land that can be held in sole proprietorship can be determined by legislation. This is true even for minimal areas, as the scattering and expansion of agricultural reserves have been a historical phenomenon in most countries (at least in Western Europe) due to diverse factors such as hereditary traditions, geographical conditions, etc. 
  • Transactions may be restricted by restrictions on subdivision of property: An owner cannot divide the property into smaller pieces than the minimum size established by the authorities.
  • Owners of agricultural land sometimes have to prove their ability to maintain the agricultural use of the land. 
  • Similarly, governments may impose restrictions or requirements on the cultivation or use of land and real property. Private owners of agricultural land are often obliged to maintain its agricultural use. 
  • In urban areas, planning and zoning control regulations assign specific uses to certain areas, such as industrial development sectors, agriculture, housing, recreational use, trade, public building, and other uses. Restrictions on property use may also be a result of concerns over the preservation of historical or natural monuments and sites. Or restrictions may apply to aesthetic requirements, such as the shape of the building or the type of building material that may be used. 
  • Transfers of publicly owned land are often restricted. It cannot be handed over to private owners because the use of land for specific purposes (such as infrastructure, nature reserves, public buildings) is in the interest of society. 
  • In the wider public interest, governments may snatch land from private owners, for example in the case of large-scale infrastructure construction, but landowners must be adequately compensated.
  • In some countries, foreigners are prohibited from transferring land. This is often the case in transition economies. In some countries, however, the opposite is happening: large-scale land acquisitions are taking place. 
  • Pre-acquisition rights for land also restrict the transfer of land. A distinction can be made between systems in which the authorities can replace the seller in the contract, and a system in which the owner who wants to sell the land must first offer the land to the authorities – only after the authorities has indicated that they do not want to buy land, can it be sold freely in the open market. 

Taxes on agricultural land

Taxes on agricultural land can affect the supply and demand of land. About sale and ownership of agricultural land, there are two common types of taxes’

  1. Land Transaction Tax (Capital Gains Tax for Sales and Registration Tax for Purchase)
  2. Use Tax – It provides an overview of these taxes in selected member countries. 

In Germany, landowners are also required to pay property taxes, and the tax rate depends on the location of the property (East or West Germany) and the purpose of the land (housing, agricultural land, etc.). 

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