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Advantages and Disadvantages of Residential Real Estate

In response to recent market developments, many investors are currently looking for financially sensible alternatives. This has prompted a serious shift in focus back to residential real estate investments. With a view to the steady development of Germany's real estate market, it is quite reasonable to rate the country's residential real estate as stable-valued and relatively crisis-resistant compared to other investment types (e. g. equities). Seen over an extended period of time, the real estate market is admittedly not immune to fluctuations, but prices will generally rebound, and there is a good chance indeed that investments will prove to be stable-valued and crisis-resistant. Another aspect to consider is the favourable legal environment because ownership, especially real estate ownership, is protected by the German constitution (Article 14, German Basic Law) and expropriation is principally impossible.

Due to Germany's geography, land and specifically building land is not available in unlimited quantities, ruling out the unchecked construction of new properties. Construction activities are therefore legally constrained by Germany's building codes and planning laws. This in turn neutralises the risk of deteriorating prices as a result of massive real estate development, unlike the risk of inflation which could be fuelled by the current economic situation. Accordingly, German real estate is associated with a realistic chance of long-term capital growth.

However, it needs to be remembered that any long-term commitment implies a risk intrinsic to the long cycle as such, because uncertainties yet unforeseeable that could materialise in the future might precipitate impairment risks. Like any other type of investment, private investments in residential real estate are therefore not unambiguously auspicious but are characterised by potential drawbacks along with the benefits. The purpose of this paper is to brief the buyer on these facts prior to any contractual commitment, and to detail the threats potentially involved as comprehensively as possible.

The pros and cons of a real estate investment are best illustrated by the nine criteria subsequently listed that may be used to arrive at a more qualified assessment:

  1. competent and reliable business partners,
  2. a set of agreements reflecting the current legal position,
  3. a sound and sought location,
  4. the condition of the real property,
  5. a financially sound owner-occupancy or tenant occupancy concept,
  6. competent property management,
  7. long-term planning toward the preservation of the property value through maintenance, conservation and reinstatement measures,
  8. financing structure with a long-term horizon,
  9. optimisation of tax breaks for the buyer.

However, it always needs to be remembered that these observations assume the status quo at the time of the assessment, and that future developments and trends are merely taken into account in the manner of a predictive decision, and are therefore in no way inevitable or binding. Moreover, it should be borne in mind that opportunities and threats will not necessarily present themselves in isolation, but will generally emerge in a variety of constellations or even cumulatively.

For a private investor, this can mean that a combination of several individual risks (e. g. the deterioration of the personal income situation due to illness and/or accident, rent loss, major modernisation measures, excessive debt financing) may cause the revenues from the property to fall short of the amount necessary to repay interest and principal, and that the short cover may no longer be balanced by drawing on the investor's income or assets, with the initial consequence of a liquidity crisis for the investor and, in the worst case, of the deterioration of the investor's personal assets.

1. Business Partners

It is of the essence for any financial transaction and thus for any real estate investment that it is consensually arranged by competent and reliable partners in order to achieve the optimal result in the best mutual interest. Accordingly, selecting or choosing the right partner is key to the successful conclusion of a sale and purchase agreement. Appropriate interaction between buyer and seller presupposes a common, transparent and constructive basis of discussion and negotiation. As an integrated real estate company focusing on capital growth investments in the German real estate market, d.i.i. Group (hereinafter also referred to as “the Seller”) has successfully offered investment choices for several years now. Employing an extremely focused and disciplined investment strategy, it exclusively buys and develops residential real estate in the major German regions of Hamburg, Berlin, Rhine-Main, Rhine-Ruhr and Rhine-Neckar. The d.i.i. Group sees itself as an effective asset manager for tenants, buyers and investors. The d.i.i. Group has extensive experience in the field of developing and redeveloping existing property such as the ones detailed in this prospectus (for more details, go to www.dii.de). The idea is to give buyers the opportunity to form an exhaustive picture of the necessary competence and productivity of their business partner. However, it should be remembered that notwithstanding the references, the substantiation of the nominal capital and propriety of the contractual agreements, the Seller is subject to risks that are intrinsic to its general activity in the market. If these risks were to eventuate, the threat of bankruptcy would arise for the Seller. – Inversely, the buyer discloses his financial situation to the d.i.i. Group to substantiate that the required equity is on hand and that debt capital would be made available to the buyer on arm’s length terms. This would make it safe to assume that the financing arrangement is on secure footing, and that the mutually required transparency is in place.

2. A Set of Agreements Reflecting the Current Legal Position  

Since the d.i.i. Group is active across Germany, every agreement it signs in the any of the German states is amended to reflect recent case law.

3. Location

The location of a given property is always of key importance for its value. This goes for both the macro- and the micro-environment of a property. Accordingly, buyers should by all means check where a property is located before deciding whether or not to purchase it. A real estate market cannot be expected to show a stable performance unless it is set in an economically and ecologically sound environment. It always also depends on the city district in which a property is located, because differences in demand even within one and the same city will translate into considerable differences in property values. The same kind of development takes place on the level of a given urban district. Another thing that needs to be taken into account is that any investigation always mirrors the status quo only. Upcoming urban renewal campaigns, residential trends or changed economic conditions could cause the appeal of a location to change, and the property value to increase or decrease as a result of fluctuating demand.

4. Condition of the Real Property

Definitive for the property buyer, in addition to the criteria outlined above, is to ensure that any property under consideration should be built to contemporary standards and be fit for purpose. This means that room layout, plans/floor plans and interior fit-out, as well as the materials used and the building fabric of the freehold property at the time the purchase decision is made all satisfy the expectations of present-day buyers, because it is the only way to ensure that the property value is what it should be.

In addition to new-build properties, the buyer may also acquire existing properties from the d.i.i. Group, and this would mean that the building was raised quite some time ago. Whenever historic building fabric is involved, it may show deviations from the latest technological standards (the “state of the art”) and it may also prove unsuitable for fully meeting or implementing, set DIN standards (e. g. thermal, impact or noise insulation). Such property attributes can retroactively raise the costs of financing. Moreover, the fit-out standard may differ from one residential unit to the next; the leases of some residential units may have been in place for such a long time that a change of tenant will necessitate serious capital improvements to bring the interior fit-out up to standard. So this is another aspect from which additional financing needs could arise. It is taken into account when calculating sales prices and thus reflected in square-metre price differences. Accordingly, buyers cannot assert any claim vis-à-vis the d.i.i. Group on the grounds of the aforementioned circumstances.

Analogously, minor changes in residential floor area (±3%) and room layout do not entitle the buyer to a discount on the purchase price but should be tolerated. The notarised contract of sale includes a note to this effect. The residential floor area is calculated using the German Living Space Ordinance (WoFlV) for measuring living space. It should be noted that balconies, loggias and (roof) terrace areas are factored into a flat's floor area at half of their surface area (ground floor patios generally at one quarter of their surface area) in the planning figures. This calculation model deviates from the model used for rent-controlled housing insofar as these areas are factored in at only one quarter of their surface area. Buyers who intend to let their premises should be aware that the flat size quoted and the calculation of service charges will have to be based on a floor space calculation in compliance with the Living Space Ordinance (WoFlV), and that buyers may be bound to that calculation.

5. Owner-Occupancy vs. Tenant Occupancy

Assuming the buyer has taken all of the above aspects into account, the next question that presents itself is whether the buyer intends to live in the condominium (the so-called “owner-occupancy concept”) or to let it to a third party (the so-called “tenant occupancy concept”), as either approach represents a viable option. Buyers who opt to let their condominiums need to be aware that occupied condominiums are generally harder to sell because they are obviously not an option for prospective buyers who intend to owner-occupy their new apartment. This clientele of buyers is interested in profitable investment opportunities whose financial benefits will materialise at the end of a lengthy holding period because the property will first have to earn the funds needed to cover the transaction costs (purchase price including sales and marketing costs, incidental acquisition costs such as notarial charges and real estate transfer tax, financing costs and property speculation tax). Buyers also need to bear in mind that the sales costs (promotions and specifically sales commissions) normally exceed the estate agent's fee to be expected. A prospective buyer interested in a certain property may request information on the specific sales-related costs from the Seller, as these costs vary depending on the sales partner and the sales progress. A short-term resale would, on balance, imply a negative price growth, and is generally inadvisable for the buyer. Another thing to remember is that the sales price that may be achieved through a speedy resale (“fire sale”) tends to be lower than the purchase price quoted here.

a) Owner-Occupancy

Owner-occupiers normally strive to shape their condominium into their idea of the perfect home. Whenever historic building fabric is involved, however, they will have to compromise as certain things cannot be changed. Special requirements may necessitate more or less costly restructuring work, which will further intensify the bespoke character of the apartment. If an existing flat is supposed to be put on the market in a vacant state, it is up to the buyer to commission and pay for the effort involved. However, buyers should always take into account that altered fit-out features of an existing property (e. g. marble floor, jacuzzi, or similar) and the changes in the room layout these may have necessitated require close coordination with the Seller and should be reviewed for financial sensibility, even if they principally do not impair the marketability of the condominium. Experience shows that special requests, depending on their type and scope, will involve cost hikes and often lengthy construction periods, and thus create a risk that is borne solely by the buyer. There are no legal grounds on which the buyer could claim an amendment of the sale and purchase agreement (as opposed to a development contract) to include the special requests, so that mutually satisfactory arrangements will have to be found on a case to case basis.

However, the buyers should always bear in mind that neither owner-occupancy nor major structural alterations are an option if they acquire an occupied apartment in Germany. Such a case would always presuppose a termination of the existing tenancy. In the present context, it would therefore be of the essence to review the arrangements made in the notarised contract of sale and the notice lock-up periods.

b) Tenant Occupancy

Tenant occupancy represents the alternative to owner-occupancy. A buyer's decision whether or not to let a given condominium hinges essentially on its lettability. Knock-out criteria for lettability include location, floor plan and fit-out of the condominium. The d.i.i. Group assumes, against the background of previous condominium lettability surveys, that the condominium has letting potential. As far as rent reviews are concerned, the buyer will be subject to legal constraints on rent-increase requests. The only arrangement that takes exception to these is a step-up lease that stipulates automatic rent increases in certain intervals. To what extent significant increases are feasible is impossible to say because no adjustment within three years of the most recent rent review may exceed the local reference rent and because no rent increase of any sort may exceed 20% (the so-called “rent increase cap”) at the moment. In the German state of North Rhine-Westphalia, the state government issued an ordinance that became effective on 01/06/2014 and that lowers the rent increase cap in 59 cities and municipalities to 15% (“Verordnung zur Bestimmung der Gebiete mit Absenkung der Kappungsgrenzen/ Kappungsgrenzenverordnung,” published in the Official Gazette of North Rhine-Westphalia on 27/05/2014). The cities Dortmund, Bochum, Essen and Duisburg – all located in the Ruhr – are exempt from the regulation so that the original cap of 20% continues to apply in these cities.

On 05/03/2015, the German lower house (“Bundestag”) passed a law to slow the rental uplift on strained housing markets and to strengthen the contracting-party-pays principle in housing brokerage (“WoVermRG”), which was finalised and confirmed by the upper house (“Bundesrat”) during its session on 27/03/2015. These new regulations (colloquially referred to as “the rent freeze”) entered into force as of 01/06/2015, authorising the German states to designate areas as strained housing markets at their discretion until the end of 2020. The effective period of such a categorisation is five years. This means that no rent review in such an area may raise the rent by more than ten percent above the local reference rent (this, too, being called “rent increase cap”). First lettings of apartments completed after the cut-off data of 01/10/2014 are exempt from the rent cap lest it impact the construction of new housing. The exemption extends to comprehensively refurbished/modernised flats. The legal situation can be summarised by saying that the buyer may raise the rent only if certain standardised legal conditions are met and within limits only.

A tenant's credit worthiness is normally checked using standard market requirements (a so-called self-disclosure form plus proof of income, etc.). Here, it needs to be taken into account that these criteria are subject to adverse change over time (e. g. by job loss or divorce). The buyer should also note that a vacated flat may not be immediately be occupied by another tenant, as the letting estate agent will need a certain period of time after the scheduled occupancy to identify a suitable lead. The re-letting process can even take several months, as the case may be. The buyer should provide for such a scenario by setting aside sufficient funds to bridge such a period. For good measure, it should be added that common market practice has the landlord bear the costs of the estate agent hired, rather than the tenant (as is the case in Bavaria, among other places). A statutory provision to that effect entered into force together with the “rent freeze” as of 01/06/2015.

6. Property Management

Any real property needs to be managed. Long-term, the quality of the property management is definitive for the asset conservation of a given property and the basis for its appreciation potential. Property management includes the administration of both the commonhold property and the individual freehold property in line with the contractual arrangements made.

a) Condominium Owners' Association (COA)

By acquiring a condominium and, at the latest, by having the change of ownership recorded in the land registry, the buyer becomes a member of the respective property's condominium owners' association (in Germany governed by the Condominium Act, “WEG”). This association collectively covers the expenses arising for the property as a whole. If freehold property owners become unable to pay their share of these expenses, this means specifically that the other owners will have to shoulder their costs for the time being, so that these are added to the accounts payable arising from their own co-ownership interests. Moreover, the buyer should be aware that decisions made by the COA are arrived at via majority vote, so that the buyer may have to accept decisions at odds with his best interest, an arrangement that implies a certain potential for conflict. If the buyer believes that certain measures are required in the best interest of the property (e. g. fixing the roof, installing a lift), these will be implemented only if a majority of the co-owners second the proposal during a meeting of owners and if a resolution to that effect is passed so that the COA manager can be authorised to implement the measure.

b) COA Manager

In managing the commonhold property, the tasks and duties of the manager are governed by the German Condominium Act (WEG). This role needs to be distinguished from that of the letting manager responsible for the freehold property, and whose job profile is detailed in the section on concept design. A property must be in demonstrably proper and functional condition. The effort to ensure that it does starts with periodic inspections of the state of repair by the property management, along with the requirement to propose improvements and maintenance measures as necessary, and their implementation. The same is true for the nurture and care of the outside facilities. The COA management will also ensure, with the support of attorneys if necessary, that the owners pay their condominium fees, which are needed to pay the utility providers and other cost items, as the case may be. It will see to it that the organisational parameters for the meeting of owners are in place, prepare resolutions, draft budgets for the administration and keep the books on the application of funds. Its task as efficient COA management is to ensure that all members of the condominium owners' association have equal access to the decision-making process. Summing up, it is safe to say that the overall condition of the property is essentially defined by the activity of the COA manager, and that a property is exposed to the risk of impairment in the absence of a well-working management.

c) Freehold Management

In order to offer buyers of occupied flats optimal convenience there is the option to delegate management of the individual freehold unit to a third-party manager. However, this presupposes a concrete one-off agreement between the parties. The arrangement would also generate additional monthly costs. The service includes aggregation of payments transactions, the compilation of service charge reconciliations, etc. in line with the arrangements governing the basic services itemised in the management contract. In addition to this basic service package, the buyer may contract pay-as-you-go services such as tenant recruitment/tenant selection, the signing of leases when re-letting the unit, collection of rents (claims for payment of rent, for payment of service charges and for possession), the drafting of rent-increase requests and the adjustment of prepayments. The manager may also represent the buyer's interests vis-à-vis the co-owners at meetings of owners. Buyers are at liberty to choose whether to manage their condominiums in their own right or to turn the management over to a third-party freehold manager. Buyers opting for third-party freehold management must remember to include in their budget the non-transferable costs thereby generated. Considering the need for a diligent examination of the facts and circumstances, the buyer should, if he decides not to join the rental pool, take into account the loss of rent and vacancy risks in his planning, because unless he signs a freehold management agreement and unless he joins the rental pool, the buyer will personally have to take care of the rent collection, review the propriety of service charge advance payments and additional payments, and initiate the enforcement of additional claims, start the reletting activities where required, or bear the costs of advertising in print or online media or the costs of a third-party estate agent, and seek recourse to the courts of law if a tenant defaults on his or her payments in order to enforce his rights through a claim for payment and for possession. At least initially, the buyer will have to bear the costs generated by the execution, and the risks. Since the apartments in the building differ, the actual leases may also vary from one apartment to the next. In any case, the buyer will bear the management costs of the apartment as of the time of acquisition, and will thus have to pay the condominium fee in particular even if the apartment is still vacant at the time and generates no income yet.

7. Preservation of the Property Value  

Any property principally requires regular upkeep and maintenance. Accordingly, the buyer's planning efforts need to take into account that the condominium owners' association has to set up reserves toward maintenance and reinstatement works that will become necessary in the future. The condominium declaration underlying this arrangement stipulates the periodic contributions to the maintenance reserve. The amount paid into the maintenance reserve is defined by the meeting of owners, and may differ from one year to the next (it may either be raised or lowered). Setting an adequate amount is therefore solely up to the owners (buyers) and not part of the Seller's sphere of ownership. The purpose of the maintenance reserve is to cover the costs of future reinstatement work on the commonhold property (e. g. roof, exterior façade, stairwell, heating system, etc.) out of the money set aside by the condominium owners' association. Since not all condominiums were built the same year, it cannot be ruled out that maintenance work will be pending in the near future so that the existing maintenance reserve may be subject to successive withdrawals and will need continuous replenishment to built the reserve back up. The interest-bearing investment of these funds up to the time they are used is subject to Germany's capital gains tax. Experience shows that a comprehensive capital improvement/renovation of a given residential building will become necessary once within a 15- to 40-year cycle after it was built. So it is by all means possible that considerable extra funds will have to be made available toward the modernisation and maintenance of the property and its mechanical/electrical engineering as early as the 15th year after the building's completion. The same is true whenever legislative amendments necessitate the implementation of new technical requirements. These contrast, however, with other upgrades to satisfy tenant-side requirements or requests regarding the freehold property that may also necessitate capital improvements (e. g. higher-end fit-out, changes to an apartment's floor plan, multi-media technology for the entire apartment). Neither expenses of this sort nor repair costs can be paid out of the maintenance reserve, but need to be factored into the buyer's budget. Accordingly, it makes sense for the buyer to set aside provisions for expenses related to their freehold property.

8. Financing

Unless public subsidies are involved, property financing arrangements consist of two financing components, one being equity and the other being debt capital. Calculation of the total investment volume must include, in addition to the actual purchase price (including project planning, marketing and sales costs, major costs items such as the incidental acquisition costs (notary and land register fees and real estate transfer tax) and bridge-over loans (e. g. for the time between the first payment after the acquisition and the time the property is re-let).

a) Debt Funding

From the perspective of the lending bank, several factors are important in the context of financing the property acquired. For one thing, much depends on the intrinsic value of the real property because it will serve as collateral. Another factor is the required equity capital that the buyer commits within the framework of financing the purchase price. The amount of the required equity depends on the financial circumstances of the buyer, who will have to disclose them to the bank (credit worthiness).

Any debt funding that may be required will increase the investment costs. Starting on a certain date that is written into the loan agreement, the buyer will be paying commitment interest (until the entire amount borrowed has been disbursed), the monthly loan interest, the bank charges, the loan discount, where applicable, while possibly paying into a life insurance and/or building loan contract as options for repaying the loan, and possibly the fees of the financial intermediary involved. The sum total of these financing costs could wipe out some or all of the tax benefits that the buyer may have expected, and the rental income may turn out to partly and entirely insufficient, and thus expose the buyer to the risk of an excessive burden caused by the debt financing.

b) Follow-up Funding

The fact that financing arrangements are generally time-bound implies that its various covenants (interest and redemption) are time-bound as well. Upon maturity, the buyer will have to obtain follow-up or fresh financing. The buyer therefore needs to be aware of the risk that the financing conditions by that time may vary from the present conditions and may be more or less favourable. Renegotiating an existing loan or taking out a new one will also generate costs (e. g. processing fees, etc.). Taken together, this can mean that the liquidity planning will change in any case, either improving or deteriorating in relation to the current rental income. If the debt service coverage is undercut, it could cause the property valuation to drop below the mortgage debt outstanding. If this causes the buyer's creditworthiness to decline and breach a restrictive covenant, additional equity will have to be committed.

Moreover, the buyer should be aware that a real estate investment, due to its long-term nature, is also subject to the buyer's personal living circumstances, and that this will come into play within the framework of any follow-up financing that may be required in the future. Aspects that will play a role either individually or collectively include the buyer's age, job, loan term and the sustainability of letting or owner-occupying the property. Any buyer financing a condominium acquisition by taking out a bank loan is personally liable to service the interest and repayment rates of the loan promptly and regardless of the occupancy of the residential unit.

c) Loan Approval

To debt-fund a property acquisition the buyer requires the loan approval by a bank. Signing the deed without having a commitment to finance first will expose the buyer to the risk of a shortfall in funds to pay the property price. The Seller could conceivably demand payment as of the purchase price due date and, in case of default, seek the execution of the buyer's other assets, which could bring about the buyer's bankruptcy. The bottom line is that any financing arrangement will have to be adapted to the buyer's financial wherewithal to accurately reflect the opportunities and threats. The Seller therefore recommends that the buyer obtain more than one financing offer.

9. Tax Aspects

The Seller acts in his own name and for his own account, and shall assert no tax depreciation on the property sold. That being said, the Seller has agreed – without offering a legal guarantee of the outcome – to support the buyer in procuring the documents required for a tax approval.

The appraisal of residential real restate distinguishes between newly constructed buildings, existing buildings (pre-uses assets) and properties with potential for special depreciation deductions (redevelopment properties). Since the case at hand represents an existing property built in 1963, it is not eligible for the special depreciation allowance (pursuant to Articles 7i and 7h, Income Tax Act), leaving the normal straight-line deduction for depreciation at a rate of 2% pursuant to Art. 7, Sec. 4, Sent. 1, No. 2a, Income Tax Act, as well as the assertion of the refurbishment costs whenever the tenant of a given freehold property moves out.

The buyer is generally well advised to hold the acquired condominium for an extended period of time because otherwise a resale would be subject to the risk that the market value undercuts the acquisition costs. For details, see also the section on the tax ramifications in this prospectus.

a) Rental Income

Letting the freehold property will generate taxable rental income for the buyer. Due to the capital expenditure, the buyer can assert these funds committed only within the framework of straight-line depreciation (2% p.a.). Principally speaking, this will lower the buyer's taxable income. However, in some cases the recognition process may suffer delays, and depreciation deductions via the payroll deduction process will not kick in until the next year following the acquisition, at the earliest. Even this would presuppose that the competent inland revenue office approves a provisional recognition, because processing of the application at the buyer's competent inland revenue office up to the final recognition by the competent certifying authority may take anywhere between 3 and 5 years. Under German law, real estate investments in Germany may neither be undertaken for the purpose of exploiting tax benefits, nor may the liquidity planning be based on the assumed exploitation of the same, but must ensure that the income situation is adequate to make the buyer eligible for tax benefits in the first place.

b) Changes to Tax Legislation

Just like legislation and jurisdiction in general, tax laws and legal regulations are subject to constant change and revisions, as is the jurisdiction of Germany's fiscal courts and the enforcement practice of the inland revenue offices. This means that rules and regulations currently in force may change at any time, and there is no guarantee that they will continue in force unamended.

Accordingly, the sale and purchase agreement is based on forecasts in regard to the stated values, which do not necessarily match the valuations undertaken by the revenue authorities. However, the Seller always structures the agreements in line with the current practice of the revenue authorities at the time the agreements are closed. It should also be mentioned that increased rates of depreciation are generally rendered invalid by a resale, and this may impair the sale price to be achieved.

This documents was compiled with the assistance of experts who assessed the current legal position and its tax implications for the real estate transaction at the time it was drafted. However, these assessments cannot take the place of the inland revenue office's conclusive judgement. This means that divergent interpretations of the same facts and circumstances are entirely possible. The details provided in the “Tax Schemes” section of this prospectus regarding the tax implications elaborate only the principally conceivable parameters, and do not qualify as tax advice. The buyer should in any case discuss his personal tax situation and the pros and cons associated with the real estate commitment with his tax consultant before signing the sale and purchase agreement. Neither the Seller as publisher of the prospectus nor any facilitator involved will therefore be held liable for any tax benefits that the buyer may be seeking via this transactions.

A Combination of Advantages and Disadvantages

Principally speaking, this text outlines the advantages along with the disadvantages of an investment in residential real estate. It is of the essence for the buyer to study either aspect in depth rather than highlighting the benefits while ignoring the drawbacks.

Since personal circumstances can develop in any number of ways, exceptional situations may develop that give rise to a variety of risks, including a combination of risks (e. g. unemployment, extended residential vacancy, modernisation backlog, special assessments caused by co-owners in arrears, and costly maintenance measures not covered by provisions, issues created by expensive follow-up financing arrangements). If these risks were to eventuate either wholly or in part, and the buyer's net asset position lacked adequate provisions, the consequences could include a loss of assets and, in the worst case, even result in the buyer's bankruptcy. Attention is also drawn to the possibility of a so-called total loss, which may occur if the buyer has already paid the purchase price to the Seller prior to the unencumbered transfer of ownership, and if the Seller's creditors seize and sell the condominium at auction. Another instance of total loss would occur if the purchase price was paid out before a correctly ranked priority notice of conveyance in favour of the buyer is entered into the land registry. Either scenarios presupposes moreover that it is impossible to take recourse against the competent notary public or other stakeholders, so that the buyer would have to bear the loss. In another constellation, the forced sale of a debt-financed property could result in a shortfall of proceeds compared to the market value, and, in the worst case, make the buyer liable to cover the difference. A total loss could also occur if the property is destroyed by fire or a similar disaster, and if the buyer lacked adequate insurance cover to compensate for the loss. Moreover, it should always be remembered that the preceding elaborations on the pros and cons could not possibly be exhaustive, and only discuss the aspects most likely to come into play in the opinion of the d.i.i. Group. A more detailed discussion would be less than expedient in this context.

Since both fact-based and legally complex circumstances are being elaborated that are not permanent but subject to continuous change, it is always possible that specific details are ignored that happen to be definitive for an investor's decision whether or not to go ahead with the acquisition and for weighing all the pros and cons involved. If further questions arise, the Seller will diligently seek to answer them for the buyer to the extent possible. – Regardless of the open and transparent interaction, these details are no substitute for a personal consultancy, review, briefing, clarification and recommendation by an expert of your trust (e. g. your attorney or tax consultant) prior to signing the purchase and sale agreement.