Basement apartment: what is it? – Features & Definition

A basement apartment is above all inexpensive. The property, which is usually located in the middle of the city centre, is rather unpopular despite its comparatively cheap rent and some aspects deter potential tenants. Despite this, with a few simple tricks you can easily convert a basement into an apartment and earn some money on the side. You have the option of converting your own basement and renting it out or buying a condo in the city. Here you will learn everything about the basement apartment.

Are you looking for a suitable apartment – whether as a tenant or investor? Then take a look at our guide to apartment types A-Z!

Important features: Living in the basement

As you’ve already experienced, a basement apartment is located in the basement or cellar. But that doesn’t necessarily mean that your living space will be uncomfortable or gloomy. Souterrains are now included in the construction of many homes and are therefore designed as proper apartments. Usually you will have your own staircase leading to your apartment and in many cases a small terrace or green area is also included as a substitute for a balcony. Despite some of the perks, don’t discount the flaws. The ceilings will be a bit lower and basically the windows are rather smaller and you get comparatively little daylight.

Can any basement become a basement apartment?

Often the own basement is converted into a small apartment for personal use. For example, if the children want a little more privacy, you have the option of converting the basement and creating a second entrance through the separate staircase. However, if you plan to convert your own basement into an apartment to rent out afterwards, you have to follow some guidelines. The main issue is the ceiling height, which must guarantee a certain size. These guidelines are different in every state. In the course of the article, you will learn more about the development.

Advantages & disadvantages of a basement apartment: climate, daylight, stairs & Co.

As with any apartment, you should consider the pros and cons of a basement apartment. Before you plan to convert your basement into an apartment, move into one or buy one, you need to be sure that a basement is right for you. We have summarized the most important facts for you so that you can make the right choice.

Advantages: good indoor climate, short distances, own terrace

A big plus is the indoor climate in a basement apartment. Since it is below ground level, it stays pleasantly cool in summer and little heat can get in. At the same time, the warm air cannot escape quickly in winter. Another advantage is the short distances in your apartment. Unlike other tenants, a basement apartment has a separate entrance via its own staircase, which means you never have to carry your drink crates and shopping bags for long. It’s also not uncommon to have your own terrace and possibly a small green area as a substitute for a balcony. Last but not least, the biggest plus point is of course the usually excellent location in the city centre for a comparatively low price.

• Good indoor climate
• Short distances, few stairs
• Own terrace, green area
• Low prices despite city centre

Disadvantages: little daylight and higher heating costs

Probably the biggest disadvantage is the low daylight through the small windows. In addition, the walls are usually lower than in other apartments and by the stairs, which one must use forced maßen, a basement apartment is not barrier-free. Another disadvantage are the possibly higher heating costs. Normally you can benefit from the heated walls of your next door tenants but this is not the case with a basement. In addition, you should be aware that the entrance to your apartment is usually on the street and therefore the probability of burglary is higher.

• Less daily fish
• Low walls
• Not barrier free
• Possibly higher heating costs

Are you interested in buying an apartment? Here you will find useful tips and all the important information on the subject!

Basement apartment: for whom is the basement apartment suitable?

A basement apartment is different from other apartments. You are forced to accept a few disadvantages that you would not have otherwise. Even if you want to invest in a basement or plan to convert your basement into one to rent out afterwards, you should pay attention to the potential tenants. We’ve listed two groups for you that would be a perfect fit for a basement.

Students: Close to university and small rent

Students are probably the first choice for basement tenants. A decisive reason for this is the location of such an apartment. Mostly you can find this kind of accommodation in the middle of the city centre and close to the university. This makes one very flexible. The rent price also plays a decisive role. Especially students are known for not having a fortune and therefore a basement apartment would be perfect for them. You can live very centrally and not pay a high rent for it. For this, most young people also accept some disadvantages. Another plus point is the possibility to reduce the rent, if in some areas of the flat there is only a ceiling height of 1m-2m. With the corresponding square meters, you only have to pay half the price / sqm.

Singles: perfect transitional apartment

For singles or single people, a basement apartment is ideal. The central location and low costs are also a big factor for them. You are well connected and usually have only short distances to work. In addition, you have the opportunity to have your own terrace and a small green area, which you can design according to your personal wishes. Often, a basement apartment is also built into the parents’ house or you use such a property as a transitional apartment to save money.

Viewing appointment: Light, climate & insurance

Especially when it comes to basement apartments, you need to pay attention to some important things during the viewing. If you plan to invest your money in such a property, you should know about everything and consider some aspects so that you can plan with your money. A basement apartment is just different from conventional apartments. In order to be prepared for everything when moving in or buying, we have summarized and listed the most important points during the inspection.

Tip. If you want to learn more about condominiums, you can find a useful article here!

Light &Windows: visit at the right time of day

This tip may sound a bit strange at first, but we recommend that you schedule your viewing appointment in the afternoon (12:00-16:00). The simple reason for this is that the most light comes into the apartment at this time and you can see whether the incoming daylight is sufficient for you. You should also pay attention to the orientation of the windows. If they face the street, it is possible that passers-by could look in and you would have to install additional privacy screens. If the windows face a green area, the room will look brighter and more inviting.

Climate: Watch for signs of mould

The climate also plays an important role in a basement apartment. When you enter, look out for possible odours. Does it smell damp, musty or stale? Unfortunately, these are signs of mold and that can happen quickly in a basement apartment. So check out the window sills and walls and look for stains or discoloration. It could be leaking pipes or poorly insulated walls that are causing the mold. These are all important aspects that you should check before buying/renting.

Insurance: for flood and storm damage

Also find out if the home has backwater insurance and if your insurance pays for flood or storm damage. Sometimes it can happen that during heavy storms water comes into the basement only that this time it would be your apartment. So you should be insured, whether owner or tenant, so that in the worst case nothing can happen.

Basement finishing: Plan your basement apartment

Especially in large cities, living space is becoming increasingly scarce and basement apartments are more popular than ever. Many owners of apartment buildings set up living spaces in the basement in order to rent them out afterwards. If you too are an owner interested in finishing, here are the key facts to consider. You have to follow some official guidelines to make it livable and we have summarized them for you.

Basement conversion and building regulations: What you should bear in mind

Especially when converting basement rooms, there are a few things to consider. In each federal state, the building regulations and thus also the minimum requirements for living spaces are interpreted differently and you must adhere to your regulations when converting. For example, the minimum room height is 2.50 metres in Berlin and only 2.30 metres in Schleswig-Holstein. The guidelines also differ on the size of window areas. In most countries window surfaces must make up 10% of the room floor space. In Bavaria it is again 12.5%. You should inform yourself before the construction exactly to get no penalties.

High costs during conversion: ancillary costs, sewage system & more

At first glance, it seems to be particularly easy and inexpensive to build a basement apartment. However, one should not disregard the amounts involved in the conversion. This starts with the planning and approval costs, since, among other things, an architect must have the construction approved by the authorities. In addition, sound insulation must be installed on the ceiling and heating systems must be installed. At the same time, sewage lifting stations are usually needed and windows should be enlarged. Often, the exterior walls also need additional insulation. Roughly speaking, additional costs of 2000€/sqm could be incurred to convert a basement into a basement apartment.

Tip. Are you interested in real estate as an investment? Then take a look at our article!

Real Estate, Investment and Economy in China

First of all, the most important question, how is the real estate market doing? The good news first: very good. Example: In Beijing, the capital, purchase prices (by house price index) increased by 47.2 points (+ 47.2%). A good real estate return. In comparison, in Germany the house price index rose by 32.3 points in the same period. China is making further leaps forward.

Just buy it? Of course you can’t. Who would have thought, only Chinese citizens are allowed to own real estate in China. And yes, only Chinese citizens are allowed to own real estate in China, as you will learn later in the section on business models and taxes.

As a small analysis, with a look back at the past years, we wanted to summarize the most important figures, around the economy, population, age structure and also real estate price development. Because… The USA has it as the largest national economy perhaps, soon replaced. With its million mega cities like Chongqing, Shanghai, Beijing, Guangzhou, Shenzhen, Wuhan and Tianjin. Here are the latest figures from the IMF:

If you want to invest money abroad, or even set up a company/branch locally and live here, you are looking for one thing above all else:

Plant Safety

Markets are subject to fluctuations, the more extreme these fluctuations are, the higher the risk to capital. Whereas 10 years ago the real estate market was still making great leaps upwards, but at the same time also downwards, the trends are increasingly stabilising, the extremes are becoming smaller. Accordingly, first a look at the Chinese real estate industry and the development of purchase prices.

House price in China: View of Beijing

House prices in Beijing, China – You are looking at the residential price index provided by the National Bureau of Statistics of China (NBSC). The NBSC data goes back to January 2011, and prices have been rising every year since 2015, for residential buildings, but also for land.

What does the house price index say?

House prices have risen steadily in recent years in almost all provinces. This is shown by the house price index available here from the NBSC, which, starting from the year 2015 (index = 100), stood at about 47.2 points in 2020. Thus, compared to the base year 2015, prices have increased by 47.2 percent.

Of course, the capital Beijing is the hotspot for foreign investors. As you can see right now compared to the country as a whole, with an increase of

This is attracting more and more interest from investors from Europe, USA, UAE and all over Asia to China.

Source: Global Property Guide

Land prices: Price index for China

This statistic comes from the Bank for International Settlements (Real Residential Property Prices for China [QCNR628BIS]). The basis here is 2016, which means that prices have increased by around 9.9 points since 2016.

Comparison: China / Germany: House price development

Now many will ask themselves, how is the development in Germany? Is it worth investing in real estate? Here you can see the development of house prices in Germany in the years from 2000 to 2019 (2015 = Index 100); as well as the previous statistics on housing in Beijing.

China 2015 / 2019 Development:

• 48.1 points (+)

Germany 2015 / 2019 Development:

• 28.1 points (+)

Property prices stabilise: 10-year analysis

Source: CEIC Data

Just like the Chinese economy, the real estate market is also stabilizing. The extremes of fluctuation are becoming smaller. So China, regardless of politics, is becoming an increasingly stable market, also for investors who want to invest money for the long term. The risks are declining.

China is building and building.

In summary – China’s real estate market in the last 5 years? The overall price index rose by 9.9 points, in mega cities like Beijing even by 47.2 points. With that, let’s take a look at the economy, gross domestic product and purchasing power in China. After that you will learn about the different types of companies in China.

Economy in China: GDP and purchasing power

Source: Socialmediaone.de(Marketing China)

Below is a quick look at China’s economy. More detailed analysis can be found in the source link. This infographic is interesting because 10 years ago everyone thought China would overtake the US in 2014. As we know today, a miscalculation. The US is still ahead of China!

Currently, the American economy is doing splendidly, especially after the US president cut many US taxes.

Tip: Save taxes with real estate (USA)

By 2025, the US, as an economy, will also remain ahead of China. According to the current IMF forecast, seen here, based on purchasing power-adjusted gross domestic product (GDP), in the years 2019 to 2021 (in billions of US dollars).

Source: Statista.

Growth forecast (IMF): 2025

View from the Oriental Pearl Tower in Shanghai.

Population: forecast until 2025

Not only is China one of the big players, the country continues to grow, as seen here, in total population from 1980 to 2018 and projections to 2025, with the population approaching one and a half billion by 2025.

• 2025 – 1,417 billion +0.9 %
• 2020 – 1,404 billion +2.18 %
• 2015 – 1,374 billion + 2.53 %
• 2010 – 1,340 billion + 5.76 %
• 2000 – 1,267 billion + 10.84%
• 1990 – 1,143 billion
• 1980 – 987.05 m
• …

More and more inhabitants are earning more and more money. Since 2006/2008, the gross domestic product has been rising almost inexorably. Since statistics are worth a thousand words, here is the gross domestic product (GDP) in current prices, from 1980 to 2019 and forecasts, again with forecast to 2025 (in billions of US dollars).

• 2025 – $23,029 billion + 54.97 %
• 2020 – $14,860 billion + 33.71%.
• 2015 – $11,113 billion + 84.20%
• 2010 – $ 6,033 billion + 163.44 %
• 2005 – $ 2,290 billion + 90.04 %
• 2000 – $1,205 billion
• 1990 – $396 billion
• 1980 – $303 billion
• …

Here you can see once again the real growth of the gross domestic product (GDP) from 1980 to 2019 and forecasts to 2025 (compared to the previous year) visualized.

What does that mean per person? If you divide the GDP among individuals, it shows that the purchasing power of individuals in China is increasing and increasing. Another indicator that makes China one of the current and future sales markets.

• 2025 – 16.284,03 $ + 50,22 %
• 2020 – 10.839,44 $ + 34,07 %
• 2015 – 8.084,80 $ + 79,67 %
• 2010 – 4.499,79 $ + 373,08 %
• 2000 – 951,15 $ + 174,21 %
• 1990 – 346,86 $
• 1980 – 307,00 $
• …

Who buys? Average age of the population from 1950 to 2020 and forecasts until 2050.

• 2050 – 47.6 years (+ 1.3 years)
• 2040 – 46.3 years (+ 3.7 years)
• 2030 – 42.6 years (+ 4.2 years)
• 2020 – 38.4 years (+ 3.2 years)
• 2010 – 35.2 years (+ 5.1 years)
• 2000 – 30.1 years
• …

Import or own production? China: Import of goods from 2009 to 2019 (in billions of US dollars).

• 2019 – $2,077.1 billion + 23.67%.
• 2015 – $1,679.57 billion + 20.29%.
• 2010 – $1,396.25 billion

Value of German exports to China from 2007 to 2019 (in billions of euros).

• 2019 – $95.98 billion (+$24.7 billion)
• 2015 – $71.28 billion (+$17.49 billion)
• 2010 – $53.79 billion (+23.89 billion)
• 2007 – $29.9 billion

Shanghai’s inner city, with its large international financial community, is one of the arrival points for entrepreneurs who want to gain a foothold in China. So let’s take a look at the different types of companies that are possible in China (for foreigners).

Tax: Rental income in China

Source: Global Property Guide.

First of all, only Chinese citizens are allowed to own real estate in China!

Generally, rental property is subject to Individual Income Tax (IIT), Business Tax (BT) and Real Estate Tax (RET). In addition to these 3 taxes, there may be some other taxes and surcharges on rental income that vary from city to city. Local governments in some provinces have a lot of freedom when it comes to taxation. Therefore, tax rates and the calculation of taxable income vary from city to city.

• Individual Income Tax (IIT)
• Business Tax (BT)
• Real Estate Tax (RET)

Income tax: Letting of apartments

Investment income, including rental income, is taxed at a flat withholding rate of 20% of gross income.

Trade tax

Non-residents who earn rental income are subject to a 3% business tax. Taxable income is calculated by deducting business tax, operating costs, administrative costs and finance costs from gross income.

Property tax

The municipal property tax applies to companies and individuals with foreign investors. Owners of real estate (but not land) are subject to this tax, which is levied at 1.2% of the assessed value. If the property is rented out by the owner, the tax rate payable on this is 12%. This tax rate is levied on the annual rental income. A special case applies to the rental of residential property, in which case the rate may also be reduced to 4%. However, practice may vary within China as the applicable tax rates are set by local authorities, according to Global Property Guide.

This tax is payable to local governments and is paid annually in installments.

Tax: Capital gains

Only Chinese citizens are allowed to own land in China.

Income tax

Profit from the sale of real estate, are taxed at a flat rate of 20%. Taxable income is the gross sales price less acquisition costs and related reasonable expenses. The maximum deduction for property development costs is 10% of the property cost.

Trade tax

The sale itself is also subject to trade tax. This is 5% of the net profit.

Properties that have been owner-occupied for five years prior to sale are exempt. In Beijing, the time limit is one year.

Land Growth Tax

The land increment tax is a transaction tax, on the transfer of rights to use state-owned land, in China. It is based on net profit and levied at progressive rates. The taxable profit is determined by deducting the cost of acquiring the land, development costs, repair and maintenance costs, relevant tax payments and other amounts considered deductible by the tax authorities from the proceeds of the property sale.

The tax rates start at 30%. However, they could be as high as 60%. This depends on the tax base, which is the valuation of the net profit combined with all the deductions.

“Real estate limited liability company” in China?

Since direct real estate ownership is not possible for foreigners, here is a look at possible business models that can be entered into together with Chinese partners. For tips on setting up a company in China, I would like to refer to an external site with much more in-depth information on setting up a company.

This question comes up relatively often with investors who want to expand to China. In Germany, many like to set up a real estate GmbH or a family foundation. In Europe, as well as in America, people are used to the fact that setting up a company for activities in the local market is relatively easy. In China, however, it is the case that every time a foreigner sets up a company, a Chinese partner must be involved.

You can find more information about the company models here (external).

List of companies:

• Representative Office
• Company with exclusively foreign participation (WFOE)
• Foreign trading companies (FICE)
• Joint venture – joint ventures
• Partnerships with foreign shareholders (Foreign Invested Partnerships)
• Branches

Alternative: Investing in shares

More and more are investing in China, of course on the stock market. Stocks like Tencent, Xi and also new ones like Niu (electric car) are gaining month by month. Accordingly, more and more are thinking about investment properties in China. From single stock, ETFs to currency trading.

Here’s a list of holdings that I find exciting:

Data: Global X ETFs

Tip. Real estate shares in Germany

Which companies are listed on the German stock exchange? Here is an insight into the top 30 real estate stocks in Germany:

• Real estate stocks: Germany