2026-10-10 11:54

Can you finance a supermarket purchase in Germany, and at what interest rate?

Yes: German banks routinely lend to property-owning GmbHs — including companies whose shareholders and directors all live abroad — against a charge on the property, the land charge (Grundschuld). The bank sets the rate deal by deal: it combines the cost of money for the fixed-rate period with a margin that depends on the loan's share of the property's value (LTV), the tenant and the remaining lease term. What matters is not the rate itself but how it compares with the property's yield: in our series' example the property earns 3.9% on the total outlay, and a loan that costs more lowers the return on your equity.

The standard borrower is a GmbH; the standard security, a land charge

A German limited-liability company (GmbH) is the standard borrower; a non-resident individual finds it much harder to obtain a loan (see Part 9 of the series German Prime Retail). The bank registers a first-ranking land charge in section III of the land register (Grundbuch). The buyer is not yet the owner, so the purchase contract usually allows the buyer to encumber the property in advance — initially only to secure payment of the price. For smaller companies, banks often also require a shareholder guarantee or the subordination of shareholder loans, so a loan without recourse to the shareholders (non-recourse) is a point to negotiate, not a default.

The shareholder loan with which the investor usually funds the rest of the purchase must remain unsecured. If it is secured on German real estate, even by a second-ranking land charge, its interest is taxable in Germany (§ 49(1) no. 5 c aa EStG).

LTV depends on which value the bank uses

LTV (loan-to-value) is the ratio of the loan to the property's value — and it matters which value. Mortgage banks set the lending value (Beleihungswert) cautiously, based on the property's future marketability and its long-term characteristics, and it may not exceed market value (§ 16(2) PfandBG). They may include loans in the cover for their covered bonds (Pfandbriefe) only up to the first 60% of that value (§ 14 PfandBG). The higher the LTV, the higher the bank's risk and, as a rule, the margin.

Debt lifts returns only if it costs less than the yield

In the Part 11 example, a €10 million supermarket costs €10.945 million including acquisition costs and produces €425,000 of net operating income — 3.9% on the money invested. A loan raises the return on equity only if its rate is below that figure; if the rate is higher, it lowers it.

Exhibit 1. At a rate above 3.9%, debt lowers the return on equity

Option	Interest a year	Cash flow to equity	Return on equity
No loan	—	€425,000	3.9%
€5 million loan at 3%	€150,000	€275,000	4.6%
€5 million loan at 4%	€200,000	€225,000	3.8%
€5 million loan at 5%	€250,000	€175,000	2.9%

The rates are hypothetical: they illustrate the mechanism and are neither a bank offer nor a forecast. The calculation is before debt repayment, taxes and the cost of registering the security; equity with the loan is €5.945 million.

Bank interest reduces the GmbH's taxable profit. The interest barrier (Zinsschranke) applies only once net interest expense reaches €3 million a year (§ 4h EStG).

Interest rates have risen faster than supermarket yields

The yield on ten-year German government bonds — the benchmark for long-term rates — rose from an average of 2.7% in Q4 2025 to an average of 3.25% in Q3 2026 (BNP Paribas Real Estate, based on Deutsche Bundesbank data). On 7 October 2026 it stood at 3.55%. Over the same period, prime supermarket yields rose only from 4.90% to 5.00%. Many private investors buy single stores with minimal debt or none at all (Part 4).

Implications for investors

1. Compare the rate with the yield on the total outlay, not the advertised yield. In our series' example the property earns 3.9% on the total outlay: a loan at 3% lifts the return on equity to 4.6%, a loan at 5% cuts it to 2.9%.

2. Find out which value the bank bases the LTV on. Mortgage banks use a cautious lending value that may not exceed market value; the investor usually funds the rest of the purchase with a shareholder loan, and that loan must remain unsecured.

3. Match the fixed-rate period to the remaining lease term. The margin depends on the remaining lease term, and on a sale a fixed-rate loan can be terminated only with compensation to the bank.

What to check:
• which value the bank bases the LTV on — the price, the market value or the lending value;
• the loan term and the fixed-rate period against the remaining lease term;
• a shareholder guarantee, subordination of the shareholder loan and the scope for a non-recourse loan;
• the assignment of rents and an account with the lending bank;
• early-repayment terms: on a sale, a fixed-rate loan can be terminated, but with compensation to the bank (§ 490(2) BGB).

Sources: §§ 14, 16 PfandBG; §§ 490, 1191 BGB; §§ 4h, 49(1) no. 5 EStG; BNP Paribas Real Estate, investment market Germany and retail investment market Germany, Q3 2026; Deutsche Bundesbank, yield curve (7 October 2026); Gordon Real Estate Group calculation based on the example in Part 11; the series German Prime Retail, Parts 4, 9 and 11. Legal position as of October 2026.

Photo: Jan-Philipp Thiele / Unsplash

This page is general information and not investment, legal or tax advice.

Ilya Gordon