Why the real estate transfer tax is so high

style="float: right; margin-bottom: 10px; font-weight: 600;"Tue 19th Apr, 2022

It is a tiresome topic for many real estate buyers: the real estate transfer tax. Once the purchase agreement for a property or plot of land has been signed, it doesn't take long for the letter from the tax office to arrive. Depending on the federal state, buyers have to transfer between 3.5 and 6.5 percent of the purchase price to the tax authorities. For a house worth 500,000 euros, that's up to 32,500 euros. In addition to the brokerage costs, the real estate transfer tax thus accounts for the majority of the ancillary purchase costs.

For years, there have been discussions about whether and how politicians could ease the burden on real estate buyers in this area. However, little has happened. One reason for this is that the real estate transfer tax is a rather attractive source of income for the federal states. A survey by the F.A.Z. among the 16 German states shows that the states' revenues from this tax have risen by almost half (plus 47.6 percent) since 2016. While they totaled 12.4 billion euros at the end of 2016, five years later the figure was already 18.3 billion euros.

The absolute leader is North Rhine-Westphalia, with revenues of more than 4.1 billion euros in 2021. The state is the most populous federal state in Germany. It is followed by Bavaria and Baden-Württemberg with sums of around 2.5 billion euros. In a total of six German states, the revenue from the real estate transfer tax exceeded the billion euro threshold last year. The largest percentage increases were recorded in several eastern states. In Brandenburg - up 84 percent, with the tax rate unchanged at 6.5 percent since 2015 - the influx of many Berliners is likely to be one reason.

Until 2006, the federal government determined the amount of the real estate transfer tax. At that time, the tax rate was a uniform 3.5 percent. Since the federal states have been allowed to set the percentage rate individually, a number of them have made significant changes to the tax rate. At 6.5 percent, Brandenburg, North Rhine-Westphalia, Saarland, Schleswig-Holstein and Thuringia currently lead the field. Only Bavaria and Saxony have remained at the former 3.5 percent - which they also like to emphasize.

"Getting into your own four walls is a very important contribution to old-age provision," says Bavaria's Finance Minister Albert Füracker (CSU). With rising real estate prices, ancillary acquisition costs also increased. This makes it even more difficult to finance a property. "An increase in the real estate transfer tax rate, as currently decided in Hamburg, is rejected by Bavaria," Füracker said.

In fact, changes are brewing in the north. Hamburg wants to raise its tax rate from 4.5 to 5.5 percent on January 1, 2023. This is expected to generate an additional 132 million euros a year. This is in response to the tight budget situation following the Corona pandemic, said Finance Senator Andreas Dressel (SPD), explaining the unpopular step. At the same time, he held out the prospect of improvements for certain groups of buyers. The Hanseatic city wants to reduce the tax rate to 3.5 percent for young families as well as for buyers of social housing and hereditary building plots - provided that the federal government creates the legal conditions for this.

The black-yellow coalition in North Rhine-Westphalia is also calling for an opening clause via a development motion in the Bundesrat. The aim is to introduce an allowance for the purchase of owner-occupied single-family houses, two-family houses or condominiums and for the purchase of undeveloped land by private individuals, as a spokesman for the Ministry of Finance in Düsseldorf explains. According to the state's ideas, this allowance should be uniform throughout Germany. For now, the North Rhine-Westphalian state parliament has approved a 400-million-euro subsidy program. This is to relieve owner-occupiers who have bought since January 1, 2022. However, it is not yet clear who will receive how much money, a fact criticized by the opposition in the state parliament.

Under the current legal situation, the federal states can only set the level of the tax rate. The coalition agreement of the SPD, Greens and FDP does state: "We want to enable the states to make the real estate transfer tax more flexible, for example by means of a tax-free allowance, in order to facilitate the acquisition of owner-occupied residential property." This is to be financed by fewer exemptions for companies. So far, they have often been able to avoid the tax through so-called share deals. But there are no concrete plans for changes in the Federal Ministry of Finance yet. "How a more flexible arrangement can be regulated, is currently being examined," a spokeswoman informs.

Soon relief for real estate buyers are thus little likely, on the contrary. According to data from the analysis firm Empirica, real estate prices and thus the basis for the real estate transfer tax continued to rise in the first quarter. According to the data, prices for condominiums were 11.5 percent higher than in the first quarter of 2021, while single-family and two-family houses became even more expensive by 13.7 percent within one year.

The prices in rent advertisements increased in this period against it only by 4.4 per cent. For prospective buyers, the fact that interest rates for real estate loans have risen significantly in recent weeks is an aggravating factor. For a long time, interest rates were below 1 percent, but now banks are again charging more than 2 percent in many cases, and the trend is upwards.

In no other EU country do so few people live in a property they own as in Germany. According to the European Statistics Office, the proportion of owners in 2020 was just over 50 percent. By contrast, the EU average was around 70 percent. Owning your own property is the norm in Eastern Europe in particular, but also in countries such as Spain and Italy. Renting in Europe is only more popular than in Germany in the non-EU country of Switzerland. There, the proportion of owners was recently only 42 percent.

Photo by Tierra Mallorca


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