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German property groups demand lower transfer tax

January 25, 2012

During 2011, the real estate transfer tax was raised to 5% by the German states of North Rhine-Westphalia and Baden-Wuerttemberg, and in early 2012, also to 5%, in Berlin, Schleswig-Holstein, Rhineland-Palatinate, and Mecklenburg-Vorpommern. Since 2006, federal states have been entitled to determine the tax rate. As a result—and contrary to the intent of the federal government—the tax rates increased steadily as the states use the increase in land transfer tax to consolidate municipal budgets and to compete with each other.

A report created by the Rhenish-Westphalian Institute for Economic Research shows that the tax is borne primarily by young families, an important demographic to the growth of their community. By example, an increase to 5% from 3.5% would equate with additional cost of €3960, or on average, just less than three months’ salary. The increase in the real estate transfer tax is hampering the housing market. It has also prevented the merger of housing companies, which are required by demographic changes.

The report was commissioned by the National Associations of Real Estate Management (BSI), of which the German association IVD (along with six other organizations) is affiliated. BSI and its member organizations are advocating to reintroduce a new, low real estate transfer tax rate of 2% to 3%, and to enforce a prohibition to return to higher rates. BSI also calls for a simultaneous waiver of exemptions, for example to exempt the first purchase of a home by families, the merger of housing associations and property transitions as part of the municipality reform of the real estate transfer tax.

ICREA