The German real estate markets have prospered quite handsomely since 2010. Low levels of interest as well as positive economic and demographic growth have fuelled demand, while available product clearly remains in short supply to this day—resulting in a steep rise in property prices that has persisted for the past nine years. Few if any have benefited from the brisk market development as much as Germany’s public realm. Tax revenues associable with the real estate and building industry have multiplied since 2009, as an analysis by the EBZ Business School in Bochum determined.1
According to the EBZ’s findings, extra revenues due to the real estate boom that have filled the coffers of federal, state and municipal governments add up to 103 billion euros. Out of this total, structural engineering investments accounts for 55.5 billion euros. Payroll taxes, sale taxes and corporate taxes from this sector rose to 63.7 billion euros by 2017, up from just 51.5 billion euros collected in 2009.
Real Estate Transfer Tax: 27 Tax Hikes since 2006
Moreover, property tax revenues have soared, most notably because many municipalities raised their assessment rates. The sum of 10.9 billion euros in property taxes that was collected by towns and cities in 2009 had gone up to 14 billion euros by 2017.
On the state level, the greatest leap in profits was generated by the real estate transfer tax. High property prices and the high number of transactions had direct consequences for the real estate transfer tax revenues because the Länder earn money from each and every property sale, with the tax load proportionate to the price. Having seen their tax revenues rise in the wake of the real estate boom, nearly all German Länder raised their tax rates several times to boost their profits even further.
Since 2006, it has been up to the Länder to set their own rates for this state-level tax. And except for Bavaria and Saxony, all Länder have raised their tax rates since, some of them more than once. Today, the going rate in five of them is 6.5 percent, up from a uniform rate of 3.5% nationwide in 2006. Out of altogether 27 tax increases across the Länder, 24 were imposed after 2010, meaning during the years of the fastest price growth on the real estate market. It is reasonable to assume that the respective state governments sought to maximise their profits from the brisk market action.
Federal Government Officially Encourages Homeownership
As a result, revenues from the real estate transfer tax rose from 4.9 billion euros in 2009 to 13.1 billion euros in 2017—an increase by around 170 percent. Günter Vornholz of the EBZ Business School estimates that inland revenue authorities collected a total of 34.8 billion euros in extra taxes during this period.
These sums may well be the main reason why it is taking the body politic so long to decide whether or not to lower the real estate transfer tax or at least introduce tax breaks for some. But it flies in the face of the Federal Government’s stated intention to promote homeownership—because waiving the real estate transfer tax would be the most efficient way to do so.2