Berlin Hamburg is the wealthiest federal state in Germany. However, the cost of living in the Hanseatic city is also high. Owning an apartment, for example, has become almost unaffordable for many Hamburg residents due to the rise in real estate prices.
Soon the costs will climb even higher: at the beginning of next year, Hamburg will increase the real estate transfer tax from 4.5 to 5.5 percent. With the additional income, the country wants to close budget gaps caused by the corona virus.
This would be made possible by a new country opening clause. “The federal states are given the power to introduce a reduced tax rate for direct property purchases if the purchaser of the property is one or more natural persons and the property is intended to be used for their own residential purposes after the purchase,” it says.
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The federal states should also “be able to set further restrictions on the granting of the reduced tax rate, in particular a further restriction on the group of purchasers”.
In this way, the federal government wants to ensure that it is not real estate speculators who benefit from possible tax cuts, but families who want to buy a property for the first time and want to live in it themselves.
Countries have increased real estate transfer tax sharply
The real estate transfer tax is one of the few original state taxes. Since the federalism reform of 2006, the 16 prime ministers have been able to set the tax rate themselves, which the federal states have often made use of. Almost everywhere in the country, taxes for real estate buyers have risen, sometimes sharply.
Almost everywhere in Germany, the taxes for real estate buyers have risen, sometimes sharply.
(Photo: dpa)
Only Bavaria and Saxony have left the rate untouched since the 2006 reform, in both federal states it is still 3.5 percent. All other countries, on the other hand, tightened the tax screw. In four federal states, such as North Rhine-Westphalia and Schleswig-Holstein, the rate is now 6.5 percent of the purchase price.
The revenues of the federal states increased accordingly. In 2017 they still took 13.1 billion euros from the real estate transfer tax, in 2021 it was already 18.3 billion euros – an increase of 40 percent within five years.
But precisely because of the high ancillary costs – in addition to land transfer tax, there are often notary and brokerage costs when buying a property – owning your own four walls remains an unfulfilled dream for many Germans.
New problems with the financial equalization of the federal states
The new rule aims to change that. The question is whether and how many countries will make use of the opening clause in view of tight budgets and actually lower the tax. The advocates of the reform hope that there will be competition among countries. If one state lowers taxes for families, the neighboring states must follow suit.
However, if this were to happen, it would bring with it new problems, as the traffic light coalition has just found out when drafting the law.
According to the paper from the Ministry of Finance, the reform “fits into the previous system of real estate transfer tax”, which is why an amendment to the Basic Law is not necessary. But even without a change in the Basic Law, there is a problem. Because if rich federal states like Bavaria should lower the real estate transfer tax or even reduce it to zero, this would have consequences for the state financial equalization.
Every year, billions are redistributed between poor and rich countries via the pot in order to ensure more or less the same living conditions in the country. Since Bavaria’s tax capacity would decrease in the event of a tax cut, the Free State would also have to pay less money into the state pot – which in turn would mean that the other states would receive fewer funds.
If rich federal states like Bavaria should lower the real estate transfer tax or even reduce it to zero, this would have consequences for the state financial equalization.
(Photo: imago images/Beautiful Sports)
Some federal states have therefore made it clear during the deliberations that they would not agree to a reform without compensation in the state financial equalization system. The federal and state governments are now working on a solution.
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Another problem: In the coalition agreement, the traffic light government decided to counter-finance a reform by closing tax loopholes when corporations buy real estate (share deals). The federal states are also insisting on this. “It won’t work without financial compensation,” says Hamburg’s Finance Senator Andreas Dressel (SPD).
But finding a solution here is by no means easy. It is therefore unclear when a reform of the real estate transfer tax will come. The federal cabinet was originally supposed to pass the law, but it was taken off the agenda because of the unresolved issues.
Some countries are already anticipating the reform. Hamburg wants to raise the general real estate transfer tax rate, but at the same time plans a reduction for young families and for investors in social housing. In the future, they will only have to pay 3.5 percent real estate transfer tax, which is less than before.
But the planned tax cut is only possible if the reform planned by the federal government comes into force. A compromise will not fail in Hamburg, explains Dressel. “We are committed to a country opening clause.”
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