The revenue from the real estate transfer tax for the German Länder increased by 12.1 percent in 2019, making it the tenth consecutive year of growth. But while state level finance ministers are pleased, home buyers are frustrated – as they are among the primary sources of the tax boon. The sums paid by residential property buyers and collected by the states in 2019 add up to 15.8 billion euros, yet another record (source: www.haufe.de).

The real estate transfer tax has for some time now served as one of the principal revenue streams for the German Länder, and their tax policies reflect the fact. Since 2006, the year the tax was turned into a state-level tax to be levied as the 16 states see fit, the real estate transfer tax rate has been raised no less than 27 times, as the BFW Federal Association of Independent Property and Housing Companies determined. Until 2006, the tax rate had been 3.5 percent of the property purchase price nationwide, but the only states who retained this level are Bavaria and Saxony. All other states have raised the rate, some of them several times, the highest rates being charged in Schleswig-Holstein, North Rhine-Westphalia, Saarland, Brandenburg and Thuringia today: 6.5 percent of the purchase price.  

Federal Government Keeps Sitting on the Fence

Surveys compiled by the IW German Economic Institute, among other researchers, regularly reveal that the real estate transfer tax places a significant hurdle in the path toward homeownership for private households or prevents it altogether (source: www.iwkoeln.de). Since the real estate transfer tax accounts for a major share of the incidental acquisition costs, it increases the equity capital needed for buying a home. For this reason, the incumbent Federal Government, which pledged to promote homeownership financing and which already passed the child tax credit for first-time home buyers toward this end, had originally planned to look into ways to reform the real estate transfer tax, at the very least.

But as the Handelsblatt business daily reported recently, there is no sign of any such review, even though the parliamentary term of the governing Grand Coalition, which started in early 2018, is rather far advanced now. According to the Handelsblatt, the government has not even initiated a survey on the real estate transfer tax issue, and it is reasonable to assume that there is little interest in any reform (source: www.handelsblatt.com).  

Christian Democrats Prodding Social-Democrat-Run Ministry of Finance

But as long as the body politic is dragging its feet with regard to the reform, the harder and the less realistic the project will become. The steady rise in revenues from real estate transfer taxation has become an increasingly important source of revenue for the German Länder, and so the willingness on the state level to change the situation is very limited. In all likelihood, the Federal Government would have to compensate the states for their losses in tax revenue as a result of such a reform.

The Christian Democrats appear to have urged Olaf Scholz, the Federal Minister of Finance and a Social Democrat, to make proposals for a possible reform, according to the Handelsblatt. But the chance that anything in this regard will be accomplished before the end of the current parliamentary term is close to nil.