How a Reform of the Real Estate Transfer Tax Would Provide Relief to Home Buyers


August 2019

A reform of Germany’s real estate transfer tax has been demanded for the longest time in order to encourage more people to seek homeownership. At 45 percent, Germany’s homeownership rate counts among the lowest anywhere in Europe. Reforming the real estate transfer tax by lowering the tax rate or waiving it altogether for first-time buyers of private homes would clearly facilitate homeownership because it would effectively reduce the capital requirements and thereby lower the biggest hurdle for many prospective home buyers. Indeed, a reform of the German real estate transfer tax would not only lower the capital requirements at the time of the property acquisition, but would also lower the monthly financing costs downstream, as the Hamburg Institute of International Economics (HWWI) recently determined mathematically (source:

For the purposes of its calculation, the HWWI assumed a hypothetical tax cut of the real estate transfer tax down to a nationwide rate of 2 percent of the purchase price. Until 2006, the real estate transfer tax rate used to be a uniform 3.5 percent across Germany, but it has since been up to the federal states to set their own tax rates. Except for Bavaria and Saxony, all of the German Länder raised their tax rates, many of them raising them more than once, so that it is now at 6.5 percent in five states and 6 percent in another three.  

Families Would Benefit More than Others

For obvious reasons, home buyers would benefit most from a reform of the real estate transfer tax in the states with the highest tax rates. Buyers of a 70-square-metre flat with an assumed down-payment of 20 percent in equity would save more than 76 euros per month in Frankfurt am Main and approximately 63 euros in Cologne, for instance. In 23 out of 401 German cities and districts examined, monthly savings would exceed 40 euros, which would add up to a total of approximately 10,000 euros over a loan term of 20 years (source: The savings are generated by spending a greater proportion of the equity capital on the purchase price when the incidental acquisition costs are reduced, which then lowers the amount you need to borrow.

Since the amount of the real estate transfer tax rises apace with the purchase price, the absolute savings delivered by a reform would be greater for larger flats. Especially families with children, who tend to look for larger flats, would benefit most from it, according to Postbank, which commissioned the survey. If the real estate transfer tax were waived altogether for first-time buyers and/or owner-occupiers or if an allowance was introduced toward this end, the savings would naturally be greater yet. However, since the real estate transfer tax is one of the main revenue sources for the German Länder—with revenues having almost tripled since 2010 and now amounting to 14.1 billion euros per year—efforts to reform this tax regime are making no progress despite repeated demands for it.

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