Degressive depreciation for new residential construction

On August 30, the German Cabinet passed the Growth Opportunities Act. It includes tax relief for the massive decline in new housing construction: the temporary introduction of declining balance depreciation (Absetzung für Abnutzung = AfA).

The bill provides for investors to be able to claim their costs against tax more quickly. This will make it possible to invest in new housing more quickly. Specifically, it relates to newly built or newly acquired residential buildings and apartments built on or after October 1, 2023. Construction must begin no later than September 30, 2029. New buildings are eligible for funding if they meet the Efficiency House 55 standard or higher - with no upper limit on construction costs.

Instead of straight-line depreciation at 3%, the investor can deduct 6% annually with decreasing amounts. The following example illustrates the declining balance depreciation:

In the case of investment costs of 400,000 euros, he can write off 24,000 euros in the first year (6% of 400,000 euros), in the second year it is a further 6% of the residual value (376,000 euros), i.e. 22,560 euros, in the third year it is a further 6% of the residual value, i.e. 21,206 euros, and so on. A change to straight-line depreciation is possible.

The Growth Opportunities Act also provides for declining-balance depreciation for the acquisition of movable assets (for example company cars) purchased or manufactured from October 1, 2023. However, the law still has to be passed by the Bundestag and Bundesrat.

Most federal states reject reform of real estate transfer tax

In our last Real Estate News, we reported on a discussion draft by the Federal Minister of Finance on the real estate transfer tax. Christian Lindner is proposing a reform to the federal states that would, among other things, make the first purchase of owner-occupied real estate more flexible. In this case, for example, a state could grant an allowance or even reduce the tax rate to zero, which would make it much easier to purchase real estate.

However, the state finance ministries show little interest in reform. The SPD-led states reject the idea. Only Bavaria, Hesse and Berlin are comfortable with the idea. Some states show themselves open to relief outside land transfer tax law.

Rhineland-Palatinate offers families up to a certain income discounted loans including a repayment subsidy through its investment and structural bank. And in the coalition agreement of the black-green state government of Schleswig-Holstein, a new home ownership subsidy was agreed. In fact, it still does not exist, but at 6.5%, it has the highest real estate transfer tax rate.

North Rhine-Westphalia has abruptly stopped the previous relief of up to 10,000 euros on land transfer tax with the help of NRW.Bank's "NRW.Zuschuss Wohneigentum" development program. It can no longer be granted for property purchases notarized after July 14, 2023.

Price decline slows - trend reversal could be imminent

The latest data from real estate services provider CBRE on real estate prices in August show an interesting change. Compared to the previous year, real estate prices fell by only 1.5%. This is in marked contrast to the decline of still 2.2% in the previous month of July.

This slowdown in the price decline can be explained by a number of factors. One of the main reasons is the declining inflation rate. After peaking last winter, inflation has fallen significantly, creating more scope for a market recovery. In the event that inflation stabilizes and weakens further, combined with a possible drop in interest rates, a turnaround could even be realistic. In such a scenario, real estate prices would not only stagnate, but rise again.

The end result could therefore be a slower but sustainable recovery of the real estate market, which would benefit both consumers and investors. Against this backdrop, it is important to continue monitoring economic indicators closely.