Start of KfW funding applications for climate-friendly heating replacements

From February 27, 2024, owners who use their property themselves can submit applications to KfW for funding to replace their heating systems in accordance with the amended Building Energy Act (GEG). Landlords, homeowners' associations and companies will only be able to submit applications in the course of the year, staggered by group. The start dates will be set and announced by KfW in consultation with the Federal Ministry of Economics and Climate Protection (BMWK). Landlords who have already replaced or will replace their heating system with a heat pump between December 29, 2023 and August 31, 2024 can also submit the corresponding funding applications to KfW retroactively as soon as this is possible.

Background: Landlords can receive a maximum of 30,000 euros for the first apartment in the building, a maximum of 15,000 euros for the second to sixth apartment and a maximum of 8,000 euros for the seventh apartment and above. The law stipulates that at least 65 percent of any new heating system installed in new-build areas must be powered by renewable energy. This requirement will apply to new buildings outside these areas from 2026, by which time the federal states will have to submit district heating concepts for the respective cities in accordance with the Heating Act so that homeowners can opt for a district heating connection or a heat pump. From 2045, heating systems may no longer be operated with natural gas or heating oil.

Berlin introduces hardship clause due to change in property tax

Berlin is the first federal state to announce that it will not gain any financial advantages from the reform of property tax and intends to significantly reduce the assessment rate. Finance Senator Stefan Evers explained in a press release that Berlin had successfully issued almost all property tax assessments. After a careful analysis of the effects of the property tax reform on the tax burden, it was concluded that there was a need for action: "Berlin's analysis has shown that the measurement figures set by federal law would lead to a higher burden on residential properties in the capital. Berlin will therefore adjust the assessment figures so that from 2025, the tax rate for residential properties will be 0.31 per thousand and 0.45 per thousand for non-residential properties and undeveloped land. The assessment rate for developed and developable properties is to be reduced from the current 810% to 470%.

A hardship clause is being introduced in Berlin to protect owners whose livelihoods would be threatened by the new assessment rates. This allows a further reduction in property tax, particularly for owner-occupied residential properties. Owners who wish to make use of the hardship clause must submit a corresponding application and prove that their existence is threatened by the new property tax.

Decline in residential construction

According to the Federal Statistical Office, residential construction suffered a significant slump in 2023 with a real decline in orders of 19.8%. This was the sharpest decline in the sector. In nominal terms, the segment's result fell by 13.4% to its lowest level since 2018.

The Federal Statistical Office announced in February that, despite a slight recovery in December, the German construction industry would continue to struggle with a decline in incoming orders in 2023. Compared to 2022, the real (price-adjusted) value of orders fell by 4.4 percent. However, due to significantly higher prices, the industry's order value exceeded the EUR 100 billion mark for the first time at EUR 102.3 billion. This corresponds to nominal (not price-adjusted) growth of 3.3 percent.

According to the Federal Office's evaluations, building construction in particular was weak: at 49.1 billion euros, the previous year's result was missed by five percent. Adjusted for prices, there was even a drop of 11.4 percent. Pure residential construction suffered the sharpest decline with a price-adjusted drop of 19.8 percent. A nominal decline in orders of 13.4% led to the lowest nominal annual result in five years. Civil engineering, on the other hand, recorded an increase in order values: in real terms by three percent and in nominal terms by 12.2 percent to 53.2 billion euros compared to the previous year. Major projects played a key role in this record result.

According to the Federal Statistical Office, annual turnover in the main construction industry fell by 3.3% in real terms compared to the previous year. In nominal terms, however, turnover rose by 3.5 percent to a new record of 113.8 billion euros. Residential construction accounted for the largest share of this with an annual turnover of 26.6 billion euros in 2023, closely followed by commercial building construction with 26 billion euros.