What can the real estate industry expect from the next German government? | Hogan Lovells

400,000 new apartments per year

The government has set a goal of building 400,000 homes per year, with 100,000 homes being built through publicly funded affordable housing. This corresponds to an increase of 30% compared to 2020 and more than 80% above the annual average for the last 15 years. She wants to achieve her overriding goal through cooperation with the private housing industry. It also intends to promote the non-profit housing sector and allow the state agency for real estate projects (the “BIMA”) to act as a developer. A special focus of the coalition is on student housing for the younger generation and for trainees, who are particularly disadvantaged when entering the housing manager. In addition, more funds are being made available for senior living. Private long-term investors are encouraged by an increase in the annual straight-line depreciation rate from 2% to 3%, which in the current low-interest and low-interest environment leads to a significant tax advantage for landlords.

Land banks

In order to increase the production of additional, affordable housing, the government wants to streamline and digitize the administrative processes for the development, issuing and monitoring of building permits and modular construction. Indirectly, it intends to make greater use of public rights of first refusal and to expand its scope. She wants to mobilize additional land for residential use, suggesting that she wants to increase administrative pressure on landowners to build (and not just build) on land that has been designated for residential use.

Climate change and energy efficiency

The coalition is increasing the pressure on building owners to make buildings more energy efficient and to reduce CO2 emissions. From 01/01/2024, certain standards must be complied with when renovating buildings or when replacing or converting the heating system. At the same time, tenants are shielded from rent increases through such measures. In order to cushion the high investment needs of property owners, additional KfW funds (which ultimately means state-supported and often subsidized financing) are made available.

Share deals

The outgoing government passed a law with effect from July 1, 2021 to make share deals less attractive. The coalition wants to go one step further and introduce further legislative steps to raise the thresholds for RETT savings (real estate transfer tax). The intention is to increase the RETT in order to be able to offer tax breaks to first-time buyers.

Ownership rate

Germany has one of the lowest home ownership rates in Europe. Especially in large cities where the vast majority of apartments are rented (in Berlin, for example, 83% of all apartments). The coalition wants to strengthen home ownership by making subsidized loans available for young families and first-time buyers and by lowering the RETT rate for this category (or granting tax allowances).

Blockchain-based land register?

The coalition wants to investigate whether the land register can be further digitized through blockchain-based entries.

Foreign buyers

Foreign buyers continue to have free access to the German real estate market and do not require any special permits to acquire land. Nevertheless, the coalition wants to monitor compliance with taxes and money laundering more strictly. The agreement stipulates that the government will take steps to ensure that real estate is bought by non-residents with pre-taxed funds.

Apartment rental agreements

Rent increases are capped further and effectively limited to 3.67% per year. Rent increases from projects to increase energy efficiency are being “restructured”. The CO2 costs are shared “fairly” between landlords and tenants. They can currently be withdrawn from the tenants. Official rent index (rent index) will gain in importance and ultimately lead to lower rent increases for existing rental agreements and extensions.

noise protection

The rules on noise protection are being revised and noise sources are less isolated, but rather viewed against their joint and overall effect.

Rural areas and smaller towns

The government is committed to helping smaller cities in more rural areas.

Who are the likely winners and losers in the medium term?

The German real estate industry as a whole welcomes the coalition agreement with relief. There was great concern that the coalition would continue the confrontational style of Berlin’s local government at the federal level and that the social democratic campaign was clearly focused on the votes. There is no evidence of drastic actions such as the expropriation of large housing companies (which were on the election agenda of left parties). The coalition agreement shows a real willingness to partner with the private sector. The creation of a building and housing ministry ensures that building and living will continue to have a high priority on the political agenda.

Despite the initial relief, the private housing sector will remain cautious as the program continues to be implemented. There will be an increasing trend towards consolidation as individual landlords and smaller housing companies will be pushed to continue investing to improve energy efficiency without generating immediate returns. It remains to be seen to what extent KfW funding will be available. The rent increase potential will be further restricted. On the other hand, increased minimum wages, heating subsidies and childcare subsidies will strengthen the purchasing power of lower-income families in particular and enable them to achieve higher rents in the medium term. Further family support programs will hopefully have positive long-term demographics.

The construction industry and its suppliers will be the main beneficiaries, as all of these measures, if properly implemented, will increase the demand for construction services, especially in residential construction and especially for increased energy efficiency. The federal and state governments benefit indirectly from additional sales tax income for these construction services, as these cannot be reimbursed as input tax.

The wind power sector could be incentivized if new developments closer to cities are allowed and higher density developments are likely to be allowed.

It remains to be seen whether urban logistics can be implemented in mixed neighborhoods. The Greens are calling for higher barriers to the logistical use of greenfield sites.

The retirement and nursing homes sector will benefit from the additional funding made available to this sector.

Retailers will continue to feel disadvantaged compared to online retailers.

Private student residences will face increased competition from non-profit actors who will have more financial strength in the future.

Finally, we will monitor this area. The housing sector will inevitably receive a lot more attention from the new administration than its predecessor, but the end result will depend on strong cooperation between the coalition parties.