German states see record haul from land transfer tax revenues

Germany’s sixteen federal states collectively hauled in a record amount of €15.8bn in land transfer tax (Grunderwerbsteuer) in 2019, effectively the stamp duty payable to each federal state’s government on the purchase of property. That represents an increase of 12.1% on the previous year.

Naturally enough, the release of the figures showing a record intake caused further protest from industry associations, who’ve seen a free-for-all among Germany’s states in imposing ever-higher property taxes since 2006, when the federal government in Berlin handed back the freedom to charge their own rates to the Länder. Since then it has risen almost everywhere from its previously uniform 3.5%, to in many cases 6.5%.

Andreas Ibel, the president of the BFW Bundesverband Freier Immobilien- und Wohnungsunternehmen, a property owners association, said, “While the shortage of affordable living space grows ever larger, the states continue to drive living costs ever higher. It’s a scandal that the states are competing with each other to impose the highest property transfer taxes (Grunderwerbsteuer). It’s not just the buyers who are picking up the tab – tenants are being hit by it too, as the higher acquisition costs are transferred to the tenants in the form of higher rents.”

He pointed out that since 2006 the rate had been raised 27 times. Currently the lowest rates are payable in Bavaria and Saxony at an unchanged rate of 3.5%. Hamburg charges 4.5%, Berlin and Hesse 6%, and North Rhine-Westphalia 6.5%.

Berlin saw the highest increase in tax income from the Grunderwerbsteuer last year, with a rise of 37%. The BFW’s Ibel said, “It makes it all the more absurd for the Berlin Senate to be imposing a rental cap and even rent reductions, when it itself is responsible for driving the rents ever further upwards with its property taxes. Taken with the Baukindergeld programme (a subsidy for young families with children to buy property), the competition to increase property taxes is self-defeating and makes it even more difficult for people to acquire property as part of their old-age planning.”

The real estate industry has long criticized the escalating level of the property tax, which pushes up the ancillary costs of buying property (and will almost never be part of any mortgage financing arrangement). The liberal FDP party has been pushing for a tax-free allowance for first-time investors, which Angela Merkel’s ruling Berlin coalition had said it would consider, but so far that hasn’t gone anywhere.