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Germany's residential property market is about to undergo significant changes with the proposed amendments to the German Building Code (BauGB). Announced by Federal Building Minister Klara Geywitz, these changes aim to simplify, modernize, and accelerate the construction process, with a particular focus on reducing bureaucracy. Here's an overview of the key changes and their potential impact on real estate investors.
The BauGB-Novelle, or amendment to the German Building Code, introduces several critical modifications designed to streamline the construction process. The Federal Ministry of Housing, Urban Development, and Building (BMWSB) presented this draft amendment on 30th July 2024, with a consultation period until 16th August for federal states and associations. The proposed changes are expected to facilitate faster housing construction, which is essential for addressing the ongoing housing shortage in Germany.
1. Simplified Bureaucracy and Shorter Deadlines The amendment aims to reduce bureaucracy in planning, authorisation, and construction processes. By introducing shorter deadlines and simplifying authorisations, the government hopes to speed up housing construction. According to Geywitz, this includes:
- Publishing development plans within twelve months of the end of the participation process.
- Streamlining environmental reports to be just one-third of the explanatory memorandum of the development plan.
2. Increased Flexibility for Municipalities Municipalities will have more flexibility in creating building rights, allowing them to respond better to local changes. This flexibility could impact the construction of renewable energy plants or the conversion of vacant commercial properties in city centers.
3. Social Land Contribution A social land contribution is to be introduced for the reallocation of building land (Section 58a BauGB). This means that in areas with tight housing markets, municipalities can demand land for social housing construction instead of monetary compensation from owners during building land reallocations.
4. Strengthening Municipal Pre-emption Rights The transfer of land to a company will be treated the same as a purchase agreement, making it more challenging to circumvent municipal pre-emption rights through share deals. Additionally, pre-emption rights will apply if a building divided into condominiums is sold as a whole.
5. Adding Roofs and Extensions Without Changing Development Plans In tight housing markets, it will be possible to add storeys and extensions to buildings without altering the development plan. Previously, this was only feasible in individual cases with special justification.
6. Easier Densified Building Building in the second row or densifying existing properties will be simpler. This change allows for more efficient use of space, such as adding another house on a parent's property for their children.
7. Extension of Conversion Protection The conversion protection regulation under Section 250 BauGB will be extended until the end of 2027. This regulation requires special authorizations for converting rental flats into condominiums in areas with tight housing markets.
8. Climate Change Adaptations Local authorities will prepare for climate change consequences by installing green roofs and infiltration systems. Building owners must prove they have implemented compensatory measures, such as planting trees or greening roofs.
Industry reactions and criticisms
The real estate industry has responded cautiously to the draft amendment. While there are positive aspects, such as the push for denser construction and streamlined planning processes, there are also criticisms.
Aygül Özkan, Managing Director of the German Property Federation (ZIA), acknowledges that the law "essentially fulfills the requirement to push construction" and welcomes the acceleration of planning and digitalization procedures. However, Özkan highlights the absence of a special regulation for faster provision of land for residential construction and calls for improvements regarding city center requirements.
Daniel Föst, construction spokesman in the coalition FDP liberal party, sees room for improvement, particularly in simplified land release, and stresses the importance of including the "construction turbo" provision, which was excluded from the draft.
Implications for real estate investors
The BauGB-Novelle brings both opportunities and challenges for real estate investors:
1. Faster and Easier Approvals The reduction in bureaucracy and shorter deadlines could lead to quicker project approvals, benefiting investors by reducing holding costs and accelerating project timelines.
2. Increased Development Potential The flexibility for municipalities and the ability to add extensions and storeys without changing development plans could open up new development opportunities in high-demand areas.
3. Social Land Contributions Investors may face new obligations to provide land for social housing during building land reallocations, potentially affecting project profitability.
4. Strengthened Pre-emption Rights Tighter pre-emption rights could impact transaction strategies, particularly for investors utilizing share deals to acquire properties.
5. Climate Adaptations Investors will need to factor in additional costs for climate-related measures, such as green roofs and compensatory planting.
6. Conversion Protection The extended conversion protection regulation could limit opportunities for converting rental properties into more profitable condominiums in certain areas.
REFIRE: The BauGB-Novelle represents a significant step towards addressing Germany's housing shortage by making construction processes faster and more efficient. However, the real estate industry remains cautious, emphasizing the need for further improvements and specific regulations to facilitate land provision for residential construction. It's a work-in-progress, but seems to be moving in the right direction. We'll be continuing to track that progress.
