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03.09.2021

Investment

The German real estate industry in 2021 – Plenty of changes, plenty still to come

The Germany real estate landscape has changed significantly since the start of the year. In a short review of the last few months, we would like to share with you the most important changes that have already been implemented and look ahead at what lies in store for the sector over the next few months.

Rent cap overturned

More people in Berlin live in rented accommodation than in any other federal state in Germany. When the rent cap came into force at the end of 2020, freezing rents at June 18, 2019 levels for five years and subsequently reducing them even further, it was followed by a 50-percent decline in the supply of rental apartments in the capital. Opposition parties in Berlin lodged an appeal against the rent cap with the Federal Constitutional Court, arguing that rental law came under Germany’s Civil Code and was therefore a matter for the federal government. The Federal Constitutional Court in Karlsruhe overturned the rent cap on April 15, 2021. However, the left-wing Die Linke party has already presented proposals for a nationwide rent cap – so the issue is not entirely off the table just yet.

The Building Land Mobilization Act

On June 23 of this year, after almost two years of planning, the Building Land Mobilization Act came into force. The new Act is designed to accelerate the construction of new housing. To this end, a number of significant amendments were made to the Building Code and the Building Use Ordinance. These included making it easier for building permit authorities to grant exemptions from development plans, giving municipal authorities a greater degree of flexibility in approving attic conversions and extensions, and loosening restrictions on building coverage ratios, which will now only serve as an orientation, not an absolute limit. In addition, municipalities’ rights of first refusal for “problem” properties and derelict land were strengthened, making it easier for them as owners to create affordable housing on such sites. In addition, the Act introduced the “sectoral development plan,” a new type of development plan that allows authorities to establish land-use plans primarily limited to residential construction. Two further changes now apply in areas with tight housing markets: Firstly, until 2025, building owners will require official permission in order to convert rental apartments into owner-occupied condominiums if there are more than five apartments in a building. It is the state governments themselves that define areas with tight housing markets – in Berlin, this applies to the entire urban area. This will make it even more difficult to create residential property in the capital, and multifamily buildings in need of refurbishment could fall victim to the refurbishment backlog due to a lack of municipal funding. Secondly, local authorities will be able to make greater use of their rights to impose building obligations to encourage the development of gaps between buildings and on other undeveloped plots of land. Building obligations can be used to force landowners to develop residential real estate on their vacant plots. However, owners retain the right of disposal in favor of their immediate family members.

Updates to Germany’s Homeownership Act (Wohneigentumsgesetz)

Germany’s reformed Homeownership Act (Wohneigentumsgesetz) also came into force at the turn of the year, making it easier to implement structural changes to common property in apartment buildings. In principle, modernization measures can now be approved by a simple majority at an owners’ meeting. However, only owners who have approved the measures will be required to bear the costs. Things get complicated when two-thirds of owners with at least a 50-percent share of ownership vote in favor of a measure. This means that all owners must pay unless the costs are disproportionate. In addition, every owner has a right to execute certain structural measures – such as the installation of a charging station for an electric vehicle – at their own expense.

Sharing brokerage commissions equally

As of December 23, 2020, the Bestellerprinzip for tenants and landlords, which specifies that the party who commissions a broker should pay the broker’s fees, was extended to cover residential real estate purchases and sales. The Bestellerprinzip was originally introduced in 2015 and broadening its scope was approved by the Bundestag and Bundesrat in summer 2019. As a result, brokerage fees are now split equally between the buyer and seller of residential real estate – regardless of which party commissioned the broker. Above all, the changes reduce ancillary purchase costs for buyers. They also create a uniform regulation for the sharing of commission costs that applies across the whole of Germany, which we believe is fair.

What impact will federal elections have?

2021 is “Super Election Year.” In fact, there are actually four votes taking place in Berlin on September 26: The capital’s electorate will have the chance to decide on the Bundestag, the House of Representatives and the district parliament, as well as on the referendum on the expropriation of large housing corporations. It is already becoming apparent that housing policy will be a major source of friction. The left-of-center SPD is campaigning for affordable housing and would limit rent increases to the rate of inflation for a certain period of time. However, the SPD’s call to remove the time limit on the current rent freeze could deter real estate investors and prevent urgently needed renovations. The leftist Die Linke party is also committed to stricter rent controls and wants to implement measures to prevent tenants being squeezed out of their neighborhoods. Both left-wing parties say they would impose a wealth tax, although this would only affect 0.7 percent of the adult population. The environmentalist Green Party is calling for a curb on the construction of single-family homes in metropolitan areas. With inflation on the rise, it is clearly important to protect the value of your own assets and purchasing power accordingly. The centrist CDU/CSU and liberalist FDP all want to reduce real estate transfer tax and/or introduce more generous tax allowances.

Our real estate experts will be happy to explain how the latest developments can affect the purchase or sale of your property. For individual advice, you can reach us any time.

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David Borck Immobiliengesellschaft

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