+49 (0)89 70065020
Real estate tax reform
Real estate tax reform
The property tax burden affects both owners and tenants. As early as 2016, property taxes generated well over 13 billion euros for municipalities. The property tax reform was decided upon in June 2016, with Hamburg and Bavaria voting against it. The Federal Constitutional Court now expects a new reform by December 31, 2019, as the current regulations on property tax are considered unconstitutional.
Three models to choose from
Before the reform, a working group was appointed by the finance ministers of the federal states, whose task was to develop various reform approaches. Three models emerged, which were eagerly discussed. The following three models were up for discussion:
- Model 1: The Nordic Model (Valuation based on market value)
- Model 2: The Southern Model (Valuation based on land and building areas)
- Model 3: Thuringian Model (combines Model 1 and 2)
After all three models were tested in a detached manner regarding the economy, it was clear that none of these models were really usable. Consequently, the models were discarded and an overall model was developed.
The draft laws were submitted to the Bundesrat by Hesse and Lower Saxony on September 23, 2016, and were passed on November 4, 2016. The German Federal Government issued a statement on December 21, 2016. The Finance Committee of the Bundestag decided on February 15, 2017, that no initiative would be taken as long as the Bundesrat did not show a unanimous stance. The current model presented is a cost-value model that includes the overall model and extensions.
Contact us – we are always available
The cost-value model in detail
The so-called cost value is the basis of the cost value model. According to this, for undeveloped properties, the land value guideline from appraisal committees is used. The valuation is thus carried out based on the average selling price in a specific region.
For already developed properties, the so-called building lump-sum development cost is included in the valuation. The buildings are therefore to be valued at a flat rate according to the construction costs incurred. These, in turn, must be regularly updated. The greatest criticism of the cost value model is, among other things, the regular updating of construction and land costs, which brings a dynamic increase mechanism for property tax. In addition, new buildings would be fundamentally disadvantaged, which is why this model must be rejected.
Why a new reform of property tax
A new reform should be created because the current system was deemed unconstitutional. With a ruling on April 10, 2018, the Federal Constitutional Court confirmed this approach. According to the ruling, a uniform valuation of real property since 2002 is not compatible with the equality principle of the Basic Law. The Federal Constitutional Court further states that the main assessment date of 1964 leads to massive unequal treatment in the valuation of land and property.
This reasoning by the Federal Constitutional Court declared the regulations unconstitutional and requires the legislator to enact new regulations by December 31, 2019. Until then, the currently applicable rules may continue to be applied. After the new regulations are proclaimed, the old regulations may continue to be applied for five years, but no longer than December 31, 2024.
Would you like to know the value of your property? Free and without obligation.
Would you like to know the current value of your property? You've come to the right place for informed value assessments. Call us: 089 70065020.
Our property valuation for you:
- A high-quality and comprehensive analysis of your property.
- Well-founded real estate valuation including market analysis.
- Ideal for owners, sellers, and buyers.
The Southern Model in Focus
For a fair property tax, it is important that the reform can be administered. This would most likely be the case with the Southern European model. Collecting cost or market values would result in considerably greater bureaucratic effort. This would lead to unnecessary complications. A continuously recurring determination of standard values would also have consequences, as administrative resources would be almost unmanageable.
Since the Federal Constitutional Court has set a very short deadline, the "Southern Model" is the only feasible option. The "Cost-Benefit Model," which was introduced by the Federal Council, would require a ten-year transition period, which the Federal Constitutional Court will not grant. The "Southern Model," on the other hand, can be administered more quickly and is significantly less prone to disputes.
The cost-value model should also be rejected because, according to calculations, property tax would increase tenfold. The model is therefore considered socially unacceptable, as officially stated in Hamburg. Only by adjusting the tax assessment figures and multiplier rates could the drastic increase in property tax be prevented.
Share
Download as PDF
Print page
