Social Democrats (SPD) propose new instrument to boost homeownership rate

After Federal Finance Minister Christian Lindner (FDP) scheduled initial consultations on reforming Germany’s real estate transfer tax system to give the country’s federal states more freedom and thereby make it easier to buy and sell real estate, the SPD is working on other instruments to promote homeownership. Kevin Kühnert (SPD) is pushing for a state programme to replace equity in the purchase of residential property. The aim is to enable households with stable incomes but without large financial reserves to buy their own homes. Jürgen Michael Schick, President of the German real estate association IVD, has welcomed this initiative. The largest hurdle for many potential buyers is having a big enough deposit for a home, which is why young families in particular often need to rely on inheritances or support from their parents. As interest rates on construction loans have risen, it has become virtually impossible for people to build their own homes from their regular incomes alone, according to the IVD.

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Heating costs could increase by more than 50 per cent in Berlin

This year, the housing industry expects heating costs to rise by more than 50 per cent. Maren Kern, board member of the Association of Berlin-Brandenburg Housing Companies, assumes that heating costs will continue to rise significantly. According to Kern, the federal government’s taxable, one-off heating grant of 300 euros is nowhere near enough to help households cover the imminent increases. The government’s hardship fund is a first step in the right direction, she said, but she also appealed to tenants to follow their housing company’s recommendations and make voluntary advance payments for heating costs, or to start putting money aside themselves. Meanwhile, Georg Friedrichs, the head of Gasag, Berlin’s largest utility company, has appealed to households in Berlin to reduce room temperatures whenever possible in the autumn. According to Friedrichs, just one degree Celsius less will reduce a household’s energy consumption by seven per cent.

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Berlin’s Senate launches the Alliance for New Residential Construction

The shortage of available (and affordable) housing on Berlin’s residential real estate market has prompted the city’s Senate to launch an alliance with municipal districts, cooperatives, real estate companies and industry associations. The alliance’s members all signed a 22-page agreement at the end of June and committed to the goals of creating 100,000 new apartments by the end of 2026, significantly simplifying building permit procedures, and easing the housing burden for low-income households. The necessary development plans should be in place within three years, and funding of 740 million euros per year has been earmarked in the Senate’s budget for 2022 and 2023 to promote social housing. The major housing companies, including Vonovia, also promised to ensure that 30 per cent of all re-rentals go to tenants with housing entitlement certificates. Franziska Giffey (SPD), the governing mayor, expects more signatories to join in the next few months.

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Real estate transfer tax reform

Federal Finance Minister Christian Lindner (FDP) has given the starting signal for real estate transfer tax reform. From the initial consultations, it is clear that politicians are striving to lower the hurdles for acquiring real estate. Plans include giving the federal states the power to reduce the real estate transfer tax rate to zero. It is hoped that this would relieve the burden on private first-time buyers. Michael Schick, President of the German Real Estate Association IVD, welcomed the plans: Especially for young people, any dreams of owning their own home often come to nothing because their savings are not enough for a deposit and to get a mortgage. For this reason, the IVD believes that the proposed reforms are an important step in the right direction and could give middle-income households access to home ownership. In order to further promote sustainability, the IVD also advocates a real estate transfer tax refund for energy-efficient renovations.

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Still no agreement on the Berlin rent index

In April, the District Court of Spandau issued a ruling on the 2021 Berlin rent index in which demands for rent increases were rejected. The judges ruled that the 2021 Berlin rent index did not fulfil the criteria of a “qualified rent index”. The case related to the second consecutive update to the index, which was deemed invalid. The District Court of Wedding, on the other hand, issued a ruling in support of the 2021 index. Two such contradictory judgements in such a short space of time have created legal uncertainty – and dented confidence in the rent index. Without a valid index, the rental price brake (Mietpreisbremse) cannot be applied. The IVD criticised the legal foundations of the latest update to the rent index as early as 2021. Even with the District Court of Wedding approving the 2021 rent index, the question remains as to how the state of Berlin can produce a lawful and reliable rent index in years to come.

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Discussions about the pre-emptive purchase rights

In the wake of a landmark decision by the Federal Administrative Court on November 9, 2021 to outlaw municipal authorities’ exercise of pre-emptive rights to purchase properties located in conservation areas, politicians have decided that new legislation is the answer. As a reaction to the initiative of the federal states of Berlin, Bremen and Hamburg, the Bundesrat is making a strong case to tighten the wording in the relevant sections of the German Building Code. The restoration of municipal pre-emptive purchase rights was also discussed in a public hearing of the Committee for Housing, Urban Development, Construction and Municipalities at the beginning of May. The plans of Federal Minister for Housing, Urban Development and Building, Klara Geywitz (SPD), have met with criticism throughout the real estate sector. According to the real estate association IVD, a municipal pre-emptive purchase does not create any added value: a public landlord is per se no better than a private landlord. And, as the IVD points out, tenancy law already protects existing tenants anyway. The IVD is clear: Rather than discussing a new version of pre-emptive rights, politicians should focus more on new construction.

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Berlin increases housing benefits

The housing benefit reform of 2020 calls for the regular adjustment of housing benefit. This provision is intended to ensure that housing benefit recipients do not suffer a decline in household purchasing power. Adjustments are calculated in relation to the date the housing benefit reform was passed (January 1, 2020). As a result, low-income households who might otherwise lose their entitlements as their incomes increase can continue to receive housing benefit. From January 1, 2022, housing benefit recipients in Berlin will receive an average of €10.00 more per month. Almost 19,500 households in Berlin are affected by this regulation, including many pensioner households – almost half – and families. Clearly, as an alternative to stronger regulatory measures, targeted financial support can effectively mitigate the increasing burden of rising housing prices.

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Right of first refusal – a common concern in Berlin, Hamburg and Munich

It was only in November that Germany’s Federal Administrative Court instructed state authorities to stop exercising their right of first refusal as an instrument against potential speculation – a success for property owners. Now the mayors of Germany’s largest cities are following suit: In response to the Federal Administrative Court’s ruling, Berlin, Hamburg and Munich have launched an initiative to strengthen municipalities’ rights of first refusal. The mayors say they want to safeguard the supply of affordable rental housing and protect social preservation areas from speculative real estate companies. Together, the three mayors have called for an expeditious solution and a new regulation governing their rights of first refusal from the federal government. According to the IVD, such a reaction was to be expected. But the efforts to secure new legislation comes at the expense of urgently needed new construction.

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Geisel calls for rent freeze in Berlin

Berlin’s housing market remains tense. Affordable housing is in short supply. In response, the “Alliance for New Housing Construction and Affordable Housing” met for the first time in late January. The Berlin Senate wants to create more affordable housing and boost new construction in cooperation with the district authorities and the housing and construction industries. Andreas Geisel, Senator for Urban Development, Construction and Housing, has called for a voluntary, five-year rent “freeze” on the part of the housing companies. However, he wants rent increases to be linked to the rate of inflation, rather than a complete freeze. In return, he will make it easier for developers to get new construction projects up and running by guaranteeing faster building permits. The IVD Berlin-Brandenburg is keeping a close eye on the proposals and has already warned against embarking on the wrong path of too much regulation, especially in the wake of the failed rent cap.

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Pre-emptive purchase rights ruled illegal

In a sensational ruling, the Federal Administrative Court has quashed Berlin’s policy of pre-emptive purchase. According to the Court, the assumption that the sale of an multi-family property in a designated neighbourhood protection area after the stipulated seven-year period could lead to the displacement of tenants does not provide sufficient justification for Berlin’s building authorities to exercise their pre-emptive purchase rights. The new judgement is a clear victory for many property owners in Berlin. In addition, many of the Abwendungsvereinbarungen (“aversion agreements”) concluded between district authorities and property owners will now also be subject to scrutiny. The ruling will have two consequences: In the short term, authorities will make less frequent use of their pre-emptive purchase rights. In the long term, federal lawmakers are likely to revise the existing legislation and will probably even strengthen municipalities’ rights of first refusal.

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