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TAX

Germany’s top court just made a landmark ruling that affects us all. Here’s how

The Constitutional Court ruled the Grundsteuer (land tax) for obsolete on Tuesday. Since almost everyone in Germany is affected by the tax, it is worth understanding its relevance.

Germany’s top court just made a landmark ruling that affects us all. Here’s how
The Constitutional Court. Photo: DPA

What is the Grundsteuer?

The land tax is the most important form of income for local governments in Germany, bringing roughly €14 billion in revenue into their coffers every year.

And we all pay it – either directly or indirectly. The tax is levied on everyone who owns a property. But even if you are a tenant you still probably pay, as landlords almost always pass the cost onto tenants in the form of Nebenkosten (supplementary costs) in their contract.

You know that strange difference in Germany between Kaltmiete and Warmmiete? Well some of that is heating costs, but a lot is also the land tax.

Research by the Institute for the German Economy shows that the Grundsteuer on a typical apartment is €299 each year.

Why did the Constitutional Court rule on it?

Landowners have been complaining for years that the tax is unfair – and it’s not hard to see why. The tax is based on an estimate of the value of a property which is, er, well, rather out of date.

Properties were last valued for the tax in west Germany in 1964 and in east Germany in 1935. So when your local Finanzamt calculates the tax, they are doing so based on the value of your property over half a century ago.

Property owners argue that values have changed somewhat since then. For instance an apartment that was stuck next to the Berlin Wall in 1964 could now be in one of the trendiest neighbourhoods in Germany.

Why has nothing been done about this before?

The small print of the land tax calls on the federal government to carry out a reassessment of property values every six years. But for the past 50 years governments have always said that new assessments are too time intensive.

Even before Tuesday’s ruling though, there was general consensus among politicians across the country that something needed to change. A majority of the federal states therefore suggested a new way of assessing the tax back in 2016.

The proposal foresaw that property value would be replaced by a calculation based upon size of property, location, transport connections and cost of build.

But both Bavaria and Hamburg blocked the change, fearing that it would lead to a rise in taxes for their inhabitants.

What happens now?

The Constitutional Court has given the federal government until the end of 2019 to come up with a new way of calculating the tax. Once the new law has passed through the Bundestag, the government will have a bridging period of 2024 to carry out the assessments necessary to start levying the tax accordingly.

The courts thus took into account the fact that it could take a long time to reassess all 35 million properties that exist in Germany.

How will the ruling affect us?

It is really hard to say at this point what the ruling means for the normal tax payer. The Constitutional Court rules on the validity of current laws, it doesn't prescribe how new laws should look.

Therefore it is too early to say what a new way of assessing the land tax might look like.

But the Süddeutsche Zeitung (SZ) reports that tax could increase for some properties by a multiple of forty if they were to be re-assessed according to value.

Property values have generally risen most sharply in inner city areas and in suburban areas with good transport connections. It is therefore possible that a new way of assessing the tax could lead to higher payments in areas of downtown Berlin and Munich where property prices have risen most dramatically in recent years.

The government reportedly favours a method of assessing the tax which would penalize properties that are unused, thus deterring speculation and freeing up land for badly needed new housing.

READ ALSO: Germany lacks 2 million affordable homes, study shows

For members

PROPERTY

Where in Germany can you still snag a home for under €100k?

Real estate experts are warning ever more urgently of a property market bubble in Germany, as prices continue to balloon despite rising interest rates. But some parts of the country are still remarkably cheap.

Where in Germany can you still snag a home for under €100k?

If you are thinking about buying your own house in Germany on a tight budget you can forget about the big cities. Even their metropolitan areas are probably out of your reach.

We decided to look at where in Germany you could afford a property on a budget of €100,000. 

To make sure you’re not just getting a shoe box for that money, we also specified in a search on the property website Immobilienscout24 that the property should have at least five rooms and a floor space of at least 130 square metres.

The website, which displays offers from estate agents as well as private individuals, came up with 134 properties currently on the market across Germany.

‘Hidden gems’

What was revealed was a small cluster of properties in and around the small state of Saarland on the French border, while almost all the other properties were in east Germany.

In large swathes of wealthier western Germany there was absolutely nothing to be found in this price range.

Urban properties such as this Altbau in central Munich can’t be found for a bargain. But nor can homes in commuting distance from the major cities. Photo: dpa-tmn | Karl-Josef Hildenbrand

Both Bavaria and Baden-Württemberg, two of Germany’s richest states, had next to nothing on offer. That also goes for the a region of the west of Germany stretching from Cologne all the way up to the Danish border.

Even Brandenburg, once a paradise of cheap properties, is now a barren wasteland when it comes to bargain basement offers, due to the recent surge in interest among Berliners in homes in the surrounding countryside.

A small cluster of “hidden gem” homes could be found in the west in the small state of Saarland. As a former mining region, Saarland is one of the poorer parts of western Germany, but it is also famed for its beautiful Saar river and is close to the wine regions of the Mosel.

Anyone who fancies buying themselves a property just a stone’s throw from the French border should be warned, though.

SEE ALSO: How real estate in Germany has rocketed in the pandemic

Of the nine properties currently on the market in our filter, almost all come with words like “renovierungsbedürftig” (in need of renovations) or “für den Handwerker” (for DIY lovers) – both clear indications that you’ll have to invest quite a bit more money and time into the property before it’s in a condition that you could contemplate living in. For those of you who like nothing better that spending a Saturday afternoon in your local Baumarkt, these could be just the properties for you though.

The rest of the properties were spread across a belt of the country that starts in Lower Saxony and stretches southeast to where Saxony buts up against the Czech border.

The village of Seiffen in the Ore Mountains. Photo: dpa-Zentralbild | Hendrik Schmidt

Twelve of the properties turn up in a single district alone – Vogtlandkreis in southern Saxony.

In terms of salary levels, Vogtlandkreis is one of the worst off places in Germany, so it would make sense that its property market is also on the affordable side. But it is also nestled inside the Ore Mountains. Its national park could offer ideal refuge to those looking to move to a place that offers snow in the winter and long summer hikes.

Generally, the properties on offer are in small villages, but this isn’t always the case. One unusual property to crop up was a “city villa” with 13 rooms in the town of Zeitz in Saxony-Anhalt. 

Energy catch

Another thing that you should be aware of when thinking about buying a home on the seriously cheap side is the exorbitant energy costs that are likely to come your way once you’ve moved in.

Almost all of the houses that turned up in our filter, over half of them (70) had an energy efficiency class of H, which is the worst possible classification for energy efficiency in Germany.

Consumer watchdogs warned back in 2019 that you are likely to pay energy costs upwards of 13 euros per square metre for a home in the H energy class. That equates to utility bills of at least €1,690 each year. By comparison, a home in the energy category D has estimated energy costs of €6 per square metre.

And that number is likely to be much higher now due to the energy crisis caused by the conflict in Ukraine.

Only four of the properties in our search had an energy class of C or above.

SEE ALSO: Where you’ll find Germany’s most expensive apartments

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