Although the prices are falling in some cases, it remains the house purchase for many people in Germany it is still just a dream. Massively increased interest rates for them construction financing and other additional costs for brokers, notaries or real estate transfer tax make it more difficult to buy your own four walls.
Our eastern neighbors in Poland have similar problems with residential real estate. Many properties are empty, but at the same time young families in particular often cannot afford anything, reports the news blog “Notes from Poland“. According to Eurostat data, over half of all people between the ages of 25 and 34 in Poland still live with their parents. In Germany it is only 13.2 percent.
Warsaw now wants to take countermeasures – with two initiatives. On the one hand, the government supports prospective home buyers with loans with interest rates tied to two percent for ten years. The state covers the difference to the market interest rate.
The requirements for this: Applicants must not be older than 45 years, must not have already taken out another home loan and can only apply for a maximum of 600,000 zloty (around 130,000 euros). According to “Notes from Poland”, applications for real estate loans then shot up by a whopping 200 percent compared to the previous year.
Poland’s government waives transaction tax for first-time buyers
Now the government has stepped up its game again. Since the end of August, Warsaw has waived the usual transaction tax of two percent for first-time buyers of an existing property. “From now on, citizens will save a noticeable amount when they buy their first apartment or house, which is certainly practical if, for example, you still need to renovate,” explained Waldemar Buda, Minister for Economic Development. This tax is not levied on new buildings, so only buyers on the secondary real estate market can benefit from the tax relief.
At the same time, Poland’s government wants to make it more difficult for individual buyers to buy and hoard multiple properties. From January 1, 2024, a transaction tax of six percent will be due for the sixth purchase property in the same building or on the same property.
Buda’s ministry is targeting buyers who receive discounts from real estate developers by purchasing many residential units – and thus often outdo individual private buyers. “Those who buy a large number of homes for profit will have to accept that their profit will decrease from January onwards,” Buda said.
“Tax relief for first-time buyers would be extremely welcome”
Can such measures also alleviate Germany’s housing crisis? Industry representatives have been calling for similar measures to bring more German citizens into their own four walls for some time. “We need a policy that promotes investments and creates incentives for people to make the step towards building houses and acquiring home ownership possible,” demands Dirk Wohltorf, President of the IVD real estate association, to FOCUS online.
Wohltorf welcomes the proposal from Federal Construction Minister Geywitz (SPD) for declining depreciation. However, there are further measures: “The property transfer tax must be reduced or temporarily suspended and the financial resources for housing promotion within the framework of Kfw funding must urgently be expanded.”
“Tax relief for first-time buyers would also be extremely welcome in Germany,” explains Tomas Peeters, CEO of Baufi24 AG, when asked by FOCUS online. This could be the case with property transfer tax, for example. “However, implementation depends heavily on the will of the individual federal states, which independently determine the amount of property transfer tax.”
But that, says Peeters, is not enough. Landlords and owner-occupiers should be treated equally for tax purposes, demands Peeters. “Not only investors, but also people who live in their property themselves should be able to deduct costs and expenses from taxes.” In addition, KfW’s low-interest promotional loan programs should be made accessible to a larger group of people by relaxing the income limits and increasing the maximum funding amounts.
Meanwhile, it is doubtful to what extent an additional transaction tax like in Poland could prevent speculation. It could work in theory. In practice, however, frequent buyers would “certainly try to avoid the tax through legal constructions and would probably be successful in many cases.”
Brokerage and notary costs are too high
Sebastian Eraghi, managing director at the Swiss broker platform Neho, sees further adjustments. “The additional costs make buying property in Germany extremely difficult. The property transfer tax is often over 4.5 percent. This is often unaffordable, especially for young families, as they do not have enough equity. Removing the property transfer tax for first-time buyers and owner-occupiers could help considerably,” explains Eraghi to FOCUS online.
There is still scope for other things. “The brokerage costs are also too high in Germany. 3.75 percent is due per party, which is an enormous cost and also a lot in international comparison.” This also applies to notary costs. Eraghi suggests working with fixed prices or at least capping the costs for small transactions.
The only disadvantage of all these measures, including the Polish ones: they only help on the demand side. Poland’s second largest opposition party, Lewica (“The Left”), criticized that Buda’s move could only drive up prices further and, in turn, called for the construction of 300,000 social housing units.