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TAXES

Germany extends deadline for property tax declaration

Property owners in Germany will have three months longer to submit a tax declaration, state finance ministers revealed on Thursday.

Published: 13 October 2022 16:57 CEST
Housing estate in Frankfurt am Main
A housing estate in Frankfurt am Main. Photo: picture alliance/dpa | Arne Dedert

The deadline for submitting the new property tax declaration will be pushed back from October 31st to January 31st, 2023. 

The decision to extend the deadline was made by the state finance ministers and Federal Finance Minister Christian Lindner (FDP) at a meeting on Thursday. It comes after Lindner revealed that barely one in three property owners had submitted their declaration by the start of October. 

Announcing the decision, Bavaria’s Finance Minister Albert Füracker (CSU) said that the extension of the submission deadline by three months would significantly relieve the burden on citizens, the economy, and tax consultants.

Lindner also welcomed the decision, telling reporters on the sidelines of the International Monetary Fund conference in Washington: “At present, there are other concerns and tasks that we have to take care of with priority.”

The FDP politician had previously argued for an extension of the deadline.

READ ALSO: Why Germany is mulling an extension to property tax deadline

Property tax reform

The reform of the currently property tax system, which is due to come into force from 2025, is one of the largest tax reforms carried out in Germany since the end of the Second World War.

The revamp was prompted by a decision from Germany’s Constitutional Court, which found that the tax rates were calculated unfairly.

Under the current system, the value of a property is calculated using records from 1935 in East Germany and from 1964 in West Germany, meaning many houses and flats are dramatically undervalued. 

Authorities must now revalue around 36 million properties using data submitted by the owners. This includes providing details such as plot size and living space, property type, construction year and the so-called standard land value via the government’s Elster tax portal.

However, experts have warned that the declaration is far too complicated for many people to fill out by themselves.

In addition, the reform has hit numerous technical snags along the way, with the Elster portal buckling under the excess traffic just days after tax authorities started accepting the property tax return. 

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RENTING

Do rising rents make buying a home in Germany a better option?

Across Germany, rents have shot up in the last two years while property prices have fallen. Experts say this is making buying more attractive than renting at the moment.

Published: 19 September 2024 16:48 CEST
Do rising rents make buying a home in Germany a better option?

For several years, property prices in Germany rose at a much faster pace than rents. Between 2016 and 2022, the average price for apartments climbed by a dramatic 76.5 percent, according to an analysis by real estate company ImmoScout 24. During the same period, rents for flats rose by 26.8 percent.

Experts said this was due to comparatively low interest rates and high buyer demand along with limited supply – all of which caused the property market to explode. 

However, this trend has reversed over the past two years, with rental prices rising significantly more than purchase prices.

According to ImmoScout, falling property prices is a big factor. The price index for apartments fell by 9.4 percent between 2022 and 2024, while rents rose on average by 11.7 percent, reducing the difference in price development from a peak of 39.2 percent in 2022 to 12.9 percent this year.

At the same time, the strong pressure on the rental market has resulted in a considerable financial burden for tenants. An earlier ImmoScout analysis from March showed that rental flats in Germany’s 40 largest cities received 21 times more enquiries than owner-occupied flats.

In another study released in summer, real estate experts Jones Lang LaSalle (JLL) found that asking rents for flats in the eight major cities of Berlin, Hamburg, Munich, Cologne, Frankfurt, Düsseldorf, Stuttgart and Leipzig climbed by an average of 6.3 percent in the first half of 2024 compared to the same period last year.

READ ALSO: Rents still rising fast in major German cities

Real estate experts say it means buying a property in Germany has become more attractive.

“The sharp rise in rents in particular is making buying a property as an investment or home more and more attractive,” said Dr Gesa Crockford from ImmoScout. 

The index values for renting and buying have converged even more in Germany’s five largest cities – Berlin, Frankfurt, Hamburg, Cologne and Munich. 

Berlin prenzlauer Berg

Flats in the Berlin district of Prenzlauer Berg. Photo: picture alliance/dpa | Monika Skolimowska

The purchase price of existing flats rose by 65.5 percent between 2016 and 2021, while the rental price only increased by 21.6 percent. From the peak in 2021, prices for apartments have fallen by 2.1 percent, while rents have continued to rise by 28.9 percent. As a result, the gap in price development since 2016 has shrunk from 36.1 percent (2021) to 3.4 percent (2024).

People looking to rent in major cities are not only facing rising rents, but also fierce competition to snag an affordable place to live. 

“In the metropolises, buying has become increasingly worthwhile over the past two years,” said Crockford. “There, the difference between purchase and rental prices has levelled off from 30 percent and more to a low single-digit percentage range.”

Is it better to buy a home than rent?

Choosing to buy instead of renting is of course a personal decision and you have to consider several factors – including whether you can afford the mortgage and extra fees associated with house buying.

That said, property prices are expected to increase again slightly after the dip over the last two years.

READ ALSO: Is autumn 2024 the right time to buy a property in Germany?

However, it should also be noted that tenants rights are strong in Germany so renting can be a worthwhile and savvy way to go, if you can find a home that is affordable to you. 

That goes some way to explain why Germany has one of the lowest level of property ownership in the EU, with just over half of the population owning their own home.

Meanwhile, one study released in 2023 by credit insurer Allianz Trade found that buying property in Germany is “significantly more expensive than renting in Germany”.

Even if rents were raised by the legal maximum of 20 percent next year compared to 2023, the difference between average mortgage repayments and average rents would still come in at €381 per month, said the insurer. 

However, some buyers may consider a home an investment in the long term and rely on the value going up over time – though this, of course, is not guaranteed. 

READ ALSO: How the cost of renting in Germany compares to home ownership

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