Federal Minister of Economics Robert Habeck continues to adhere to his heating hammer policy despite criticism from the public. This has implications for the value of unrenovated buildings. This could now also have an impact on another important issue in the housing sector – the reform of property tax. For property owners, 2023 has not been a pleasant year so far. This is also due to the reform of the property tax and the new Building Energy Act (GEG), which is a central component of Habeck’s heating turnaround. However, there is a possibility that precisely this innovation of the GEG will lead to the property tax reform, which results in an assessment of 24 million residential properties in Germany and in which the owners were involved until 31 January through the property tax declaration, becoming irrelevant. (focus, 25.05.2023)
As the “Tagesschau” reports, the planned rules for heating systems are causing prices for properties in need of renovation to fall. The energy certificate is increasingly playing a decisive role in sales negotiations. This means that unrefurbished buildings could lose value. This may have an impact on the property tax reform and the revaluation of residential properties. (Tagesschau, 08.05.2023)
This development could lead to uncertainty for property owners. The property tax reform and the reduction in value due to the new GEG could lead to financial losses. It remains to be seen how this situation will develop and whether adjustments may be made to the regulations to minimise negative effects on property owners.
Inequity in property tax: depreciation due to heating bans not taken into account
Currently, about 75 percent of all buildings in Germany are heated with gas or oil. If someone wants to sell his or her house or flat, he or she must either carry out energy-saving renovation measures and replace the heating system or accept price reductions. But shouldn’t this reduction in value also be reflected in the determination of the property tax value? Kai Warnecke, President of Haus & Grund, tells FOCUS Online: “The very idea of a value-based property tax is misguided. But even if it is value-based, the clearly value-reducing heating bans have not yet been taken into account in the federal property tax model,” says Warnecke.
Warnecke believes that the basic idea of a value-based property tax is wrong. Even if one follows the approach of a value-based calculation, the reduction in value due to the heating bans is not adequately taken into account in the current property tax model.
Criticism of non-transparent value calculation: property tax reform under discussion
Kai Warnecke also criticises the valuation of residential property in the federal model of property tax as non-transparent. The value is mainly composed of the land price according to the standard land value and a fictitious “rental value” according to a table. Warnecke criticises that this valuation applies for seven years from the cut-off date of 1 January 2022, at a time when heating bans have not yet been discussed. So from 2025 onwards, property tax will be levied annually on property valuations from 2022, while the actual sales values for houses with old, banned heating systems are expected to drop significantly. This means potentially paying high property taxes on properties that are unsaleable and unrentable. Warnecke feels this is doubly unfair.
In view of this problem, the question is raised whether the property tax reform needs to be redesigned, and Warnecke clearly answers “yes”. He emphasises that the discussion about heating bans draws attention to the unfairness of a value-based property tax, which his association has long criticised. In contrast, some federal states such as Bavaria, Hamburg, Hesse and Lower Saxony show that a value-independent property tax can provide fair and at the same time stable financing for municipalities.
Planned amendments to the Building Energy Act have no impact on ongoing property tax reform
According to a spokesperson for the Federal Ministry of Finance, the planned amendments to the Building Energy Act (GEG) will not affect the ongoing implementation of the property tax reform. The two projects – reducing dependence on fossil fuels for heating and implementing the property tax reform – pursue different goals and should be considered separately, the spokesperson said.
The property tax relates to the economic units of the real estate and is calculated on the basis of the fair market value of the tax object. This valuation standard ensures fair taxation. The planned introduction of an obligation to use renewable energies when installing new heating systems would have no influence on the value at the main assessment date of 1 January 2022.
It is emphasised that changes in value during the main assessment period are common. Therefore, it is necessary to carry out a new main assessment regularly at appropriate intervals. The seven-year main assessment cycle was introduced in order to comply with the constitutional requirements following the ruling of the Federal Constitutional Court on 10 April 2018 on the uniform assessment.
The Federal Ministry of Finance therefore sees no need for action due to the GEG. The planned amendment to the Act would have no effect on the valuation for the purposes of property tax.