"Good solution" or "lazy compromise"?

On February 1st, the federal and state governments agreed on key points for the controversial property tax reform. In the future, the calculation will be based on the property value, the age of buildings, and average net rents. While the German Association of Cities and the German Association of Counties welcomed the compromise as a good solution, the value-based model is being sharply criticized by the real estate industry and the Federation of Taxpayers.

If the key points are implemented as announced by Federal Finance Minister Olaf Scholz (SPD), a bureaucratic monster will be created, fears Jürgen Michael Schick, President of the German Real Estate Association (IVD). "The collection of data on property values, building age, and rent levels will lead to a considerable increase in workload for the already overburdened tax offices," says Schick. The "rotten compromise" is also unfair, he adds, because including average rents in the calculation of property tax will drive rents in metropolitan areas and conurbations even higher.

Helmut Dedy, Chief Executive of the German Association of Cities, supports the new model – even though it means higher property taxes in prime residential areas than in economically disadvantaged regions. He argues that it is fairer to include the value of land and buildings in the taxation. This, Dedy believes, is also more likely to be "better accepted by the public.".

The German Association of Cities is urging a swift draft law, as the Federal Constitutional Court has demanded a reform of the completely outdated property tax by the end of the year. If no agreement is reached, the property tax will be abolished from 2020 onwards. This is a nightmare scenario for the more than 11,000 municipalities nationwide, as the property tax, generating €14 billion annually, is a crucial source of revenue and contributes to the construction and renovation of schools, daycare centers, swimming pools, and roads.

The Federation of German Taxpayers (BdSt) has also criticized the agreement between the federal and state governments as "incredibly bureaucratic and expensive." It means "more bureaucracy, more costs, more lawsuits," said BdSt President Reiner Holznagel. The higher property tax in metropolitan areas will primarily affect people with low incomes, students, young families, and pensioners. The German Association of Housing Companies (GdB) also warns against the compromise: Association President Axel Gedaschko sees "dark clouds gathering for affordable housing.".

"Still far from the finish line"

Criticism is also coming from the political sphere: Bavaria's Minister-President Markus Söder does not consider the compromise acceptable. "We are still far from our goal," he told the Handelsblatt newspaper. (Bavaria had sought a simple, area-based tax calculation.) Söder did, however, welcome the fact that the original proposal by Federal Minister Olaf Scholz was now off the table, as it envisioned an individual calculation for the approximately 36 million properties and buildings. Several mayors of major cities also expressed dissatisfaction with the outcome: Munich's Mayor Dieter Reiter (SPD) warned of a higher tax burden for renters. Düsseldorf's Mayor Thomas Geisel (SPD) criticized his fellow party member Olaf Scholz's proposals for property tax reform as "too complicated." He sees a property tax based solely on standard land values ​​as the simplest, fairest, and best solution, since these values ​​already implicitly reflect the property's value.

Even more fundamental is the criticism from the SPD, the Greens and the Left Party, who demand that owners should no longer be able to pass on property tax to tenants in the future.

With so much opposition, it's likely that the key elements will be adjusted. Time is short, as the draft legislation must be submitted by Easter at the latest in order for the new law to be passed by the end of the year.

Application deadline for property tax relief is April 1st

The property owners' association Haus & Grund points out that the deadline for landlords to apply for property tax relief expires on April 1st. Landlords who suffered significant rental losses through no fault of their own last year should submit their applications by then. Possible causes of these losses include vacancy, general price declines, or structural factors that make properties difficult to rent, as well as exceptional events such as fires or water damage.

Sources: bundesfinanzministerium.de, tagesschau.de, faz.de, zeit.de, handelsblatt.de, welt.de, sueddeutsche.de, spiegel.de, hausundgrund.de, rp-online.de, t-online.de, tagesspiegel.de.