Number of the month for December: 4 years

Equity capital, sufficient to cover at least the closing costs, is generally a prerequisite for obtaining a bank loan to purchase a property. In many places, a significant portion of these closing costs is attributable to real estate transfer tax. A recent study by the German Economic Institute (IW) concludes that couples in Germany have to save for an average of four years just to pay the real estate transfer tax – for Berliners, it's even ten years and five months.

To afford a home, couples in Germany currently need to raise an average of 7.4 years' annual household income, according to calculations by the Cologne Institute for Economic Research (IW Köln). In cities, the average is 10 years' annual household income, while in rural areas it's 5.9. However, the size of this investment, which is usually financed by a bank loan, is often not the biggest obstacle standing in the way of the dream of homeownership. The main problem in most cases is a lack of equity.

The initial capital required for purchasing residential property has risen sharply in recent years. This is due to a combination of increased property prices and hikes in real estate transfer taxes in many German states. With the exception of Bavaria and Saxony, where the original real estate transfer tax rate of 3.5 percent of the property price has remained unchanged, all German states have increased the tax rate since 2006 – some several times. In Schleswig-Holstein, North Rhine-Westphalia, Saarland, Thuringia, and Brandenburg, the real estate transfer tax now stands at a substantial 6.5 percent of the purchase price.

The savings period calculated by the study for the real estate transfer tax – 4 years on average, 8 to 10 years in cities such as Wiesbaden, Frankfurt am Main, Düsseldorf and Potsdam, and almost 11 years in Berlin – is based on the assumption that couples with average incomes can set aside about 10 percent of their income per month to save for the purchase of a home or for the real estate transfer tax that is incurred.

And let's not forget: in addition to the real estate transfer tax, there are other closing costs that add up to another 5 to 6 percent of the purchase price. For many people, this is a far too high hurdle. What could help to make homeownership more accessible, especially for younger households, would be a reduction in the real estate transfer tax specifically for the first purchase of a home for personal use.

You can find more information here:

https://www.iwkoeln.de/studien/pekka-sagner-vier-jahre-sparen-fuer-die-grunderwerbsteuer.html

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