The German government, which is selling offices, shops and apartments valued at 1.9 billion euros ($2.5 billion) to cut its budget deficit, has another way to tap the nation’s property boom: collecting more transfer tax.
Germany’s parliament tomorrow will vote on closing a loophole that allows companies to avoid the transfer tax on certain types of property transactions. The typical amount of the levy is from 3.5 percent to 5 percent of the value of the land and buildings that change hands.
“The planned regulations would have a serious effect not just on real estate companies, but also on industrials such as manufacturers and energy companies, which typically have a lot of property,” said Karl Hamberger, a real estate partner at Ernst & Young in Munich. “The tax would probably come right out of the sale price,” he said.
German real estate has been a target of investors this year as they seek a safe place to put their money amid Europe’s sovereign-debt crisis. Expanding the property transfer tax base will make it more expensive for buyers and sellers of large portfolios to complete deals. The tax change would also make it more difficult for banks to sell properties as they try to meet stricter capital rules going into effect under the Basel III regulations, Hamberger said.
The government will propose that transactions become subject to the transfer tax if 95 percent or more of the property changes hands, instead of the current 99.7 percent. German property deals are often structured to give owners a stake of less than that to avoid tax liability, said Hamberger.
Investors including Cerberus Capital Management LP and Blackstone Group LP bought 6.4 billion euros ($8.4 billion) of German residential property in the first half, compared with 5.8 billion euros in all of 2011, according to data compiled by Chicago-based broker Jones Lang LaSalle Inc.
The government is selling TLG Group, a property company valued at about 1.9 billion euros. TLG attracted offers from investors such as Blackstone and Morgan Stanley.
The new rules would affect so-called share deals, in which stakes in property holding companies change hands. Share deals allow companies to buy real estate without signing separate deeds for each property unit, and are often used in residential transactions, Hamberger said.
The year’s biggest residential deal, in which a group of investors including Patrizia Immobilien AG bought groups of apartments from LBBW Immobilien GmbH for 1.4 billion euros, was a share deal.
“Large residential portfolio deals simply couldn’t happen without a share deal,” said Hamberger. “The lawyers would have to notarize 20,000 contracts.”
The German government collected 5.5 billion euros of transfer tax in the first nine months of 2012, a 19 percent increase from a year ago, according to the Finance Ministry’s monthly budget report.