Introduction

The real estate transfer tax (RETT) is a non-recurrent tax imposed on the purchase of real estate and is typically paid by the buyer. It is calculated as a percentage of the sales value. In Germany, both seller and buyer are subject to this tax. However, typically, it is the buyer who takes over the payment of the tax.

The tax is relatively modest in terms of the revenues it generates. For example, in 2020, it accounted for roughly 2.2% of the total tax revenues of Germany and about 4.5% of the total tax revenues of German federal states. However, it can substantially affect the volume of transactions, real estate prices, and residential mobility.

Dynamics of tax rates

The real estate transfer property tax can be traced back at least to the Middle Ages, where it was paid during transmission of the property by its previous or new owner to the local lord (van Suntum and Schultewolter 2014, 193). In Germany, the national property transfer tax was first introduced as a land stamp duty (Reichsstempelabgabe für Grundstücksübertragungen) at a modest rate of $\frac{1}{3}$%. In addition, until a tax on capital gain (Zuwachssteuer) is introduced, another $\frac{1}{3}$% were added to this tax rate. Thus, the overall tax rate was about $\frac{2}{3}$%. In 1919, a proper real estate transfer tax (Grunderwerbsteuer) was introduced. Its rate was initially set at 4% of the sales price and was equal for all federal states. In 1927, the property transfer tax rate was reduced to 3%.

Figure below shows the evolution of the tax rates by state between 1909 and 2024. The greenish bold line represents the tax rate of the corresponding federal state, while the thin black line denotes the national tax rate computed as a simple average of the state tax rates.

Dynamics of the tax rates by federal states

Source: National and state official gazettes and own representation.

In 1944, in addition to the general tax rate, a 2% surcharge was introduced that was designed to provide revenue to Kreise — an equivalent of counties in Germany. The introduction of the surcharge was also motivated by the simultaneous abolition of the capital gain tax (Wertzuwachssteuer). Consequently, the overall rate of the land transfer tax went up to 5% (3% general rate plus 2% county surcharge). Since early 1950s, federal states started to set different (typically higher) county surcharges on their own. As a result, the maximum total tax rate increased to 7%. However, numerous exemptions were conceded: for example, for 1) land plots having low value; 2) transfer of real estate through inheritance; 3) and for construction of housing fostered by the state.

In East Germany, during the first 25 years after World War II, the tax rate set in 1944 was kept (Duda 2011, 5126:25). However, in 1970, it was raised to 7%. Apparently, it was uniform for the whole country and no surcharge existed.

In 1982, the property transfer tax was reduced to 2% by removing the surcharge and lowering the general rate. As a rule, tax reductions do not come at a zero price. This time was not an exception: to compensate for lower tax rate the government eliminated almost all exemptions. Thus, the proportion of RETT revenues remained basically unchanged. In 1997, the property transfer tax rate was raised to 3.5%.

In 2006, a fiscal federalism reform was carried out that basically meant that the federal states obtained an opportunity to set the tax rate at their discretion. Of course, they very soon took advantage of this possibility and, unsurprisingly, it was only to further raise the rate, not to reduce it. The first federal state to embark on this adventure was Hamburg that in 2009 increase the transfer tax rate to 4.5%. Very soon other federal states, except for Bavaria, followed, some of them undertaking several increases. They were trying to take advantage of the housing boom that started in 2010. By 2023, five states out of 16 increased their tax rates to 6.5%. In 2023, after relatively long period of unchanged rate, the tax-increase pioneer Hamburg raised it from 4.5% to 5.5%. The argumentation was that in Hamburg the rate remained constant during 13 years, while other states kept increasing their tax rates, so that from being a state with the highest rate it became a laggard. In addition, to support this move the state government promised to provide “significant tax reductions on real estate transfer tax for young families, social housing, and leasehold properties”.¹ Needless to say, that the new law on tax increase completely silenced all these exemptions.

Between 2010 and 2020, the revenues of the property transfer tax increased both in relative and in absolute terms. The proportion of these revenues in the total revenues more than doubled, while the amount more than quadrupled. To some extent, this can be explained by the price increase: between the first quarter of 2010 and the fourth quarter of 2020, the housing prices in Germany increased by 72%.² But the bulk of this tax revenue increase is due to the increases in the tax rates. In 2022, the restrictive monetary policy ended the largest and longest housing boom since at least 1970. Falling prices and sales volume caused a substantial drop in the RETT revenues. Between 2021 and 2022, the amount of the tax revenue decreased by 7%, while its proportion in total tax revenue dropped by 0.3 percentage points. In 2024, Thuringia was the first Bundesland to reduce the RETT rate from 6.5 to 5%.

Since 2021, the federal government, representing a coalition of social democrats, green, and liberals, pledged for tax reductions and exemptions for specific buyer groups: “We want to give the federal states more flexibility in structuring the real estate transfer tax, e.g. by means of an allowance, in order to facilitate the acquisition of owner-occupied residential property” (Bundesregierung 2021). To the best of my knowledge, until May 2023 only one federal state (North Rhine-Westphalia) provided such allowances. It reimburses 2% of the sales value subject to RETT and up to 10,000 euros to the homeowners who bought their dwelling from 2022 on.³

In order to grasp the overall movement of the RETT rates in Germany I compute an average rate. The average tax rate is calculated as follows:

$\tau_t = \sum_{i=1}^{N}\tau_{it} w^{pop}_{it}$

where $\tau_{it}$ is the tax rate in Bundesland $i$ in period $t$; $w^{pop}_{it}$ is the share of population of the $i$-th Bundesland.

Figure below depicts the evolution of the average rate of RETT.

Average RETT rate, %

Source: Bundesministerium der Finanzen, Destatis, and own calculations

After 2010, the average tax rate experienced a dramatic increase. It went up from around 3.6% in 2010 to almost 5.2% in 2015. In 2023, the tax rate increased even more.

The following figure depicts the evolution of the real estate transfer tax revenues as percentage of the total tax revenues of the central, state, and municipal governments.

Real estate tax revenues as share of total tax revenues, %

Source: Bundesministerium der Finanzen, Destatis, and own calculations

Despite numerous reforms of the RETT, the most part of the time, the proportion of the RETT followed an upward trend. It accelerated after 2010, when Germany entered in the housing boom. However, in 2022, when the boom was over, the proportion plummeted.

Transaction volume

Using the revenues of the RETT the real estate transaction volume can be computed. First, I calculate the nominal transaction volumes at the Bundesland level. Second, these volumes are summed up to obtain the transaction volume for whole Germany:

$TV_{t} = \sum_{i=1}^I\frac{TR_{it}}{\tau_{it}}$

where $TR_{it}$ is the RETT revenue for the $i$-th Bundesland in period $t$.

The following figure displays the nominal real estate transaction volume.

Transaction volume, billion euro

Source: Bundesministerium der Finanzen, Destatis, and own calculations

Between 2022 and 2023, the real estate transaction volume dropped by 40%. A comparable decline could be observed during the Great Recession between 2007 and 2009.

Next, I compute the real transaction volume.

$RTV_{t} = \frac{TV_{t}}{P_{t}}$

where $P_t$ is the housing price index. This index can be approximated using different measures. Here, I use the house price index the nominal housing price index of the OECD for Germany and vdp housing index.⁴ The following figure shows the dynamics of the real transaction volume in the real estate market. Both the nominal volume and housing price indices are rescaled to the basis year 2015. Two measures of real transaction volume based on two different housing price indices are presented in the following figure.

Calculated real transaction volume, index 2015=100%

Source: Bundesministerium der Finanzen, Destatis, OECD, vdp, and own calculations

During 2009–2021, the volume of real estate transactions substantially expanded. However, since the 2nd quarter of 2022, it rapidly (by about 40%) fell down to an historically low level in the 2nd quarter of 2023. Both time series look similar. The vdp-based real volume index starts in 2003, that is, 4 years later than the OECD-based index. However, the vdp-based index contains more recent values. Moreover, it shows a somewhat deeper decline.

Appendix

Table contains a list of all relevant legal acts concerning the real estate transfer tax at the national and state levels.