New building act in Germany
The grand coalition spent a long time arguing about the form of the Building Land Mobilisation Act, the so called Baulandmobilisierungsgesetz. At the beginning of May, the government factions finally agreed on a compromise, which was passed by the Bundesrat on 28 May. The law could come into force as early as 1 July.
§ 250 BauGB: Building Land Mobilisation Act
In the heart of the election year 2021, the grand coalition in the federal government is amending the Building Code with the new section 250. With the "Building Land Mobilisation Act", a set of rules will soon come into force that will make it easier for the states and municipalities to access undeveloped and developed land through pre-emptive rights. At the same time, there will be a ban on conversion in areas with tight housing markets, initially limited until 2025. What is already practised in Berlin in milieu protection areas, mostly at the neighbourhood level, can in future be applied more extensively in areas with stressed housing markets. Anyone who wants to divide an apartment building into condominiums in these areas must obtain permission to do so. However, the conversion ban is only one new regulation among others. For owners of apartment buildings, the less publicly discussed amendments to section 28 BauGB are also relevant. These do not concern conversion, but intervene directly in sales processes.
Extension of the exercise period for pre-emption
Thus, in paragraph 2, sentence 1 of section 28 of the BauGB, the review period for exercise is extended from two to three months. Since administrations already use the full time frame and also like to stretch it by measures such as delayed receipt stamps, not only more time must be planned for the execution of sales contracts in the future. The likelihood of pre-purchase will also increase, as those entitled to pre-purchase will have more time to inspect the property and secure financing. This is relevant both for sellers, who have to wait longer for the purchase price to become due, and for buyers' equity and financing planning.
Exertion at market value
The first sentence of paragraph 3 in section 28 modifies the procedure and compensation for the right of first refusal. According to the old paragraph 3, the municipality could have a market value determined if the agreed purchase price significantly exceeded the market value. By deleting the word "significantly", the party entitled to pre-emption, i.e. in Berlin the districts, can now have market value appraisals drawn up almost arbitrarily in order to exercise the pre-emption with a price limit. Previously, price-limited pre-emption was only possible if the notarial purchase price was about 25 to 30 per cent above the market value. Although the seller can withdraw from the contract in this case, the pre-emption value according to an expert opinion can stand in the way.
Which is easier: to build or to pre-purchase?
This law, whose purpose was actually to make it easier for municipalities to provide building land for housing construction, is now applying the lever predominantly on the regulatory side. As a result, the purchase prices for existing and new buildings will continue to rise. In addition, other questions arise:
- The ownership rate in Germany, which is already very low by European standards, will fall instead of rising. Property as a system-relevant component of old-age provision seems to have been politically discarded.
- The switch from renting to owning will become even more difficult in the future because only significantly more expensive new construction projects will be available due to the conversion ban.
The Building Land Mobilisation Act thus disadvantages the idea of ownership and tightens the supply. In addition, the supply of rentals in the metropolises will continue to decline, as vacant rental flats lead to windfall effects when prices on the real estate market peak. Rental flats are sold instead of being re-rented.
- Fewer flats from conversions and new construction projects will come onto the market in the future; existing and new flats will rise in price.
- More pre-emption rights exercised for land will lead to slower and less building.
Taxpayers will pay the price
Making pre-emption easier for the public sector is a tempting tool that taxpayers will pay for in two ways. It is foreseeable that municipalities and communities would rather increase municipal housing stocks through pre-emption than spend energy on planning and construction. The core problem of housing shortage would remain unsolved if new construction takes a back seat to pre-purchase.
- Stocks acquired through pre-purchases are maintained with taxpayers' money instead of investments by private buyers.
- Demographic change is not accompanied by a renewal of the building structure.
- Neighbourhoods and districts are ageing and losing quality of life and attractiveness because there is no or hardly any fluctuation.
- Municipal housing stock is threatened with ageing and the emergence of social hotspots.
- Seepage effects are prevented because older people remain trapped in under-occupied flats because there are no adequate alternative options.
§ 201 BauGB: Municipalities must justify tight housing market
Municipalities cannot apply the law immediately, but must first prove that there is an area with a tight housing market as defined by the law. According to § 201 BauGB, this is the case "if the sufficient supply of the population with rental housing in a municipality or part of the municipality on reasonable conditions is particularly endangered." Municipalities have 4 criteria at their disposal to prove a tight housing market.
- If rents are increasing significantly more than the national average.
- If the average rent burden of households significantly exceeds the nationwide average.
- If the resident population is growing without the necessary housing being created through new construction.
- If it can be demonstrated that there is a low vacancy rate with high demand.
In the case of Berlin, it will not be difficult for the Senate and the districts to prove this, as the deficits are home-made, well-known and verifiable.
Not an unnecessary law, but a one-sided one
Anyone looking for a flat will continue to be faced with a short supply. Existing tenants will also rarely benefit from the amendment to the BauGB. Those who have a flat are forced to stay because there is no fluctuation stock available. With the regulatory focus in the Building Land Mobilisation Act, the legislator neglects the fact that already today conversions of rented flats into owner-occupied flats in milieu protection areas are subject to strict approval. Moreover, conversion is only possible if dividing owners undertake to sell exclusively to tenants within a period of 7 years after division. Even after that, tenants are protected from terminations of their own needs for a long period of time. After that, a five-year protection against terminations of owner-occupied tenancy takes effect in Berlin.
The regulations of the law are limited until the end of 2025.
For your convenience, we summarise:
The small print is important: The deadlines in § 28 BauGB and pre-emption at market value will be reformed.
- Longer review period for pre-emption rights.
- The evidence clause for price-limited pre-emption rights has been deleted.
- Conversion can be prohibited on a large scale.
Our experts will be happy to advise you on how to be successful in the future when selling your apartment building in Berlin.
Guthmann Estate. Always better.