ZIA warns against changes to rent index calculation

In a press release dated August 30, 2018, the Central Real Estate Committee (ZIA) warns of a „manipulation of the rent index.“ The warning refers to plans by the SPD to no longer calculate the rent index for apartments solely on the basis of lease agreements from the past four years. The calculation period is to be extended so that high new lease rents have a less significant impact on the rent index. From the ZIA's perspective, such a measure would freeze rents for years and completely block new investments in apartments.

The ZIA fears negative impacts on real estate valuation

In addition to a negative impact on new investments and frozen rents for apartments, the ZIA fears that a modified calculation of the rent index will negatively affect the valuation and financing of rental housing. From the perspective of Klaus-Peter Hesse, the managing director of the ZIA, this would affect „the entire economy as well as the savings of many Germans who are invested indirectly or directly in residential real estate.“.

ZIA advocates for increased straight-line depreciation

As a suitable measure to promote the construction of affordable housing, the ZIA sees an increase in the linear depreciation for wear and tear (AfA) from the current two to at least three percent. With linear depreciation, owners can deduct the costs for the construction or purchase of rental apartments for tax purposes. The ZIA argues for increasing the linear AfA on the grounds that it makes investments in new construction and existing properties attractive again. Klaus-Peter Hesse sees problems in a system that is too complex „consisting of long approval procedures, high building requirements, and personnel bottlenecks in many areas.“ Here, the ZIA points to its 28 proposals for a holistic promotion of affordable urban development. In his view, the main motives of a contemporary housing policy must be the relief of municipalities, an increase in the efficiency of processes, and a reduction of bureaucracy.

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Rent indexes are a topic in the coalition agreement

The background to the ZIA warning about a modified calculation of the rent index is the SPD's efforts to extend the calculation period, which is likely to lead to lower benchmark values in the rent index for apartments. According to the coalition agreement between the CDU/CSU and the SPD at the federal level, an extension of the observation period is to be examined. SPD Minister of Justice Katarina Barley recently stated in an interview with the Süddeutsche Zeitung (published on August 16, 2018) that, in her view, rent indexes are more realistic if they do not only take into account lease agreements from the past four years

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