New-Build Flat as an Investment: The Benefits for Owners Who Let
This guide refers to German law and the German tax system. It is a translation of our German original and does not replace individual tax or legal advice.
Despite changed market conditions, many investors are enthusiastic about new-build flats in a variety of locations. Tax advantages and a long-term approach are the main reasons for buying a flat in A, B or C locations. Compared with classic investments, a new-build property offers various advantages against the background of the Growth Opportunities Act (Wachstumschancengesetz) and demographic developments: we show you why new builds in top locations are particularly attractive for investors and how you can benefit from exclusive off-market properties.
Neo Capital supports affluent employees and entrepreneurs in making tax-optimised investments in real estate. Together we develop a tailored concept that addresses your needs. Through a strong network of investment, financing and tax advisers, we also keep an eye on your profitability and any tax advantages. Protect yourself and your loved ones with future-proof new-build properties – we advise you holistically, from structuring to acquisition.
Existing property vs. new build – the key differences
If you decide to buy a flat as an investment, you can choose between a new build and an existing property. This choice largely determines the yield, any renovation effort and the tax treatment of the property. Before we turn to the tax advantages of a new-build property for letting, it is worth looking at the age of existing properties: the condition of the building, its structural fabric and its remaining useful life should be the focus for potential buyers. The latter is crucial, because a valuation report can establish a shorter remaining useful life, allowing higher depreciation to be claimed with the tax office (Finanzamt).
If you want to move away from the standard depreciation of 2% p.a. because of a different remaining useful life, you must prove the shorter useful life to the tax office with a valuation report. If the remaining useful life is reduced, the annual depreciation increases, which speaks in favour of buying existing properties. You can find more information on the remaining useful life in our article on depreciation based on a remaining useful life report. If, however, you compare this effect with the tax advantages of modern new-build flats, there is a clear tendency in favour of new builds.
Increased depreciation for more capital in less time
Like existing properties, new-build properties are entitled to exclusive tax advantages. When you buy a suitable flat, the Growth Opportunities Act provides for special depreciation (Sonderabschreibung) under Section 7b of the German Income Tax Act (EStG). Combined with the declining-balance depreciation for wear and tear (degressive AfA, Absetzung für Abnutzung) on your property, this results in depreciation of up to 40% within the first four years. Alongside the Investitionsabzugsbetrag (IAB, investment deduction), this makes the special depreciation the only model that allows you to recover up to 20% of the investment costs through your tax return at your marginal tax rate. In a direct comparison between existing properties and new builds, the following depreciation rates apply:
For existing buildings, straight-line depreciation rates apply for completion
- after 31.12.2022: 3.0%
- before 01.01.2023 and after 31.12.1924: 2.0%
- before 01.01.1925: 2.5%
For new builds, for acquisition
- after 31.12.2023: 3.0% straight-line
- after 31.10.2023: 5.0% declining-balance; in the 11th year after acquisition, switching to straight-line 3.0% AfA is advisable.
Reference should also be made to the further depreciation options under Sections 7b, 7h and 7i EStG. After buying a new-build flat, the capital freed up by your tax refund can be used again to finance further properties. This effect reinforces investors' decision to prefer an investment in a new build over a classic existing property. If you already own flats beyond the 10-year holding period, you can additionally benefit from the favourable features of a new-build property through a tax-free sale and the purchase of new properties.
Neo Capital: your adviser for tax-optimised investments
The decision for or against an existing property always depends on the individual case. With the growing appeal of modern new-build flats and the emergence of new tax advantages, new builds are becoming an attractive choice for investors, particularly due to the increasing housing shortage. We advise our clients holistically on the ideal investment strategy and on buying property. Together with our team of financing, investment and tax experts, we develop a strategy for data-driven decision-making for your financial future. In this way, we ensure that each of our clients receives diversified protection combined with a low tax burden.
Are you interested in buying a flat as an investment? Whether an existing property or a new build, we support you in acquiring your first or next property. With our exclusive off-market portfolio, we also broker first-class new-build flats in A locations such as Berlin. Get advice on your individual situation and find out what tax savings can arise for you from well-placed investments in real estate.