September 17, 2018 / 2:55 PM / a month ago

Germany plans tax incentives to encourage housing construction

BERLIN (Reuters) - The German government plans to back new tax incentives on Wednesday to encourage private developers to build new rental flats in a drive to tackle a drastic shortage of affordable housing aggravated by a record influx of refugees and migrants.

Houses are pictured in Chemnitz, Germany, September 3, 2018. REUTERS/Hannibal Hanschke

More than one million asylum seekers have arrived in Germany since 2015, when Chancellor Angela Merkel opened the country’s borders to those fleeing wars in the Middle East and Africa. But a construction sector boom is straining building capacity.

The plan, expected to be approved by the cabinet on Wednesday, is aimed at encouraging investors to prioritise construction of affordable rental flats. It is expected to give Germany’s booming construction sector an additional push, with real-estate companies such as Vonovia (VNAn.DE) and Deutsche Wohnen (DWNG.DE) among the beneficiaries. The measure will let investors reduce their tax bills by deducting almost a third of their construction costs over four years as long as the new flats they build are let for 10 years.

A copy of the draft law seen by Reuters shows that the government expects the measure to cost the state around 235 million euros (209 million pounds) a year. The programme will only apply to building applications or notifications issued after Aug. 31, 2018, and before Jan. 1, 2022.

To avoid supporting the construction of luxury homes, the tax incentive will be limited to flats with construction costs below 3,000 euros per square metre. Private investors can make tax claims for no more than 2,000 euros per square metre.

German construction firms are benefiting from surging demand for property, higher state spending on construction and low borrowing costs, the ZDB construction association said earlier this month when raising its revenue growth forecast for 2018.

Writing by Paul Carrel; Editing by Gareth Jones

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