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Brussels, 1st December 2004

State aids: Commission approves real estate transfer tax exemption for housing companies in Eastern Germany

The European Commission has approved under EC Treaty state aid rules a scheme that temporarily exempts housing companies from the real estate transfer tax in case of mergers involving property in the ‘Neue Länder’. At the same time, the Commission has decided to open a formal investigation under the state aid rules with regard to those parts of the scheme that are related to the labour market region of Berlin.

The measure notified by Germany is a temporary exemption from the real estate transfer tax for mergers between housing companies and associations involving property in the Neue Länder. For the purposes of EC Treaty state aid rules, Brandenburg, Mecklenburg-Vorpommern, Sachsen, Sachsen-Anhalt, and Thüringen are defined as areas where aid may be necessary to promote economic development because the standard of living is abnormally low or where there is serious underemployment (Article 87(3)(a)) The labour market region of Berlin may qualify for aid under Article 87(3)(c) to facilitate the development of certain economic activities or of certain economic areas as long as such aid does not adversely affect trading conditions to an extent contrary to the common interest .

In the housing market of the ‘Neue Länder’, the real estate transfer tax is regarded as a major impediment to necessary restructuring. In case of mergers between housing companies, the associated real estate transfer tax can put a serious strain on the liquidity of the companies involved. This is underlined by the fact that in the period 2000–2003, only 9 mergers between housing companies in the ‘Neue Länder’ have been reported, all of them between small companies.

The housing companies in the ‘Neue Länder’ need a sound financial basis. The real estate market in the ‘Neue Länder’ suffers from a considerable population decrease due to low birth rates and massive migration, a high vacancy rate (14.2% of the stock of apartments in 2002) accompanied by significant losses due to foregone rents (€920 million per year) and uncertainty due to pending actions for restitution. Germany has launched the ‘Stadtumbau Ost’ programme in order to demolish up to 380,000 apartments until 2009. A substantial part of the demolition costs will have to be borne by the housing companies. And massive investment needs to be undertaken in order to adapt the remaining stock to actual demand. The exemption from the real estate transfer tax will enable the housing companies to join forces to deal with these multiple challenges.

For those parts of the measure that are restricted to areas suffering from a low standard of living or serious unemployment, the Commission has concluded that the measure can be approved in view of the particular handicaps, the limited degree of distortion of competition, the limited time frame, and the expected positive effects of the measure on the housing market and the socio-economic development.

However, for the labour market region of Berlin, where vacancy rates and depopulation are less pronounced and the typical amounts of aid involved are higher, the Commission has decided to open a formal state aid investigation in order to collect information from other interested parties.

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