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Valuing leasehold rights can be complex. New laws and different valuation methods do not make it any easier. Would you like to determine the value of your property precisely and take advantage of all the benefits? Learn more about our expertise and get in touch.
The precise determination of property value in leasehold rights is crucial for informed investment decisions and to minimise financial risks.
The ImmoWertV 2021 and the JStG 2022 have significantly changed the valuation practice. Applying the new methods can improve valuation accuracy by up to 2%.
A professional consultation and the careful review of the ground lease contract are essential to optimally utilise the advantages of leasehold and avoid common mistakes.
Leasehold is a tool that allows building a house on land without purchasing the land itself. This arrangement presents both opportunities and challenges, particularly in land valuation. In this article, you will learn how to accurately determine the value of a leasehold property and the factors involved in the process. We will show you how to benefit from current legislative changes and what aspects to consider when buying, selling, or mortgaging.
Basics of Leasehold
At its core, leasehold is the separation of building and land ownership. While you, as the leaseholder, acquire ownership of the building, the land remains the property of the lessor. The legal basis is provided by the Leasehold Act (ErbbauRG). This structure makes it possible to use property without having to raise capital for land purchase. The leasehold is recorded in the land register and thus constitutes a real right.
Importance of Land Valuation
Land valuation is crucial for various reasons. It serves as the basis for purchase and sales decisions, plays a significant role in the mortgaging of property, and is relevant for taxation, particularly regarding land purchase, inheritance, and gift taxes. Moreover, valuation forms the basis for determining the ground rent, the regular payment to the landowner. Accurate valuation is essential to minimize financial risks and make informed decisions. Our page on land appraisal factors offers further information.
Challenges in Valuing Leaseholds
Valuing leaseholds presents certain peculiarities. Key factors include the remaining term of the leasehold, the amount of the ground rent to be paid, and any reversion clauses that specify the conditions under which the leasehold reverts to the landowner. The complexity is further increased by different valuation methods and a variety of influencing factors. Therefore, a professional evaluation taking all relevant aspects into account is essential. Further information on land costs can be found here.
The ImmoWertV 2021 and the Valuation Act (BewG) provide the legal framework for the valuation of leasehold rights. The Annual Tax Act (JStG) 2022 brought significant changes impacting valuation practices. Understanding these foundations is crucial to ensure accurate and market-compliant valuation.
ImmoWertV 2021: Conditions for Valuation
The ImmoWertV 2021 defines various valuation methods. The direct comparative value method is based on the analysis of sales prices of comparable leasehold rights. The indirect comparative value method uses either a financial mathematical value based on the Munich method or the value of a fictitious unencumbered property as a starting point. The regulation also permits alternative valuation methods, provided they are appropriate and lead to market-compliant results. The ImmoWertV 2021 allows experts to use suitable alternative valuation methods in addition to those mentioned in the regulation.
Tax Valuation according to the Valuation Act (BewG)
The Valuation Act (BewG) governs the tax valuation of leasehold rights. The JStG 2022 introduced significant changes. Leasehold rights and the encumbered property are considered separate economic units (§ 192 BewG). The ground rent is accounted for in the leasehold valuation and not included in the property valuation (§ 192 BewG). This leads to a more precise and market-compliant valuation. The legal changes through the JStG 2022 revised §§ 193 and 194 BewG regarding the valuation of leasehold rights and properties encumbered by leasehold rights.
Methods for Tax Valuation
Various methods are available for tax valuation. Primarily, the land value is multiplied by a leasehold coefficient provided by appraisal committees. Secondarily, the financial mathematical method with a leasehold factor can be applied. These factors are intended to ensure a more market-compliant valuation but depend on the availability of corresponding data. The new regulations of the Annual Tax Act 2022 led to a departure from comparative prices in the valuation of leasehold properties.
The determination of mortgage lending values for leasehold rights is an important aspect of property financing. It is crucial to consider the specifics of leasehold rights to optimally determine the lending value and thus secure the best possible terms for your financing.
Basics of Lending
Leasehold rights are generally suitable for mortgage lending, but specific conditions must be met. Prior to 2005, Section 21 of the old ErbbauVO regulated lending, while today the Pfandbrief Act applies. According to this, the repayment of the loan must end at least 10 years before the expiration of the leasehold right. This serves to secure the lender. The lending of leasehold rights is possible under certain conditions.
Approach to Valuation
The valuation is usually carried out in two steps. Initially, the leasehold right is valued as a fictitious full ownership, using the value of the unencumbered land as a starting point. Subsequently, deductions from the full ownership value are made to take into account the specifics of the leasehold right. These include the discounted land value at the end of the leasehold, the discounted value of non-compensated buildings, and a deduction for the disadvantages of the leasehold right. Calculating the land value is an important aspect of lending.
Consideration of the Ground Rent
The ground rent plays a crucial role in determining the mortgage lending value. The calculation of the ground rent reallast is complex and depends on the priority of the ground rent in relation to mortgages. Simplified methods can be applied to smaller properties, where the entire land value is deducted. Correctly considering the ground rent is essential for determining a realistic lending value. The priority of the ground rent in relation to potential mortgages has a significant impact on the valuation.
The land transfer tax (Grunderwerbsteuer) is a significant cost factor when acquiring a hereditary building right (Erbbaurecht). Therefore, it is crucial to know and understand the tax regulations to realize potential savings.
Taxable Transactions
The creation or transfer of a hereditary building right is subject to land transfer tax. This applies both to the initial acquisition of a hereditary building right and the purchase of an existing one. The rate of land transfer tax varies depending on the federal state and is levied on the value of the consideration. The transfer of a hereditary building right is subject to land transfer tax.
Basis of Assessment
The basis of assessment for land transfer tax is determined according to Annex 9a of the Valuation Act. The basis is the contractually owed ground rent (Erbbauzins) and the remaining term of the hereditary building right. The higher the ground rent and the longer the remaining term, the higher the land transfer tax will be. It is therefore advisable to consider these factors when planning the acquisition. The basis of assessment is determined according to Annex 9a of the Valuation Act.
Various factors influence the value of the land in leasehold arrangements. A thorough understanding of these factors is crucial to optimise the value and make informed decisions.
The Leasehold Interest Rate
The level and adjustment of the leasehold interest rate have a direct impact on the land value. Potential increases based on the land value or a linkage to the rental index can diminish the attractiveness of the leasehold arrangement. It is therefore important to carefully review the contract terms and, if necessary, agree on a value protection clause. The increase in the leasehold interest rate is permissible every three years.
The Remaining Term
The remaining term of the leasehold is a crucial factor for both value and financing. Short remaining terms complicate financing and reduce the value of the leasehold arrangement. An early extension of the leasehold may therefore be advisable to maintain or enhance the value. The remaining term greatly influences the property value and financing options.
Reversion Clauses
Reversion clauses determine under what conditions the leasehold reverts to the landowner. Non-payment of the leasehold interest or neglect of the land can lead to reversion. Excluding personal requirements in the contract is advisable to avoid unexpected claims. The conditions for reversion are stipulated in the contract.
Landowner's Right to Consultation
The landowner has a right to consultation in sales and potentially an obligation to purchase from the leaseholder. This can affect the sales process and should be taken into account in the valuation. The landowner's right to consultation can influence the sales process.
The valuation of hereditary building rights is complex and poses some pitfalls. It is therefore important to avoid common mistakes and rely on a professional assessment.
Significance of the Expert Committees
The expert committees provide essential data and coefficients for the valuation of hereditary building rights. Hereditary building rights and building land coefficients and factors are intended to enable more market-aligned and precise valuations. However, the availability of this data is crucial for the quality of the valuation. The expert committees provide important data for the valuation.
The Role of the Hereditary Building Lease Contract
The hereditary building lease contract is the central foundation for valuation. Long contract durations (at least 70 years), an index clause based on the consumer price index, and a preemption right for the leaseholder are crucial contract elements that can positively influence the value of the hereditary building right. The hereditary building lease contract is the central foundation for valuation.
Cost Distribution
The leaseholder generally bears all costs associated with the property. These include property tax, land transfer tax, and maintenance costs. It is important to consider these costs in the valuation and include them in financial planning. The leaseholder bears all property costs.
Long-term financial planning is essential in leasehold rights. It is important to consider the cumulative ground rent payments and the calculation of the land value share to gain a realistic assessment of the financial burden.
Long-term financial burden
Over decades, the cumulative ground rent payments can exceed the original property value. It is therefore important to calculate the long-term financial burden and include it in the decision-making process. Long-term financial planning is essential.
Calculation of the land value share
The calculation of the land value share is carried out using formulas and factors such as the property interest rate and the income multiplier table. These factors enable precise determination of the land value share and are crucial for valuation. The calculation of the land value share is an important aspect of financial planning.
Calculation of the material value
The preliminary material value is calculated by adding the value of the external facilities, the value of the buildings over time, and the land value share of the leasehold. This calculation allows a realistic assessment of the material value and is important for valuation. Calculating the material value is an important step in valuation.
The market for hereditary building rights is subject to constant changes. Technological innovations, political and legal changes, as well as trends in the real estate industry, influence valuation practices and the significance of hereditary building rights.
Technological Innovations
Automation and intelligent systems are increasingly influencing value determination. New technologies enable a more precise and efficient valuation of hereditary building rights. It is important to monitor these developments and integrate them into valuation practices. Technological innovations influence value determination.
Political and Legal Changes
Possible adjustments in the valuation law can impact valuation practices. Therefore, it is crucial to follow political and legal developments and adjust valuation methods accordingly. Political and legal changes can affect valuation practices.
Trends in the Real Estate Industry
Hereditary building rights could gain importance as an alternative financing model in the real estate industry. In light of rising land prices and increasing difficulties in financing home ownership, hereditary building rights may represent an attractive alternative. Hereditary building rights could gain importance as an alternative financing model.
The leasehold right offers both opportunities and challenges. Specific expertise is required for assessment in order to optimally utilize the advantages and minimize risks.
Summary of Key Points
The leasehold right is a complex matter that requires specific expertise. However, it also offers opportunities, especially for buyers and sellers looking for a flexible and cost-effective alternative to full ownership. A professional assessment and careful examination of the leasehold contract are essential to optimally utilize the advantages of the leasehold right. The leasehold right offers both opportunities and challenges.
Recommendations for Buyers and Sellers
Buyers and sellers should, in any case, seek professional advice to ensure a market-appropriate valuation. An independent assessment by an expert can help minimize financial risks and make an informed decision. Professional advice is indispensable.
Outlook
The leasehold right has the potential to promote home ownership and provide a flexible alternative to full ownership. However, it is important to know the specific conditions and risks and to seek professional advice. The leasehold right has the potential to promote home ownership.
Do you want to accurately determine the value of your leasehold right or need support to optimize your leasehold contract? Enter offers you comprehensive expertise and tailored solutions. Contact us today for non-binding advice and secure a market-appropriate valuation of your property. Get in touch now!
Wikipedia offers a general introduction to leasehold rights and their legal foundations.
The Federal Ministry of Finance provides the Valuation Act (BewG), which forms the basis for the tax assessment of leasehold rights.
What is the difference between property value and land value in leasehold?
The property value refers to the total value of the developed property, whereas the land value represents just the value of the undeveloped land. In leasehold, the distinction is important as the ground rent is often calculated based on the land value.
How does the remaining term of the leasehold affect the property value?
The remaining term significantly impacts the property value. The shorter the remaining term, the lower the value of the leasehold as the usage period is limited. This also affects the mortgage options.
What role does the ground rent play in determining the property value?
Ground rent is a regular payment to the property owner. Its amount and adjustment terms influence the value of the leasehold. A high or rent-indexed ground rent can reduce the value.
What significance do the valuation committees have in the appraisal of leaseholds?
The valuation committees provide important data and coefficients, such as leasehold and leasehold land coefficients, which are essential for market-oriented valuations. Their data help achieve more precise appraisals.
How do the changes brought by the Annual Tax Act 2022 affect the valuation?
The Annual Tax Act (JStG) 2022 has brought significant changes by treating leasehold and encumbered property as separate economic units. This leads to a more precise and market-oriented valuation.
What must be considered in the mortgage value assessment of leaseholds?
In the mortgage value assessment, the repayment of the loan must end at least 10 years before the leasehold expires. Additionally, deductions are made from the notional full ownership value to account for the specifics of leasehold.
What factors influence the ground rent and how can it be optimised?
The ground rent is influenced by the property value and the contract terms. An escalation clause based on the consumer price index can protect against unforeseen increases.
What costs does the leaseholder bear?
The leaseholder typically bears all costs associated with the property, including property tax, land transfer tax, and maintenance costs.
