- 5 min read
Share deals for real estate
Are they still worthwhile?
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Instead of purchasing commercial properties directly and entirely through an asset deal, some investors opt for share purchases—so-called share deals for real estate—to save on property transfer tax. In this case, they acquire shares in a real estate company that owns, for example, larger commercial properties in Karlsruhe. Since this involves buying shares or stock in a company rather than the property itself, property transfer tax may be avoided under certain conditions. Until recently, this provided an attractive tax saving for investors in Karlsruhe. Specifically, property transfer tax was waived as long as investors held less than 95 percent of the shares in a real estate company. However, with the legislative change on July 1, 2021, the situation has shifted. This raises the question of whether share deals for real estate remain interesting for investors. As an alternative to share deals, our commercial brokers can help you find attractive commercial properties for rent or purchase in Karlsruhe, Bruchsal, Pforzheim, or Rastatt.
Who are share deals for real estate suitable for?
Property transfer tax currently amounts to 5 percent of the purchase price for real estate in Karlsruhe. For commercial properties such as office buildings, this can quickly add up to significant sums. For companies or buyers of multiple multifamily houses or mixed-use residential and commercial properties—like Mr. Afrim Bajrami—a real estate investment in Karlsruhe without property transfer tax can be particularly attractive.
Share deals usually involve specially established partnerships or corporations whose sole purpose is the management of a property. The company then effectively sells the property through its shares, but not legally. Unlike a direct property purchase, the ownership is not recorded in the land registry. A contract governs the number of shares and the associated rights and obligations within the company.
Share deals are therefore suitable for professional investors and companies that want to use or trade a commercial space in Karlsruhe—or other large commercial properties—without paying property transfer tax. They are also popular with developers who purchase land as a property company and resell it after construction. Under the right conditions, property transfer tax is not due. Private financing is also possible through share deals without a mortgage affecting the land register.
Other interesting topics related to commercial real estate include:
What has changed for share deals with real estate since July 1, 2021?
Previously, it was possible to purchase up to 94.9 percent of the shares in a real estate company without triggering property transfer tax. With the amendment to the property transfer tax law, this threshold has been reduced to 89.9 percent. Above this threshold, the legislator assumes an economic transfer of the property, even though there is no legal transfer. As a result, investors now pay property transfer tax on share deals if they acquire 90 percent or more of the shares in a partnership or corporation, or the property itself.
The retention periods for share deals with real estate have also been significantly extended under the new law. While previously five years were sufficient, tax authorities now consider the acquisition over a period of at least ten years for tax exemption purposes. For project developers and builders of new projects, the new retention periods result in longer capital commitment, which can significantly restrict liquidity and, consequently, business operations.
The key changes are:
The threshold for property transfer tax has been reduced from 95 to 90 percent of the shares.
Property transfer tax is waived under the stock exchange clause for shares above 90 percent if they are publicly traded.
The holding period for exemption from property transfer tax is now 10 years instead of 5.
The retention period is 15 years if the shareholding exceeds 90 percent.
There is no longer a limit on late payment penalties.
Commercial properties in Karlsruhe and surrounding
Engel & Völkers Karlsruhe Commercial
Share deals in real estate – still an option for investors
Since July 1, 2021, share deals in real estate have lost some of their appeal due to changes in the property transfer tax law. For those focused on long-term capital investments and holding only a small percentage of a property, the extended holding period may not be a concern. However, investors who want to actively manage real estate or aim for full ownership might prefer an asset deal or purchasing commercial properties in Karlsruhe. For a multifamily house or a mixed-use residential and commercial property, the sole owner can, if needed, rent out shops or offices with Frederik Botzke from Engel & Völkers Karlsruhe Commercial or sell commercial units with managing partners Nikolas Wiksner and Torben Heydecke. Whether share deals remain a viable option depends on the individual case. Submit your search request now and get expert advice from us before investing in commercial real estate in Karlsruhe.
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