What are the different valuation models?
Valuation according to the federal model
In the federal model, which is followed by most of the federal states, the type of valuation depends on the type of property. While detached and semidetached houses, apartment buildings and condominiums are valued using the income approach based on rental values set by the federal states, commercial properties, mixed-use properties and other developed properties are valued using the asset value approach. As in the case of undeveloped land, both the income approach and the asset value approach consider the value of the land based on the standard land values determined by the appraisal committees as of January 1, 2022.
According to the income approach, the property tax value is determined from the sum of the capitalized net income and the discounted land value.
Under the asset value method, the land value and the value of the building are determined separately. This real building value is determined by multiplying the so-called normal production costs by the gross floor area.
Baden-Württemberg - Modified land value model
The so-called “modified land value model” is used for the Property Tax B. Contrary to the provisions of the federal model, this valuation procedure does not consider any development of the land, as the property tax value is determined exclusively by multiplying the land area by the standard land value. Furthermore, the Land Tax Act of Baden-Württemberg provides that land that is predominantly used for residential purposes, as well as social housing and cultural monuments, are subject to tax advantages. For this purpose, the statutory assessment factor is reduced by 30% in the above-mentioned cases.
The formula for calculating property tax is therefore generally as follows:
Property tax = property tax value (land area x standard land value) x assessment factor x assessment rate.
Bavaria – area-related model
The Free State of Bavaria has opted for a value-independent valuation model, the so-called area-related model, for the revaluation of real property under the Property Tax B. Land and building areas are multiplied by fixed equivalent figures (land EUR 0.04 /sqm and buildings EUR 0.50 /sqm) to determine the property tax value. For residential spaces, an additional discount of 30% is granted, so that in this case only EUR 0.35 /sqm is applied. In addition, further reductions are provided among other things for social housing and monuments. The property tax value is the assessment basis, to which the municipalities in turn apply the respective assessment rate. The assessment rate set by the municipalities is thus the main lever in determining property tax in Bavaria.
The formula for calculating property tax is therefore generally as follows:
Property tax = property tax value (sqm land and sqm building, each multiplied by fixed equivalent figure) x assessment factor x assessment rate
Hamburg, Hesse, Lower Saxony - location model
The federal states of Hamburg, Hesse and Lower Saxony basically follow the value-independent valuation model of the Free State of Bavaria. In these states, too, fixed equivalent figures (land EUR 0.04 /sqm and buildings EUR 0.50/sqm) are used to value the land or buildings. The only difference is that an additional distinction is made between the respective economic units’ location. A so-called location factor is intended to ensure that properties in better locations are taxed higher than those in poorer locations. The discount of 30% for residential spaces, which is applicable in Bavaria, as well as the reductions for social housing and monuments are also applicable in the aforementioned federal states.
The formula for calculating property tax is therefore generally as follows:
Property tax = property tax value (sqm land and sqm building, each multiplied by fixed equivalent figure) x assessment factor (if applicable, adjusted due to location factor) x assessment rate