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The use of share deals in German real estate transactions is currently facing heightened scrutiny, as Berlin’s coalition government advocates for tighter restrictions on a practice that allows companies to circumvent paying real estate transfer tax, or Grunderwerbsteuer.
With a proposal now circulating in the Bundesrat, politicians from across the spectrum are pushing to close what some call a “legal loophole” that deprives the state of millions in potential tax revenue, while critics argue the practice unfairly benefits corporations over individual buyers. As Berlin’s governing mayor, Kai Wegner, put it, “We will discuss it in the Senate,” signaling an increasing commitment to addressing these share deals. In 2023 alone, Berlin lost out on an estimated €50 million in tax revenue due to share deals, a significant shortfall given the city’s growing need for infrastructure funding.
Vonovia and Deutsche Wohnen - the loophole in action
The recent focus on Vonovia’s ongoing effort to consolidate control of Deutsche Wohnen exemplifies how companies can legally structure transactions to avoid land transfer tax, even for acquisitions valued in the billions. Vonovia, Germany’s largest residential real estate company, used a share deal structure in 2021 to acquire 87% of Deutsche Wohnen, sidestepping the tax by keeping its stake just below the 90% threshold. Now, as Vonovia seeks to complete the takeover, it has once again structured the transaction to avoid breaching this threshold by transferring a portion of its stake to Apollo in a joint venture. “The aim is to create a structure that makes it possible to avoid paying land transfer tax,” a Vonovia spokesperson confirmed. The setup saves the company an estimated €100 million in tax—revenue that would otherwise fund state housing and community projects, as noted by SPD parliamentary group leader Raed Saleh.
This practice is both legal and increasingly common among Germany’s largest property players, who have taken advantage of the share deal structure’s tax benefits for years. In a share deal, an acquirer purchases shares in the company owning the real estate rather than the property itself, meaning there is no direct property transfer and, thus, no trigger for Grunderwerbsteuer. The threshold rule, tightened in 2021 from 95% to 90%, requires that any shareholding over this limit within a 10-year period will incur the tax. This has led companies like Allianz, Patrizia, and now Vonovia to adjust their acquisition strategies to remain within these limits while effectively controlling target portfolios. “The federal government should finally close this legal loophole,” CDU faction leader Dirk Stettner voiced, reflecting widespread frustration among state officials who see these lost revenues affecting public services and urban development.
Using share deals to scale portfolios and reduce taxes
For property investors like Allianz and Patrizia, share deals are more than just a tax-saving instrument; they allow major players to build up extensive portfolios with minimal tax impact, keeping acquisition costs low and yield performance competitive. Patrizia, for instance, has expanded its European footprint significantly using share deals, which provide flexibility for fund managers aiming to scale their portfolios while managing tax liabilities. This structure is especially appealing for assets with significant development potential or those in need of capex, as it allows companies to consolidate and hold investments strategically without the tax costs associated with direct acquisitions. Tax rates vary across German states, ranging from 3.5% in Bavaria to 6.5% in Brandenburg, North Rhine-Westphalia, and Saarland—amounts that can easily run into the millions in large deals, further amplifying the appeal of share deals.
The Vonovia-Deutsche Wohnen case has faced vocal criticism. Politicians argue that such deals create a tax disparity, where individual homeowners pay the full real estate transfer tax on their acquisitions while corporations executing massive acquisitions avoid it. SPD parliamentary group leader Raed Saleh remarked, “It is not fair at all… that people who buy a single-family house pay the land transfer tax, but the big players in the property market avoid payments in the billions.” The opposition is calling not only for closing the loophole but also for a more comprehensive restructuring of how these transactions are taxed.
The mechanics behind the Vonovia deal highlight how companies have adapted to the regulations. After acquiring its initial stake, Vonovia kept its holding below the tax-triggering threshold by partnering with Apollo, enabling it to gain near-total control without breaching the legal limit. Analysts have responded positively to the tax-neutrality of this structure, with Karsten Oblinger, a real estate analyst at DZ Bank, noting that “the transaction makes strategic sense for Vonovia.” The company plans to use this tax-efficient setup to integrate Deutsche Wohnen’s assets fully while shielding itself from the tax burden, ultimately increasing its market control and operational efficiency.
The outlook for investors
As Germany’s government steps up scrutiny of share deals, the landscape for real estate investors may shift sooner rather than later. With discussions intensifying and support building across party lines, policy reforms targeting share deal structures could be on the near horizon. For investors, this looming change signals potential increases in acquisition costs, revised yield projections, and a growing need for strategic tax planning to maintain competitiveness. If regulatory adjustments are enacted, the share deal advantage could narrow significantly, prompting a fundamental rethink in acquisition strategies and reshaping Germany’s real estate market dynamics.
