Development costs

Development Costs - Development costs encompass all expenses incurred in connecting a property to public infrastructure, particularly roads, sidewalks, sewer systems, and water, electricity, gas, and telecommunications lines. The legal basis for these costs is provided by the German Building Code (BauGB) and the Bavarian Local Tax Act (KAG).

Types and Scope of Development Costs

Development costs are divided into external and internal development. External development encompasses all measures that connect the property to the public grid: the construction or expansion of access roads, the installation of sewer lines for wastewater and stormwater, the connection to the public drinking water supply, and the installation of electricity, gas, and telecommunications connections. Internal development concerns the routing of lines on the property itself up to the building.

For the initial construction of the development infrastructure, the municipality levies development contributions pursuant to Sections 127 et seq. of the German Building Code (BauGB). The property owner generally bears 90 percent of the eligible costs, while the municipality covers at least 10 percent. The allocation among the individual properties is based on a distribution formula that typically takes into account the property area and the permitted floor area.

The initial development must be distinguished from the renewal of existing infrastructure. In Bavaria, the Local Tax Act (KAG) applies here, under which municipalities may levy development contributions or recurring fees. Since the abolition of road development contribution statutes in many Bavarian municipalities, cost allocation has been regulated differently on a regional basis.

In addition to public fees, private-law house connection costs apply. Utility companies charge individual flat rates for the installation of the respective house connection, which vary depending on the length of the line and the technical effort involved.

Calculation and Typical Cost Ranges

The total costs of development depend heavily on the location, the size of the property, and the state of development. For an average building lot in Bavaria, the following figures can serve as guidelines: road development fee of 20 to 50 euros per square meter of lot area, sewer connection fee of 3 to 10 euros per square meter, and water connection fee of 2 to 8 euros per square meter. Added to this are the costs for service connections, which for water, sewer, electricity, gas, and telecommunications together often range between 8,000 and 20,000 euros.

For properties in new development areas, the development costs are often already included in the purchase price, whereas for properties in outlying areas or rural locations, significantly higher costs may arise, especially if long utility lines are required.

Fiber Optics and Broadband Connections as New Development Components

In addition to traditional utility lines, fiber-optic connections are becoming increasingly important as part of development. In new development areas, fiber-optic cables are often laid parallel to other utility lines and included in the development costs. For existing buildings, a retrofit fiber-optic connection can cost several thousand euros, depending on the length of the cable.

In the Nuremberg metropolitan region, various entities are driving the expansion of fiber-optic networks: the Free State of Bavaria as part of the broadband subsidy program, Deutsche Telekom, and regional providers through self-financed expansion projects. A lack of or poor internet connection can measurably reduce property value-an aspect that prospective buyers are increasingly taking into account.

Practical Tip for Nuremberg and the Metropolitan Region

In the city of Nuremberg, the Civil Engineering Office collects development fees based on the municipal development fee statute. We recommend that prospective buyers obtain binding information about existing or expected development fees from the Real Estate Office of the City of Nuremberg or the respective municipality before purchasing an undeveloped property. Especially in the new development areas of the metropolitan region, such as in Kornburg, Wetzendorf, or in surrounding municipalities like Schwabach and Wendelstein, the amount of development costs can significantly impact the total price of a property. We assist our clients in incorporating these costs into their financing plans at an early stage.

Frequently Asked Questions About Development Costs

Who is responsible for paying the development costs?

The owner of the developed property is responsible for at least 90 percent of the development fees for the initial construction of public infrastructure. If a property is sold before the final assessment of these fees, the contract can specify whether the buyer or seller will cover the costs. We recommend clearly addressing this issue in the purchase agreement.

Are development costs tax-deductible?

For owner-occupied residential property, development costs are generally not tax-deductible, as they are considered part of the property’s acquisition costs. For rental properties, the costs may be capitalized as construction costs under certain conditions and depreciated over the property’s useful life. We recommend checking this with a tax advisor on a case-by-case basis.

What happens if a property is listed as “fully developed”?

The term “fully developed” means that all essential utility lines have already been laid to the property and the development fees have generally already been settled. Nevertheless, we recommend verifying this using the municipality’s official notices, as additional charges may be imposed in the event of billing errors or partial measures that have not yet been billed.

What does it cost to develop a property in an outlying area?

Plots in rural areas (Section 35 of the German Building Code, BauGB) are generally not developed. The owner must finance the complete development-road access, water, sewer, and electricity-entirely on their own, and this can cost between 30,000 and 100,000 euros or more, depending on the distance to the nearest infrastructure. In addition, development in rural areas is generally prohibited, meaning that no building permit can be issued. We advise extreme caution when purchasing such properties.

Are development costs negotiable when purchasing land?

Whether and how development costs are divided between the buyer and seller in the purchase agreement is generally negotiable. Three arrangements are common: First, the seller bears all development costs already incurred up to the date of notarization and receives a correspondingly higher purchase price in return. Second, future development costs that have not yet been finalized are transferred to the buyer, which should be reflected in a price reduction. Third, the parties agree to split the costs equally if development has begun but has not yet been billed at the time of purchase. We recommend that buyers of land in new development areas in Nuremberg-such as the Brunecker Straße development zone or in surrounding municipalities like Oberasbach or Zirndorf-submit a formal inquiry to the municipality to determine which development contributions have already been decided and which are still pending. This information serves as the basis for fair pricing in the purchase agreement.

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