Redevelopment area

Redevelopment Area - A redevelopment area is an area formally designated by the municipality in which urban planning deficiencies are to be remedied through targeted redevelopment measures, as regulated in Sections 136 through 164 of the German Building Code (BauGB).

Legal Basis and Impact on Property Owners

A redevelopment area is designated by a redevelopment ordinance issued by the municipality pursuant to Section 142 of the BauGB. A prerequisite is the existence of urban planning deficiencies in the area in question-such as outdated building stock, functional deficiencies in the infrastructure, or insufficient green space. Prior to designation, the municipality conducts preliminary investigations to determine the nature and scope of the necessary measures.

For property owners within a redevelopment area, there are far-reaching legal consequences. A redevelopment notation is entered in Section II of the land register. This notation signals to any potential buyer that the property is subject to special regulations. Property sales and rights equivalent to property require approval by the municipality pursuant to Section 144 of the German Building Code (BauGB). The municipality reviews whether the sale conflicts with the redevelopment objectives and may refuse approval if the agreed-upon purchase price exceeds the value unaffected by the redevelopment.

In addition, the municipality has a right of first refusal under Section 24 of the BauGB. If a property in the redevelopment area is sold, the municipality may, under certain conditions, step into the purchase agreement and acquire the property itself at the agreed price. This right of first refusal serves to implement the redevelopment goals through planning and to prevent speculative real estate trading.

Tax Benefits and Compensation Amount

Owners who carry out modernization or repair measures on their buildings in the redevelopment area benefit from increased tax depreciation under Sections 7h and 10f of the Income Tax Act (EStG). For rented properties, construction costs for modernizations can be depreciated at 9 percent annually over eight years and at 7 percent in the following four years. For owner-occupied properties, a special expense deduction of the same amount is possible. These benefits make redevelopment areas particularly attractive to investors.

In return, a compensation payment is due upon completion of the redevelopment pursuant to Section 154 of the German Building Code (BauGB). This corresponds to the increase in land value resulting from the redevelopment-that is, the difference between the land value before and after the redevelopment. The municipality collects this amount from the property owners to refinance a portion of the redevelopment costs. The compensation amount is determined by an appraisal from the appraisal committee and can be substantial depending on the location and increase in value.

Procedure for a Redevelopment Process

The redevelopment process follows a clearly defined procedure: First, the municipality conducts preliminary investigations and identifies deficiencies. Then the city council adopts the redevelopment ordinance, which is published in the Federal Gazette and the municipality’s official gazette. The redevelopment notation is entered in the land register. During the redevelopment process, the municipality carries out measures (road renewal, open spaces, public facilities) and supports private redevelopment efforts through consultation and funding. Once the redevelopment is complete, the redevelopment notes are deleted and the compensation amounts are collected.

A redevelopment process can take 10-25 years. Owners who invest during this time benefit from tax advantages; if selling during the process, the requirement for approval must be observed.

Redevelopment Area and Purchase: What Buyers Need to Check

When purchasing a property in a redevelopment area, buyers should clarify the following questions: Is the property actually located within the formal redevelopment area (indicated by the redevelopment notation in Section II of the land register)? What specific redevelopment goals is the municipality pursuing? Have measures already been planned or approved that will alter the property’s surroundings? What stage is the redevelopment process at-in the early stages (long commitment period) or nearing completion (compensation payment imminent)?

The redevelopment notation alone is not a problem; it merely indicates that the property is subject to special oversight. The tax benefits can even make investing in a redevelopment area particularly attractive.

Practical Tip for Nuremberg and Franconia

In Nuremberg, there are and have been several formally designated redevelopment areas, including in the Old Town (St. Lorenz and St. Sebald), in Gostenhof, and in parts of St. Johannis. Sacramentation areas with ongoing measures also exist in surrounding cities such as Fürth, Erlangen, and Schwabach. Anyone wishing to purchase or renovate a property in these areas should inquire early on with the City Planning Office or the responsible redevelopment authority to determine whether the property falls within the scope of a redevelopment ordinance.

We recommend estimating the amount of the expected compensation before the purchase and factoring it into your calculations-at the same time, the tax benefits can significantly reduce the overall financial burden. In Nuremberg’s redevelopment areas, many investors have taken advantage of attractive tax benefits in recent years while also benefiting from the rising property values in these neighborhoods.

Frequently Asked Questions

Can I freely sell my property in a redevelopment area?

No, the sale of a property in a formally designated redevelopment area requires municipal approval under Section 144 of the German Building Code (BauGB). Among other things, the municipality will verify whether the purchase price corresponds to the market value unaffected by the redevelopment. An excessive purchase price may result in the denial of approval. Additionally, the municipality may exercise its right of first refusal.

How much is the compensation amount typically?

The amount of compensation is based on the increase in land value resulting from the redevelopment and is determined by the appraisal committee. Depending on the location, scope of the redevelopment measures, and increase in value, the amount can range from a few euros per square meter to double-digit euro amounts per square meter. An early inquiry with the city planning office provides initial guidance on the expected order of magnitude.

What tax advantages does a redevelopment area offer to investors?

Investors can claim accelerated depreciation on modernization costs for rented buildings in the redevelopment area under Section 7h of the Income Tax Act (EStG)-9 percent of the eligible construction costs in each of the first eight years and 7 percent in each of the following four years. A prerequisite is a certificate from the municipality confirming that the measures align with the redevelopment objectives. This tax incentive can significantly improve the return on investment in redevelopment areas.

What happens to the redevelopment designation after the redevelopment process is completed?

After the municipality formally terminates the redevelopment process, the redevelopment designations are removed from the land register. The owners receive a deletion authorization; the entry is made at the land registry office upon request. This eliminates the approval requirements and the municipality’s right of first refusal. The compensation amount is generally settled through buyout agreements at the time of termination or shortly before. For owners, the removal of the redevelopment notation means a return to full freedom of disposal over their property.

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