Current assets

In accounting, current assets refer to all of a company’s assets that can be converted into cash in the short term-typically within a single fiscal year. In the real estate context, the term is relevant for project developers and real estate trading companies, where properties are accounted for as inventory in current assets, as well as for the liquidity assessment of real estate companies and homeowners’ associations. For private owners, current assets play a role primarily in credit checks by lenders-and in assessing the financial health of a homeowners’ association when purchasing a home.

Current Assets vs. Fixed Assets in Real Estate

In a traditional corporate balance sheet, a distinction is made between fixed assets and current assets. Real estate that serves the business on a permanent basis (e.g., the company’s own office building, a rental property held long-term) is classified as fixed assets. Real estate acquired for purchase and resale (e.g., land and buildings in a project developer’s or property developer’s portfolio), on the other hand, is recorded as inventory under current assets.

This distinction has significant tax implications:

• Fixed assets: Depreciation (AfA) over the normal useful life of the asset is permitted (Section 7 of the German Income Tax Act [EStG]); for buildings, this is typically 2% or 3% per annum. Impairments and increases in value are recognized in the annual financial statements.
• Current assets (inventories): No scheduled depreciation. Acquisition costs are recognized as an expense only upon sale; prior to that, they are capitalized on the balance sheet. An unscheduled write-down to the lower fair value is possible (strict lower-of-cost-or-market method under the German Commercial Code (HGB)) if the market value falls below the acquisition cost.

For property developers and project developers, this means: Properties in the development phase tie up capital in current assets and generate revenue and profits only upon sale-a significant difference from holding properties as long-term assets.

Importance of Current Assets for Real Estate Financing

When conducting creditworthiness assessments of real estate companies, lenders analyze the ratio of current assets to fixed assets as well as various liquidity ratios:

• Current Ratio (current assets / current liabilities): Should be > 1.0; often more difficult for real estate companies to meet because real estate itself is not easily liquidated in the short term within current assets.
• Quick Ratio (cash and cash equivalents + accounts receivable / current liabilities): Indicates whether current obligations can be met without selling real estate.

A high proportion of real estate in current assets among project developers can signal growth on the one hand, but also pose a risk on the other if the properties cannot be sold in a timely manner and liquidity comes under pressure-as in market phases with stagnant demand, such as 2022-2024 in the Nuremberg metropolitan region, when many project developers had to adjust their sales strategies.

Current Assets in the WEG: The Maintenance Reserve

In the condominium owners’ association, the maintenance reserve (officially known as the “maintenance fund” since the 2020 WEG reform) represents the association’s liquid current assets. It is earmarked for future maintenance and renovation measures and must be held in a separate account linked to the association’s main account.

The maintenance reserve is one of the most important indicators of a well-managed homeowners’ association-when purchasing a condominium, buyers should always check:

• Absolute amount of the reserve: Guideline value according to the Second Calculation Ordinance: approx. €7-14 per square meter of living space per year; the total reserve should cover at least 1-3 years’ worth of contributions.
• Planned measures and pending resolutions: Have expensive renovations (roof, facade, elevator, heating) already been approved or are they foreseeable? If so, the reserve may be too low.
• Trend in maintenance fees over the past few years: Rising maintenance fees signal increasing operating costs.

An insufficient reserve fund increases the risk of special assessments - one-time charges based on co-ownership shares that buyers may face without having contributed to the cause.

Commercial Real Estate Projects and Current Assets

When developing commercial projects (office buildings, logistics properties, residential complexes) in the Nuremberg metropolitan region-such as at the Port of Nuremberg, in Fürth, or along the development corridors in the north of the city-classification as current assets is crucial for tax and accounting treatment. Project developers who build with high levels of debt financing bear the risk that rising interest rates and falling sales prices will simultaneously restrict their room for maneuver-a scenario that became apparent throughout the German real estate industry in the years 2022-2024.

Practical Tip for Owners in Nuremberg and Franconia

For private buyers in Nuremberg, the concept of current assets is particularly relevant in practice when they purchase a condominium as an investment and need to assess the financial health of the condominium association (WEG). In our buyer consultation, we regularly review the status of the maintenance reserve, the amount of the monthly maintenance fee, and the planned measures according to the budget-both of which are key indicators of whether the homeowners’ association is well-positioned to handle future costs.

A common mistake when buying a condominium: interpreting a low reserve fund as a supposedly low ongoing risk. In reality, an insufficient reserve fund signals an increased risk of special assessments in the future. We help buyers correctly interpret HOA documents and, in cases of uncertainty, recommend reviewing the last three annual financial statements and minutes of the owners’ meetings.

Frequently Asked Questions

Why does it matter whether a property is classified as a fixed asset or current asset?

This classification determines whether the property can be depreciated (only fixed assets) and how impairments and gains from the sale are treated for tax purposes. For businesses, this distinction has significant implications for the financial statements, tax liability, and creditworthiness. Incorrect classification can lead to back taxes and liability risks-a tax advisor should oversee the accounting process from the start.

What does the maintenance reserve tell me about a WEG apartment?

A reserve of less than €10 per square meter per year is considered insufficient; €15-25 per square meter is a healthy benchmark that covers regular renovation cycles. If the reserve is too low, major renovations may trigger special assessments that affect each owner according to their co-ownership share-a significant financial risk that should be factored into the purchase price. We recommend always requesting and critically reviewing the last three annual statements as well as the current budget for WEG apartments.

As a private individual, can I report real estate as current assets on my balance sheet?

No. Private individuals do not prepare balance sheets in accordance with the German Commercial Code (HGB). Current assets is a term used in corporate accounting. Private real estate owners are not merchants subject to balance sheet requirements and do not record their assets in a formal balance sheet. However, anyone who trades in real estate on a commercial basis (commercial real estate trading, exceeding the three-property limit) may be subject to accounting requirements-in which case the rules for current assets apply.

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