New RETT proposal puts construction of another 3,500 rental homes in 2023 at risk

Proposed bill on real estate transfer tax (RETT) for share deals
Many foreign pension funds acquire new rental properties through a share transaction. Since the Supreme Court ruling of 10 June 2011, the acquisition of new real estate by means of a share transaction is exempt from the levy of transfer tax. As a result of this ruling, the acquisition of an immovable property by means of a share transaction is not taxed more heavily for transfer tax purposes than the acquisition of the immovable property itself. On 27 February 2023, the Ministry of Finance submitted a proposed legislative amendment for consultation. The proposal is to abolish the transfer tax exemption in a share transaction involving new real estate. Introduction of this bill is planned from 1 January 2024. The consequence of the introduction of this bill is that the cost price of new real estate (and therefore also of new rental housing) may increase by 10.4%.

Foreign funds bought over 3,500 new-build rental homes in 2022
A total of 13,442 new-build rental homes were purchased in 2022. Foreign institutional investors bought about 3,547 newly built rental homes, accounting for about 27% of investments. Dutch investors bought 9,895 rental homes. Marijn Snijders, managing director Capital Value: “Foreign funds tend to complement Dutch institutional investors. They mainly bought larger complexes in the Randstad that were often too big for Dutch pension funds or housing associations. In many cases, these were projects with mid-priced rental homes. In recent years, they have also been frontrunners in building student housing and housing for the elderly. Gerton Rademaker, tax adviser and partner at Dirkzwager: “It is extraordinary that during the current housing crisis, a tax measure is being introduced that leads to a higher cost of rental housing. At the low point of the previous crisis in 2013, exactly the opposite happened. A VAT measure that resulted in a higher cost price for rental housing (the integration tax) was abolished at the time. This lowered the cost price of rental housing and, according to the government, allowed a number of bottlenecks in the housing market to be removed. With this in mind, the logic of this bill escapes me.”

International investors have 7.6 billion available
Research by Capital Value shows that international investors have ?7.6 billion available for investment in rental housing in the Netherlands over the next three years. They are still very interested in buying new construction projects. Many projects that are bought include mid-priced rental homes.

Construction of 44,000 homes possibly postponed in 2023-2024
The central government has set a target to reduce the housing shortage in the Netherlands to 2% by 2035 or earlier and build 100,000 new homes annually in the coming period. While 2022 saw a record number of homes completed, it also saw a decline of around 18% in the number of building permits issued. For 2022, the number of permits reached 63,400, down from 75,800 in 2021. Capital Value expects that, in the absence of incentives, the number of permits will fall to 50,000 in 2023 and 2024. It cannot be ruled out that this number will be even lower. More and more developers are postponing building plans due to the drop in demand for owner-occupied houses. An increasing number of new construction plans for rental housing are also no longer financially viable. Research by Capital Value shows that the construction of about 40,000 homes may be postponed, of which about 27,200 are in the five big cities For a large part of these projects, permits have already been granted or the procedure is ongoing. On top of this, there are now about 3,500 homes that could have been acquired with an equity transaction exempt from transfer tax. Marijn Snijders: “This is the worst time to impose additional restrictions on foreign pension funds. Right now, incentives are needed to prevent the overall production from grinding to a halt. To prevent the housing shortage from increasing further, it is important to make it clear as soon as possible that this bill will not be introduced.” Consultation on the proposed bill on cancellation of the RETT for share deals will continue until March 27.