Reducing property transfer tax to 6% is essential for increasing new construction and the supply of rental homes.

1. A significant gap in transfer tax rates between investors and private buyers contributes to a decline in the rental stock
When selling existing rental properties, investors face a choice: if they sell to another investor, the transfer tax rate is 10.4%. However, if they sell to private buyers, the rate is 2%, and for first-time buyers, it is even 0%. This allows first-time buyers and private purchasers to offer a higher price than investors. As a result, rental properties are increasingly being sold off to private buyers, a process known as “uitponden.” It is also common for rental properties to be sold to investors with an “uitponden” strategy. In both cases, the properties disappear from the rental market once the tenant vacates. This will eventually lead to a reduction in the rental stock. A lower transfer tax rate for investors narrows the gap between private buyers and investors, making renting out properties more attractive and increasing the likelihood that homes will remain in the rental market.

2. A reduction in transfer tax improves the position of housing associations and pension funds
The value of the existing stock of housing associations and pension funds would increase if transfer tax were reduced. As with the value of newly built rental homes, appraisers factor in the transfer tax when determining the final value of the investment. A rising market value of rented complexes positively impacts the capital growth of pension funds and the borrowing capacity of housing associations that use market values. The higher value of existing assets increases borrowing capacity, although this cannot be fully utilised as cash flow is also considered. Nevertheless, it strengthens the financial position of housing associations and institutional investors.

3. High transfer tax hinders investments in new construction
Although transfer tax is only levied on existing residential complexes older than two years, its rate still impacts the value of newly built rental and care homes. This is because appraisers take the transfer tax into account when valuing a new complex, considering the 10.4% (or 8% in the new scenario) in the final investment value. Investors then discount this back to the purchase moment to determine their investment capacity. A higher transfer tax thus leads to a lower value for new and existing properties. Reducing the transfer tax rate would increase investment capacity, potentially raising the market value of a rented complex by around 3% with a reduction to 6%.

Thijs Konijnendijk, Head of Research at Capital Value: “A reduction to 6% could lead to the construction of hundreds of additional rental homes per year. As the market strengthens, this effect would become even more pronounced. The increase in the value of rented properties not only benefits new construction through higher appraised values but also allows pension funds and housing associations to reinvest more capital in new developments through higher returns on rental property sales.”

4. The market becomes more attractive for international investors
The investment climate in the Dutch housing investment market has become much less attractive over the past two years compared to previous years. As a result, total investment volumes have significantly decreased, and international investors have almost entirely ceased investing in new rental housing. This is concerning because the capital from these investors is urgently needed to meet the housing development targets. Historically, international investors accounted for 28% of new Dutch rental homes, but this has now dropped to just 4%.

While various factors have contributed to the changing market conditions, Capital Value’s 2023 annual survey revealed that the increased transfer tax was a key reason why international investors paused their investments in the Dutch rental market. The higher transfer tax ranked as the second most problematic factor for investors, with 77% of responses citing it. The top concern was the volatile government policies, also at 77%. The return of this key group could generate thousands of new rental homes, as they often complement housing associations and Dutch institutional investors.

5. Production of new care homes could be stimulated
The current additions to the care home stock fall far short of the national target of an average of 36,000 per year. In 2023, only 1,700 new care homes were built, and the average forecast for the next three years is around 2,800 per year. A significant portion of the investment needed for new care homes comes from housing associations and Dutch pension funds. Lowering the transfer tax rate and applying it to care homes would stimulate these investments. The large societal challenge of providing suitable housing for the elderly would benefit greatly from this.

6. Tax burden on investors has already increased significantly in other measures
For professional investors, the tax burden on real estate investments has risen sharply due to the tightening of the earnings-stripping rule and the measure addressing the overlap exemption in real estate share transactions. Together with the high transfer tax rate, these fiscal measures pose a significant barrier to investments, particularly from international investors. Reducing the tax burden could improve the investment climate for these investors. For private investors, the tax burden has also increased due to changes in capital gains tax on Box 3 assets, leading to a heavier tax load.

Reconsideration of the transfer tax rate is urgently needed
It is clear from the above that the housing investment market would benefit from a lower transfer tax. Marijn Snijders, Director at Capital Value: “The current consideration of a reduction to 8% is promising but insufficient. For the measure to have a truly stimulating effect, the rate needs to drop to 6%. Since this has budgetary implications for the government, it’s important to explore ways in which such a reduction could still be achieved. With increased liquidity and investments in the housing investment market, the government’s revenue from transfer tax would rise.”