The German government is seeking to introduce tax incentives to support a struggling construction industry and encourge investment in housing.

The cabinet is proposing new rules through the Wachstumschancengesetz, or Growth Opportunity Act, for the amortisation of costs incurred by construction companies in the form of a so-called “degressive depreciation for residential buildings”.

According to the draft law, from 1 October companies will be able to deduct 6% of the costs for a period of six years as a form of incentive.

Recent rises in interest rates have made development projects significantly more expensive. In a 10-point plan, the governing coalition said this was putting pressure on the construction industry and the situation was being exacerbated by existing regulations.

The coalition of Social Democrats, Greens and Liberal Party FDP has the goal to build 400,000 new homes per year, 100,000 of which will be state-funded.

According to the Federal Statistical Office, Statistischen Bundesamte, last year 295,300 apartments were built in Germany, 1,900 apartments or 0.6% more than in the previous year.

“The degressive depreciation for residential construction has the potential to significantly strengthen the construction and real estate industry,” said Klara Geywitz, minister for housing, urban development and building.

“It enables the industry to write off investment costs more quickly, which in turn makes faster investments in new living space possible.”

Through the Growth Opportunity Act, the government intends to also lift the threshold for income generated by Spezialfonds – a type of investment vehicle available only to German institutional investors – through active business management by 10 percentage points to 20%.

As a result, Spezialfonds can significantly expand their involvement in the operation of systems for generating electricity from renewable energies or in the operation of charging stations for electric vehicles or electric bicycles, according to the draft law.

Spezialfonds could lose their status if they exceed the limit of 5% of total income generated through active business management. This has meant that Spezialfonds so far have invested to a very limited extent in renewable energies.

The chief executive officer of the German fund industry association BVI said: “Doubling [the limit] to 20% is not enough for real estate funds. Storage and logistics properties, for example, have large roof areas for solar plant systems.”

He added: “In order for the funds to be able to exploit their full potential and make a significant contribution to climate change, the limit should definitely be removed.”

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