The Building Modernization Act: What's Paying Off for Real Estate Investors Right Now

The Building Modernization Act (GModG) gives property owners greater freedom once again in choosing their heating systems. New gas and oil heating systems remain permissible in principle. However, what may seem cheaper at the time of purchase can end up being expensive to operate. This is because, in the future, landlords will have to cover a larger portion of the gas costs themselves. For real estate investors, this raises the question of which heating systems will pay off in the long run and what financial burdens they might face in the coming years.

New Heating Regulations and Their Financial Consequences

A significant change in the GModG concerns heat supply. The previously proposed requirement that newly installed heating systems must use at least 65 percent renewable energy has been dropped. This means owners once again have greater freedom to choose between different heating systems. Especially for older existing buildings, this may initially come as a relief. This is because it is not always possible to install a heat pump or connect to a district heating system at short notice.

Under the new regulations, starting in 2028, landlords will be required to cover half of the CO₂ costs and gas network fees associated with newly installed gas heating systems. Added to this are the additional costs resulting from the so-called “bio-staircase,” which mandates a gradually increasing share of climate-friendly fuels starting in 2029. The plan calls for 10 percent starting in 2029, 30 percent starting in 2035, and 60 percent starting in 2040. Landlords will also be required to cover half of these additional costs in the future.

Westbridge has calculated the potential financial impact using the example of an apartment building with eight units and a total of 600 square meters of living space. The building, constructed in 1980, is in average energy-efficiency condition and requires approximately 75,000 kilowatt-hours of heat annually. While the purchase of a central gas heating system in this example costs about 36,000 euros, the investment costs for a heat pump—after deducting the assumed subsidy—amount to around 80,000 euros.

At first glance, the significantly lower purchase price makes the gas heating system seem more attractive. However, owners must also take running costs into account. Under the new rules, landlords will have to cover a larger portion of the gas costs themselves in the future. According to the model calculation, with a new gas heating system, the landlord would already have to expect an annual cost share of between approximately 1,100 and 2,200 euros as early as 2029. In 2035, this could range from 2,200 to around 4,000 euros, and by 2040, it could even reach around 4,750 euros. The actual cost burden will depend, among other things, on trends in CO₂ prices, gas network fees, and the costs of climate-friendly fuels.

Over a 20-year period, this could result in additional costs of several tens of thousands of euros. Anyone who compares only the upfront purchase costs therefore risks making an expensive mistake. In addition to the purchase price, homeowners should also factor in ongoing energy costs, maintenance, and potential technical upgrades over the entire useful life of the property.

Technical Requirements and Long-Term Cost Risks

In addition to the immediately foreseeable changes in costs, homeowners must also consider the long-term development of the energy infrastructure. If fewer buildings are heated with gas in the future, the fixed costs for operating and maintaining the gas networks will be spread across a decreasing number of connections. This could increase network fees for remaining users and further undermine the cost-effectiveness of fossil fuel heating systems.
A new gas heating system is therefore not necessarily the wrong choice. If installing a heat pump is technically impossible and a district heating connection won’t be available for several years, a gas heating system can be a sensible interim solution for ten to 15 years. Provided, of course, that owners take the eventual switch into account when making their investment decision.

Even with a heat pump, it depends on the individual building. In older apartment buildings in particular, for example, insufficient electrical capacity or necessary modifications to the building’s technical systems can result in significant additional costs. General recommendations fall short. Which heating system is worthwhile depends both on the technical requirements and on the expected total costs.
In addition to costs, financing also plays a role. Banks are increasingly paying attention to how sustainable a property is. Anyone installing a new gas heating system today should therefore also consider whether this could make future financing more difficult.

Asset Analysis as the Basis for Investment Decisions

For owners of larger and diverse real estate portfolios in particular, the challenge lies in prioritizing the necessary measures in a way that makes economic sense. Not every building is affected by the new regulations to the same extent. Likewise, technical requirements, energy efficiency, investment needs, and potential savings vary—sometimes significantly.

A systematic assessment of the existing portfolio should therefore be the first step. Which properties are subject to the new requirements? Where is immediate action needed? What technical systems are already in place? And for which properties can regulatory measures be combined with modernization projects that are already planned?

Based on this analysis, an investment plan can be developed that balances legal deadlines, technical feasibility, and cost-effectiveness. Particularly for larger portfolios, it can make sense to bundle measures over time, further develop existing measurement and energy management systems, and initially allocate available funds where the greatest economic benefits can be achieved.

For property owners with a long-term perspective, this is an essential prerequisite for controlling operating costs, keeping investments predictable, and ensuring the energy sustainability of their properties.

Conclusion

The Building Modernization Act expands the technical options available to property owners but does not relieve them of the need to weigh economic considerations. On the contrary: With increasing requirements for building operations and additional cost risks, a long-term perspective is becoming increasingly important.
The key task, therefore, is not to simply work through regulatory requirements in isolation, but to integrate them into an economically viable modernization strategy. This includes reliable energy data, property-specific economic feasibility analyses, and a clear prioritization of necessary investments.

For real estate investors, this is the true implication of the GModG: Anyone who wants to make the right decisions for their portfolios today must not only know which technical solutions are permitted, but above all, which ones will pay off in the long term.