Vonovia apartment blocks in the Gorbitz district of Dresden
Foto: imago/C3 Pictures
The high interest rates for real estate loans make it difficult to build houses and apartments. Banks currently charge around four percent. At the same time, land prices and construction costs are rising. And high inflation is also causing problems for housing companies. In addition, there is hardly any building land in so-called attractive locations in metropolitan areas. Against this background, Vonovia, as the largest private housing company in Germany, is not starting any new construction projects this year. Only about 3500 apartments, which are already under construction, will be completed.
“If the situation stays like this, we will not start any new construction projects in 2024 either. We’re leaving our building permits in the drawer,” said CEO Rolf Buch in the run-up to the publication of the half-year figures on Friday. Buch thus prevented the crisis discussion that was fueled by the half-year figures presented in Bochum on Friday.
The consequences of the crisis in the real estate market are apparently also weighing heavily on the German industry leader. In the second quarter alone, the Bochum company had to make a further devaluation of 2.7 billion euros on its real estate portfolio compared to the previous year, the group announced in a conference call. In the first half of the year, the tax-reducing minus in the valuation of real estate even added up to around 6.4 billion euros.
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According to the Central Real Estate Committee (ZIA), the leading association in the industry, many companies have just corrected the value of their real estate downwards. Due to the rise in interest rates and prices, as well as for psychological reasons, the sale of a property is currently only possible at a discount. This applies in particular to older buildings with an unfavorable energy efficiency class.
After the high depreciation, Vonovia boss Buch now announced a loss in the billions. The bottom line was that April to June was around two billion euros – after a profit of 1.8 billion euros a year ago. However, the question of a capital increase does not arise for Europe’s largest real estate group. Despite more than 40 billion euros in debt, which the company is trying to reduce by selling tens of thousands of apartments.
“The capital market’s confidence in our business model remains high,” assured CFO Philip Grosse. “The successful financing measures in recent months confirm this again.” In fact, the ratio of debt to property value is within the usual range for the industry: according to the company, the ratio is 46.8 percent. The goal is 40 to 45 percent.
Despite the loss of billions, Buch says: “The core business of renting apartments has developed very positively.” In fact, profits from renting in the second quarter rose by 10.3 percent to 618.5 million euros. Higher rents contributed to this (1.5 percent in the second quarter alone). New construction and modernization as well as “synergies” from the takeover of Deutsche Wohnen in October 2021 also contributed to the jump in profits.
Vonovia currently owns around 548,100 apartments with a current value of EUR 88.2 billion. There are also around 70,400 managed rental apartments. The company employs around 15,800 people. According to current data from real estate portals, the demand for rental apartments across Germany is 30 percent higher than at the end of 2019, and for new build rental apartments even 90 percent higher.
Buch blames the traffic light coalition for the huge gap between supply and demand on the German real estate market. This had promised a “new building offensive” with 400,000 new apartments per year, but the number of completions is likely to fall from 295,000 in 2022 to 223,000 this year and only 177,000 in the coming year, according to a recent study by the union-affiliated institute for macroeconomics and business cycle research. Living space has been scarce and expensive for decades, at least in metropolitan areas for people with low and middle incomes and for families.
According to Vonovia, the rise in prices on the rental housing market has to do with the fact that fewer tenants are moving into their own property, since the purchase and construction prices for apartments and houses have risen even faster than rents in recent years. A thesis that is covered by the figures from the Federal Statistical Office.
The growing gap between existing and more expensive new contracts is also problematic: “The tenants stay in their apartments as long as they can,” said Buch. Fluctuation in Vonovia apartments has halved.
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