Construction employees at a brand new apartment constructing project in Huerth, western Germany, April 5, 2023.
Ina Fassbender | Af | Getty Images
Shares of German real estate giant Vonovia fell as much as 7% on Friday, shedding light on the deepening real estate crisis in Europe’s largest economy.
The share price recovered barely, falling 5.4% at 10:35 a.m. London time.
On Thursday, an organization from the residential real estate industry reported an annual loss of 6.76 billion euros ($7.37 billion) for 2023, citing a downward valuation trend that “weakened significantly” through the 12 months.
This was greater than 10 times the loss of 669.4 million euros recorded the previous 12 months, which itself marked an abrupt end to years of consecutive annual profits.
A pointy rise in rates of interest and rising energy and constructing costs have hit Germany’s real estate sector hard, with the country’s real estate industry in the grip of its worst crisis in several years.
Vonovia said it made total value adjustments of roughly €10.7 billion in fiscal 12 months 2023 across its portfolio of greater than 500,000 properties. The company added that the worth of its properties at the top of last 12 months, after bearing in mind investments, dropped to roughly EUR 81.1 billion.
“The collapse in valuations is the worst we have ever seen,” Vonovia CEO Rolf Buch told reporters. in accordance with Reuters.
Construction cranes at housing estates in Berlin, Germany, Friday, December 8, 2023.
Bloomberg | Bloomberg | Getty Images
Looking ahead, Vonovia’s CEO said in the corporate’s annual report that while the “overall framework will remain challenging” in 2024, various positive trends suggest the investment climate is beginning to improve.
“A growing number of analysts believe that values may have already bottomed out, with many expecting the first rate cut as early as this year, given that inflation has hit a two-and-a-half-year low” – Buch he said in an announcement.
“These are important signals for us. Once the market stabilizes, we will refocus on earnings growth.”
With around 800,000 firms and roughly 3.5 million employees, the German real estate sector is the essential pillar of Europe’s largest economy, in accordance with the German Real Estate Sector. ZIA industry association.
“Apartments will still be expensive”
One analyst told CNBC on Friday that the outlook for Vonovia appears favorable in the approaching months.
“In the case of Vonovia in particular, what is quite interesting is that the CEO’s formulation regarding the price adjustment is, in my opinion, very, very exaggerated, because we have seen house prices in Germany fall by 10-15%? It’s not the end of the world,” Arnaud Girod, director of economics and cross-asset strategy at Kepler Cheuvreux, said on CNBC’s “Squawk Box Europe” on Friday.
“But what’s more interesting is that I think that overall in Europe we had huge housing supply problems in Europe before this interest rate cycle started, so now that we’ve had about two years of very, very low levels of new construction, you could say that this housing shortage it will be worse, not better,” Girod said.
“I think that, unfortunately for people, housing will continue to be expensive, which is very supportive of companies like Vonovia in this space. It is unlikely that their asset value will decline significantly from this point.”
A French brokerage firm has an exaggerated view of the European real estate sector.
