Vonovia’s 7% Decline Following Record Loss Highlights Germany’s Property Crisis

Vonovia falls 7% after its biggest ever loss shines light on Germany’s property crisis

Shares of Vonovia, the German property giant, took a significant hit on Friday, plummeting over 7%, spotlighting a deepening real estate crisis within Europe’s largest economy.

The residential real estate company disclosed an annual loss of 6.76 billion euros ($7.37 billion) for 2023, attributing it to a downward valuation trend that significantly weakened throughout the year. This loss was more than tenfold larger than the 669.4 million euro loss reported the previous year, which itself marked a sudden reversal from years of consecutive annual profits.

The German property sector has been severely impacted by a sharp surge in interest rates and escalating energy and construction costs, plunging the country’s real estate industry into its most severe crisis in years.

In the fiscal year 2023, Vonovia made total value adjustments of approximately 10.7 billion euros across its portfolio of over 500,000 properties. Additionally, the company reported that the value of its properties, adjusted to reflect investments, had dwindled to around 81.1 billion euros by the end of last year.

Vonovia's 7% Decline Following Record Loss Highlights Germany's Property Crisis
Vonovia’s 7% Decline Following Record Loss Highlights Germany’s Property Crisis (Credits: NBC Sports)

Vonovia’s CEO, Rolf Buch, remarked to reporters on Thursday evening that “the collapse of valuations is the worst we have ever seen,” according to Reuters. Despite the challenges, Buch noted in the firm’s annual report that while the overall environment would remain demanding in 2024, positive indicators suggested an improving investment climate.

Buch stated, “A growing number of analysts are confident that values may have bottomed out now, and many are expecting the first interest rate cut as early as this year, seeing that inflation has reached its lowest level for two and a half years. These are important signals for us. Once the market has stabilized, we will shift our focus back to an increase in earnings.”

Germany’s property sector serves as a fundamental pillar of Europe’s largest economy, comprising approximately 800,000 companies and around 3.5 million employees, according to the ZIA industry association.

An analyst from CNBC observed that Vonovia’s outlook seemed supportive in the coming months. Arnaud Girod, head of economics and cross-asset strategy at Kepler Cheuvreux, noted on CNBC’s “Squawk Box Europe” that while the CEO’s language regarding price correction appeared exaggerated, the decline in house prices in Germany—around 10% to 15%—was not catastrophic.

Girod highlighted that the housing shortage in Europe had worsened over the past two years due to minimal new construction, indicating that housing would likely remain expensive, which could benefit companies like Vonovia. The French brokerage firm holds an overweight view of Europe’s real estate sector.

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