Construction staff are seen at a brand new condominium construction project in Huerth, western Germany, April 5, 2023.
Ina Fassbender | Afp | Getty Images
Shares in German real estate giant Vonovia fell greater than 7% on Friday, shining a lightweight on the deepening real estate crisis in Europe’s largest economy.
The residential real estate company on Thursday reported an annual lack of 6.76 billion euros (7.37 billion US dollars) for 2023 and justified this with a declining valuation trend that had “significantly weakened” over the course of the 12 months.
This was greater than ten times the lack of 669.4 million euros the previous 12 months, which in itself marked an abrupt end to years of consecutive annual profits.
A pointy rise in rates of interest in addition to rapidly rising energy and construction costs have hit the German real estate industry hard and the country’s real estate industry is within the worst crisis in several years.
In the 2023 financial 12 months, Vonovia said it made value adjustments totaling around 10.7 billion euros for its portfolio of greater than 500,000 properties. The company added that the investment-adjusted value of its properties fell to around 81.1 billion euros at the tip of last 12 months.
“The collapse in ratings is the worst we have ever seen,” Vonovia CEO Rolf Buch told reporters on Thursday evening. in response to Reuters.
Construction cranes at housing developments in Berlin, Germany, on Friday, December 8, 2023.
Bloomberg | Bloomberg | Getty Images
Looking ahead, Vonovia’s CEO said in the corporate’s annual report that the “overall environment will remain challenging in 2024”, but that quite a few positive trends suggest that the investment climate is steadily starting to enhance.
“A growing number of analysts are confident that values may now have bottomed out, and many expect the first rate cut as early as this year as inflation is at its lowest level in two and a half years,” Buch said said in a press release.
“These are important signals for us. Once the market has stabilized, we will return our focus to increasing earnings.”
With around 800,000 firms and around 3.5 million employees, the German real estate industry is a mainstay of Europe’s largest economy ZIA industry association.
“Housing will continue to be expensive”
An analyst told CNBC on Friday that the outlook for Vonovia in the approaching months is favorable.
“Especially at Vonovia, I find it quite interesting that the CEO’s formulation of the price correction is, in my opinion, very, very exaggerated, because we have experienced a decline in real estate prices of 10 to 15% in Germany? “This is not the end of the world,” Arnaud Girod, head of economics and cross-asset strategy at Kepler Cheuvreux, told CNBC’s “Squawk Box Europe” on Friday.
“But what is more interesting is that I think we had major housing supply issues across Europe before this interest rate cycle started. Now that we’ve had very, very little new construction for about two years, you can talk about this housing shortage.” “It’s getting worse – not better,” said Girod.
“Unfortunately for people, I think housing will still be expensive, and that really benefits companies like Vonovia in this area. Your asset value probably won’t go down very much from here.”
The French brokerage firm has an chubby view on the European real estate sector.
