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Residential Germany Apartment
Residential housing sector
After weeks in which hundreds of millions were wiped off the value of listed German real estate companies, trading on the last day of August saw powerful rebounds in the share prices of leading German companies with exposure to the residential housing sector.
As news crept out about the effective abandonment of plans by the city’s left-wing Senate government to impose drastic rental price restrictions, including a five-year long freeze on rent increases and a threatened capping of all rents at under €8.00 per sqm (per month), she share prices of German housing companies leaped up sharply. Deutsche Wohnen, often viewed as the bogeyman of the sector because of its huge number of apartment holdings in the capital (116,000 units), jumped by more than 11% to make up at least some of the heavy ground it has lost since June, when the radical government plans under the Senate’s housing minister Katrin Lompscher first leaked out to the public.
Other leading shares, including those of Vonovia, LEG Immmobilien, Grand City Properties, Aroundtown, Ado Properties and TAG Immobilien also rose by up to 5%, or more.
Even members of Frau Lompscher’s own government, including governing mayor Michael Müller of the left-of-centre Social Democrats (SPD), were obviously dismayed at what appeared to be the new government policy going forward, spearheaded by the hard-left Frau Lompscher’s department. The Tenants Association itself held the measures for too restrictive, agreeing they would have choked off any incentives whatsoever for landlord to invest anything in the upkeep of their properties.
It now looks like any changes in the existing law will be limited to capping rent increases to the level of consumer price inflation, and in some case limiting to 30% the share of a household’s disposable after-tax income to paying rent. Given the shock of the past couple of weeks, most landlords could certainly live with these limitations. Frau Lompscher, in presenting her new watered-down proposals, said in her statement that the main goal of all the negotiations of the past weeks was “to ensure that people no longer need to have any fear about losing the roof over their heads.”
However, the clearly-signalled prio intentions of the Berlin government had already shaken plenty of investors, who have now definitively shifted their plans away from further investment in Berlin. The housing developers’ association BFW Berliner Verband der Freien Wohnungsunternehmen published a survey last week (before the retraction) taken from 60 of its member firms. 72% of those surveyed said they planned to halt or not pursue planned investments in the city. 30% said they would build condominiums for sale, rather than apartments for rent. 60% said they were stopping all modernization or refurbishment, while 41% of the companies said they were shifting their activities to the surrounding state of Brandenburg.
These are developers who, as a rule, sell on the finished assets to institutional investors or high net worth individuals. Basically, three-quarters of them are now no longer prepared to invest in housing in Berlin, said BFW, from its experience with its members. GFW president Susanne Klabe said, “Just the mention of a rental cap in Berlin deeply unsettled not just tenants but the whole real estate industry, although the bill had not even been officially drafted. The constant leaking and publication of plans from Frau Lompscher’s office had served to stir up speculation and heightened the drama surrounding the city’s residential market, said Klabe.
The red-red-green governing coalition in Berlin and its internal debates about dampening housing price inflation in the city has been facing sharp criticism from its local opposition. The Christian Democratic (CDU) leader in Berlin, Kai Wegner, said that carrying out these internal disputes at the expense of tenants was a clear sign of the governing coalition’s political bankruptcy, with the Senate completely incapable of formulating the decisive questions about the future of Berlin. “The left-led Senate is incapable of governing. The rental cap would leave the Berlin residential market in a state of ruin. Instead of solutions, people are just getting huge legal uncertainty and a pile of false promises – this is no way to run a growing city like Berlin with all its opportunities and challenges.
Likewise the Liberals (FDP) attacked the leftist coalition, with fraction chief Sebastian Czaja accusing Frau Lompscher of “pursuing a diabolical course of political clientelism”, saying that no justice was being served “by having residents being allowed to live in beautiful old apartments for peppercorn rents, while small property owners are being deliberately driven to ruin.”.
In Berlin rents have risen particularly strongly over the past few years, with landlords charging an average of €11.71 per sqm per month on new lease agreements, double the level of ten years ago. In Munich and Stuttgart rents have risen by 50% over the same period, and by 40% in Hamburg and Frankfurt.
Germany’s Interior Ministry said last week that every seventh household in the country was now paying more than 40% of its net disposable income for accommodation, based on the latest available figures from 2017. This is barely changed from 2010, the figures showed.
The new Berlin plans are to set a limit at 30% of household income for housing expenditure, as it already is by many of the city’s municipally-owned housing companies. The obvious flaw in this plan, as the opposition FDP were quick to point out, is that those whom the regulation is designed to protect – those on lower incomes – are likely to be the most negatively affected by the new measure, as landlords will increasingly favour those with the bigger incomes when deciding on which tenant to choose.
The Berlin association of tradesmen (Handwerkskammer), such as painters, plumbers, electricians and plasterers, has already said that their members report widespread cancellation of orders for maintenance and refurbishment on jobs for which they’d been hired. While the situation isn’t as grim as it looked a few weeks ago, it might take some time for many landlords to reverse their plans yet again to give renewed commitment to Berlin, with its flaky and illogical politics.
