Due to rising interest rates and high construction costs, Germany's largest housing group, Vonovia, is reducing its investments in new construction and modernization.

The Dax group wants to invest half a billion euros in modernization and 350 million euros in new construction in the coming year, significantly less than in previous years.

For the current year, the Bochum-based company had calculated 800 to 900 million euros for modernization and half a billion euros for new construction.

Jonas Jansen

Business correspondent in Düsseldorf.

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"The new building on reasonable terms is no longer possible," said Vonovia CEO Rolf Buch in a conference call on Friday to present the results for the third quarter.

Interest rates have increased by a factor of 4.

The increase in construction costs is also dramatic.

Buch pointed out that this development contradicts the new construction targets, which he believes are not ambitious enough at 400,000 apartments per year.

“We should actually all increase investments.

But we are forced to go in the other direction, also because of the financing costs,” said Buch.

150 billion euros a year

150 billion euros in investments are needed in Germany to achieve the new construction target – every year.

For comparison: The special fund for the Bundeswehr, which is to be made available once, amounts to 100 billion euros.

The real estate industry cannot solve this alone, argued Buch, and advocated either significantly increasing the subsidy amount for new construction or not setting even stricter standards for modernization.

Otherwise, this would lead to significantly higher rents.

"And the ability to pay increasing rents is not possible for a large part of the population," said Buch.

As a result, the housing issue threatens to become the social dynamite of the next decade in Germany.

"Housing shortage is a dramatic problem, we have to sit down and solve it now," Buch said.

As a result of the war in Ukraine, the number of refugees is already approaching the level of 2015.

At the same time, the so-called baby boomers will be retiring in the coming years, which is likely to increase the shortage of skilled workers.

"If we don't want to lose our ability to perform, we need qualified immigration from abroad," said Buch.

At the same time, the situation is made worse by the fact that the influx tends to take place in the big cities, where the housing shortage is already enormous.

Operational business is going well

In the first nine months of the financial year, Vonovia built 13 percent more apartments than in the same period last year, but that's still not enough, said Buch.

The number will now decrease significantly.

Nevertheless, this does not mean that Vonovia wants to say goodbye to its long-term climate goals by cutting investments.

The company owns 550,000 apartments, around 4 percent of the building area still belongs to the energy class “H”, which is the worst.

In order to reduce its debt, which has increased significantly as a result of the takeover of competitor Deutsche Wohnen, the housing group also plans to sell 66,000 apartments in the coming years.

Vonovia wants to generate around 13 billion euros with it.

However, significantly fewer transactions can already be observed in the market,

because some buyers are hoping for bargains, while at the same time the market is stable enough that no supplier has to sell out of necessity.

"We see at the moment that the values ​​remain at one level," said Buch.

In principle, Vonovia benefits from the Deutsche Wohnen takeover.

The integration will be completed as planned by the end of the year, the synergies should increase compared to the first assumption.

By 2024, they should amount to 105 million euros as planned, with a further 30 million euros likely to be added in the following years.

The takeover is also driving the business operationally: In the first nine months of 2022, operating profit, which is measured in the real estate industry using the FFO indicator, increased by 35 percent year-on-year to almost 1.6 billion euros.

Sales increased by a good 31 percent to 4.6 billion euros.

On Friday, the board of directors confirmed the forecast that the company had made before the outbreak of the Ukraine war.

The operating result is expected to rise to 2 to 2.1 billion euros after 1.67 billion euros in the previous year.

Due to interest and tax trends, Buch expects operating profit to fall slightly in 2023, but EBITDA to be slightly above the previous year's figure.

The somewhat cautious outlook had already been expected on the stock exchange, but investors actually appreciated the forecast – the share price temporarily rose by more than 4 percent.

But the paper has also been under pressure for a long time, since the beginning of the year it has lost almost half its value.