Construction workers at a new residential construction project in Hoerth, western Germany, on April 5, 2023.
Inna Fassbender | AFP | Getty Images
Shares of German real estate giant Vonovia fell as much as 7% on Friday, highlighting the deepening real estate crisis in Europe's largest economy.
The share price trimmed its losses slightly, falling 5.4% at 10:35 AM London time.
The residential real estate company on Thursday reported an annual loss of €6.76 billion ($7.37 billion) for 2023, citing a declining valuation trend that has “weakened significantly” over the year.
This was more than 10 times the size of the €669.4 million loss reported the previous year, which itself marked an abrupt end to years of consecutive annual profits.
Sharp rises in interest rates and rising energy and construction costs have hit Germany's real estate sector hard, with the country's property industry in the grip of its worst crisis in several years.
In fiscal year 2023, Fonovia said it made total value adjustments of approximately €10.7 billion across its portfolio of more than 500,000 properties. The company added that the value of its real estate at the end of last year, when adjusted to reflect investments, fell to about 81.1 billion euros.
“The collapse in valuations is the worst we have ever seen,” Fonovia CEO Rolf Buch told reporters on Thursday evening, according to Reuters.
Construction cranes at residential projects in Berlin, Germany, on Friday, December 8, 2023.
Bloomberg | Bloomberg | Getty Images
Looking to the future, Fonovia's CEO said in the company's annual report that although “the overall framework will remain a challenge” in 2024, a number of positive trends indicate that the investment climate is starting to improve.
Butch said: “A growing number of analysts are confident that values may have bottomed out now, and many expect the first interest rate cut early this year, as they see inflation having reached its lowest level in two and a half years.” . a permit.
“These are important signals for us. Once the market stabilizes, we will shift our focus back to increasing profits.”
Germany's real estate sector is a mainstay of Europe's largest economy, with about 800,000 companies and about 3.5 million employees, according to industry association ZIA.
“Housing will still be expensive.”
One analyst told CNBC on Friday that Vonovia's outlook appears supportive over the coming months.
“Regarding Vonovia specifically, what I find interesting is that the CEO's wording about price correction is very exaggerated in my view because we have seen a 10-15% drop in house prices in Germany? This is not the 'end of the world',” he said. Arnaud Giroud, head of economics and multi-asset strategy at Kepler Cheuvreux, told CNBC's “Squawk Box Europe” on Friday.
“But what's even more interesting, I think we had huge supply issues in Europe in general in terms of residential housing before the interest rate cycle started, and now that we've seen about two years of very low new construction, you could say that this is a housing shortage,” Giroud said. “It will get worse — not better.”
“Unfortunately for people, I think housing is going to remain very expensive and that's very supportive of companies like Vonovia in this space. The value of their assets is unlikely to go down much from here.”
The French brokerage has an over-view of the European real estate sector.
