by John O’Donnell and Tom Sims
FRANKFURT (Reuters) – Germany’s real estate market may have suffered for three years, but the crisis could get worse with more bankruptcies to come, the head of Vonovia, the country’s industry heavyweight, predicts.
“We are going to see an extreme number of bankruptcies in the coming months, maybe years. We are already seeing them today,” Rolf Buch told reporters on Tuesday. “That will hurt.”
For years, low interest rates and a buoyant German economy have supported the real estate sector, which is worth around 730 billion euros a year and accounts for about a fifth of the country’s activity.
This boom period ended when the European Central Bank (ECB) had to quickly raise interest rates in the face of rising inflation. As a result, borrowing costs soared, funding dried up, projects were frozen, developers collapsed and some banks even faltered.
Vonovia, built by Rolf Buch through expensive acquisitions, was forced to sell off a large number of homes to reduce its massive debt when the crisis hit.
In the process, the group, which owns around 550,000 homes, had to depreciate the value of its assets by almost 11 billion euros in 2023, recording the largest loss in its history, 6.7 billion euros.
Rolf Buch assures that Vonovia has now turned the page on these massive depreciations, even if he concedes that slight adjustments remain possible.
To the relief of the sector, the ECB began cutting rates in early June. However, many real estate players in Germany remain cautious.
“Whether or not the ECB changes its interest rates at the margin, it will not reverse the trend for real estate,” says Matthias Danne, a member of the supervisory board of Deka, one of Germany’s largest asset managers with 55 billion euros invested in the sector.
After two years of monetary tightening, interest rates remain high and the hoped-for rebound in sales is “slower in coming than expected,” Matthias Danne told Reuters.
(With Matthias Inverardi, Bertrand Boucey, edited by Kate Entringer)
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