Vonovia, German property giant, reports $2.1 bln loss amid sector challenges.

Vonovia, German property giant, reports $2.1 bln loss amid sector challenges.

Germany’s Largest Real Estate Group Vonovia Faces Losses in a Struggling Property Sector

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Germany’s property sector, once booming, is now facing a sharp reversal of fortunes as the era of cheap money comes to an end. Vonovia, the country’s largest real estate group, is feeling the impact of this downturn, slipping to a 2 billion euro ($2.19 billion) second-quarter loss and writing down the value of its properties by 3 billion euros.

The loss reported by Vonovia is a significant drop from the 1.8 billion euros profit it recorded in the same quarter last year. Moreover, the company confirmed its forecast for a drop in a key profit measure by 2023. As Germany’s biggest landlord, Vonovia’s performance serves as a bellwether for the country’s property sector, which is currently mired in its worst crisis in decades.

The value of Vonovia’s assets also took a hit, falling to 88.2 billion euros in the quarter from the end of March, marking a further writedown of 3.3%. This decline reflects the overall trend in Germany’s real estate market, characterized by insolvencies, falling prices, decreased transactions, and a stagnation in construction jobs.

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Recognizing the severity of the situation, Germany’s property industry plans to seek multi-billion euro support from the government. The industry will present its case to Chancellor Olaf Scholz in a meeting scheduled for September. This support is crucial to help alleviate the challenges faced by companies like Vonovia.

Despite the difficult market environment, Vonovia’s Chief Executive Rolf Buch viewed the company’s performance as a major achievement. “It’s a major achievement that we performed so well in this challenging market environment,” he said. However, analysts at Stifel recently downgraded Vonovia and other property companies to “sell” from “hold”, anticipating a “protracted hangover” after “a seemingly endless party of growth fueled by ever cheaper finance”.

Vonovia’s shares have experienced a decline of almost 7% this year, in contrast to the 14% climb in Germany’s blue-chip DAX index. This reinforces the challenges faced by the real estate industry in the country. Looking ahead, Vonovia has affirmed its full-year guidance for its key profit metric, the so-called funds from operation, which is expected to range from 1.75 billion euros to 1.95 billion euros. This forecast indicates a drop from the 2.04 billion euros recorded in 2022.

The struggles faced by Vonovia and Germany’s property sector highlight the need for a comprehensive and strategic approach to address the challenges ahead. With the decline in the property market, it is essential for the government to consider supportive measures that can assist companies in weathering the storm. By working together, the industry and government can navigate this challenging period and lay the groundwork for a stronger and more resilient real estate sector in the future.

($1 = 0.9132 euros)

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