Wednesday, February 21, 2024
HomeEconomyExclusive-German landlord TAG warns home prices could fall 30% from peak

Exclusive-German landlord TAG warns home prices could fall 30% from peak

By John O’Donnell, Tom Sims and Matthias Inverardi

DUESSELDORF (Reuters) – German home prices could fall as much as 30% below their 2022 peak, one of the country’s largest landlords told Reuters, in a more pessimistic assessment than rivals highlighting the continued threat posed to Europe’s biggest economy.

TAG Immobilen co-CEO Martin Thiel painted a bleak picture for Europe’s biggest residential property market, which has already seen prices tumble by around 10% in Germany’s worst property crash in a generation.

“We expect further losses in value,” Thiel said, adding that while he expected the fall in valuations to bottom out at 20%, TAG was taking precautions for worse.

“You have to be prepared in case it is not the 20% but 25% or 30%. The balance sheet must be able to withstand that. You simply need that cushion,” Thiel said in an interview.

“The market for transactions is incredibly difficult,” he said. “You hardly see any big transactions.”

Germany’s 670 billion euro ($722 billion) property industry is a critical pillar of its economy, contributing one in 10 jobs, nearly a fifth of output, and eclipsing the country’s famous car sector, according to the ZIA industry association.

Thiel said that after writing down the value of TAG’s portfolio of 85,000 German homes by 13% since the middle of 2022, he expected a total drop in value of 20% by June.

His view is markedly more downbeat than that of Germany’s largest listed property group Vonovia, whose CEO Rolf Buch told Reuters he was cautiously optimistic that the worst was over.

Vonovia wrote down the value of its property by roughly 10% to June, plunging the group to a 4 billion euro loss.

“I cannot guarantee that we will not see valuations that are a little bit lower in the next half year,” said Buch, whose company owns roughly 550,000 apartments.

“But it seems that the market is reaching the bottom,” he said. “Similar to Formula One racing, we will soon be coming out of the curve and we will then pick up speed. This moment is getting close, but at the moment we are still on the brakes.”

LEG Immobilien, Germany’s second-largest listed landlord, had written down the value of its 166,000 apartments by more than 10% by the middle of last year and signalled further writedowns of up to 6%.

LEG CEO Lars von Lackum said he did not expect a 30% drop.

“The German property market is not going to implode,” von Lackum told Reuters.

For years, property in Europe and particularly Germany boomed as interest rates fell, turbocharging demand. But a sudden jump in rates and building costs tipped some developers into insolvency as bank financing dried up and deals froze.

Germany is so far Europe’s hardest hit in a rout that has also struck China and the United States. Jobs are increasingly on the line, and the industry has called for emergency aid.

In Europe, the sector suffered a setback with the downfall of property mogul Rene Benko’s Signa, which threatened his vast retail holdings and the future of New York’s Chrysler Building.

Thiel’s comments give insight into an industry which is largely in the hands of small, privately-owned companies.

Many investors and company executives who spoke to Reuters have been reluctant to book losses, hoping the market improves.

The dearth of deals also make it hard to identify prices, although this could change if a likely cut to interest rates expected in the middle of this year kick-starts activity.

Thiel said that while listed companies were forced to react fast, many sellers were dragging their feet in cutting prices.

“Potential buyers know that the prices have changed,” he said. “Both sides are some way apart. That is why we partially have a standstill.”

TAG’s CEO said he had misjudged the scale of the slump that forced it to withhold dividends, sell property and raise capital.

“If you had asked at the beginning of 2022 whether prices for apartments … would fall by 20%, I probably would have said: impossible. The business is too stable for that.”

The outlook for 2024 remains grim, with DIW, a prominent economic institute, forecasting that construction spending is set to fall this year for the first time since the financial crisis, before stabilizing in 2025.

($1=0.9284 euros)



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