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Controversial statement on inflation and rents: Vonovia boss Rolf Buch reverses cause and effect

2022-06-04T09:39:28.507Z


In the future, rents will have to rise with the inflation rate – with this statement, Vonovia boss Rolf Buch unleashed a wave of indignation. Why did he do that? He doesn't even provide good arguments.


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Headquarters of the Vonovia Group: expenses for new buildings reduced

Photo: Marcel Kusch / dpa

It takes something to make one's voice heard in public at a time when the atrocities of the Russians in Ukraine or the outrageous prices for petrol and diesel at the gas stations are making the headlines.

Vonovia boss Rolf Buch succeeded by giving an interview to the »Handelsblatt«.

He was concerned with rents that should be increased annually in step with the inflation rate in the future.

"If inflation is permanently at four percent, rents will have to increase accordingly every year in the future," explained the top manager.

The storm of indignation was not long in coming.

“The fact that tenants have to be held responsible for Vonovia’s collapsed share price and higher interest rates on the capital market shows that the business models of listed housing groups are antisocial and speculative,” said the President of the German Tenants’ Association, Lukas Siebenkotten, to the “Welt”.

SPD General Secretary Kevin Kühnert described Buch's statements in an interview with SPIEGEL as "blatant".

The managing director of the Berlin tenants' association Reiner Wild even senses a breach of the law with an announcement: »Regulations such as the rental price brake and the cap limit set the legal framework in the vast majority of tenancies.

It does not provide for rent increases in step with the inflation rate, «explains the tenant protector.

Also: if the inflation rate is such an important indicator for Vonovia, why not go the other way around when it was just under two percent?

Strongly reached

The explanation should not be easy for Vonovia boss Buch.

For its more than 500,000 apartments, Germany's largest landlord collected 7.40 euros per square meter in the first three months of this year - 3.1 percent more than in the previous year.

In Berlin, where Vonovia owns around 110,000 apartments through its subsidiary Deutsche Wohnen, the group did even better with more than 8 percent.

Incidentally, it is quite different from the majority of private landlords: overall, rents there rose by only 1.7 percent.

However, the general moderation obviously had just as little influence on the housing group as the inflation rate, which averaged 1.8 percent in the first half of 2021.

Aside from such considerations of fairness and credibility, there are hardly any business arguments that inflation is increasing the price pressure on rents.

For example, in existing dwellings, capital service costs tend to play a much larger role than the increase in maintenance and modernization costs.

They are also influenced by other framework conditions and only change over the long term.

The costs for modernization are more likely to be viewed as a transitory item because they can largely be passed on to the rent.

Administrative expenses are also rather low in relation to total sales.

What remains are the costs of maintenance, which are reflected in higher wages for craftsmen and higher prices for materials.

In the case of Vonovia, according to the balance sheet, they amounted to almost 666 million euros in 2021 - almost 30 percent of total sales before taxes and depreciation.

Higher wages also increase rents

The rough calculation shows that the effects of currency depreciation on the real estate company's cost accounting are not that dramatic.

Especially since other factors - namely the increase in value of the real estate - are not included in the overall balance, since they do not have any tax effect.

When Buch uses inflation as a justification for rent increases, he's dealing with cause and effect, summarizes Reiner Braun, managing director of the real estate consulting institute Empirica.

Nevertheless, inflation has an effect - for example by increasing rents or if the trade unions enforce higher wages to compensate.

“The money is then on the market and is being spent – ​​also to pay the rent for the apartment we were desperately looking for.”

So what's really behind Buch's announcement?

Tenant protector Wild and real estate economist Braun are largely in agreement on this issue as well: it serves more to calm investors in the listed Vonovia group.

Because Vonovia, like the other listed real estate companies, has had to watch helplessly since the beginning of the year as its shares lose value.

The losses recently added up to around 30 percent.

Deutsche Wohnen, which was still listed despite the takeover, went down at the same pace, as did Düsseldorf-based LEG Immobilien.

The background is probably investors' fears that the challenges of the coming years will still cost companies dearly.

There are signs that the European Central Bank will change course in the coming months.

The days of mini-interest rates should therefore be a thing of the past.

This makes loans more expensive.

Record dividend for investors

Last but not least, Buch wants to spend less on new buildings in the future: around one billion less are available for existing and new buildings.

On the other hand, the costs for the renovation of insulation and more climate-friendly heating systems are increasing.

The number of new buildings has been declining since the beginning of the year, for the first time in a decade.

In view of the high demand in the metropolitan areas, construction is urgently needed.

But that is not easy at all: there is a lack of building land.

At the same time, materials such as cement, steel and wood have become much more expensive.

And the regulations and requirements also drove up the construction prices.

In view of these framework conditions, the Vonovia boss's attempt to keep shareholders in line with increased dividend payments should only have a temporary effect.

At the last general meeting, Buch suggested EUR 1.66 per share, eight cents more than in the previous year - and a historic high.

Source: spiegel

All business articles on 2022-06-04

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