BERLIN, Germany - A 5-year rental freeze on propertties in the German capital has resulted in the loss of billions of dollars for German property companies.
The combined market value of the company's sixty publicly traded property-owners dropped by $8 billion in the second quarter to 30 June 2019, according to data compiled by the European Public Real Estate Association. The 7% fall compared to the previous three months was by far the worst performance among European countries, a Bloomberg report said Sunday.
Deutsche Wohnen, Berlin's biggest apartment owner, has lost a quarter of its value since the rent cap was proposed.
City officials acted after escalating rents which have risen by more than 50% in recent years. Companies such as Deutsche Wohnen saw their shares catapult higher. The situation eventually turned ugly and resulted in widespread protests by tenants, struggling to pay the rising rents.
With interest rates around the world now bordering on zero, the lower yields on property may start to look attractive. In the meantime however with growth capped for five years, German property companies generally, particularly those with exposure to the Berlin market, are likely to be in for a lean time.
Berlin announced the rent-cap plan in June. How it will be implemented and what form it will take is still being worked out, and won't be finalised for another two months.
There is talk too that there may be a legal challenge on the basis it is a price-fixing and/or market manipulation mechanism. Rent-caps are uncommon as most rental markets are subject to supply and demand. Cities such as Dubai, in the UAE, which have seen major rental increases have also imposed rent caps. Whether it be because of the attempted manipulation of rents or for other reasons, the Dubai property market has been extraordinarily volatile and has faced extraordinary peaks and troughes. The Dubai market is currently in a slow state of collapse, a trend that began in 2014, and rentals have fallen back to levels not seen since the GFC more than a decade ago.
For Germany however the move to freeze rents and for such an extended period is causing shocks beyond the investment sector. For renters it will be a boon. For landlords, it will stifle growth and incentive for investors to support property development.
"We're moving in a fatal direction," Jakob Maehren, a German property company which owns 2,000 apartments told Bloomberg. "Berlin is our home market but we've decided to reduce our investments here because of these measures, which won't help the average renter at all."
(Photo credit: Abrizio Bensch/Reuters).