Analysis: Berlin housing more likely to see return of rent cap than expropriation

The result of the referendum held in Berlin on the expropriation of real estate owned by companies is unlikely to affect institutional investors – but it could lead to a revision of regulations on affordable housing.

A majority of 56.4% of Berlin residents who took part in the referendum on 26 September voted in favour of taking assets away from companies owning more than 3,000 properties, as proposed by the “Deutsche Wohnen & Co Enteignen” initiative. The referendum was held on the same day of the vote to elect the new Berlin mayor, which saw the victory of Social Democrats Franziska Giffey, who had spoken against the expropriation but at the same time called to respect the result of the popular vote.

The referendum result is only a recommendation and will “not have an impact on institutional investors”, says Thomas Beyerle, head of research at Catella and managing director of Catella Property Valuation. “Investors will continue to invest in Berlin.”

The referendum will have a “freezing effect” on the residential real estate market in the German capital, he said. “There definitely won’t be expropriation, but the Berlin administration will give special rent brakes, maybe define hotspots, on existing buildings and not on new buildings.”

Beyerle says it is conceivable that the administration will freeze “the market for existing buildings as a kind of rent cap, and show that it does not touch the residential properties being developed, as long as the properties fall into a mid-price market segment”.

Similarly, a real estate investor, who wished to remain anonymous, said the impact of the referendum on real estate in Berlin would be “minimal”, adding: “it is unlikely that [the expropriation] is going to happen”.

He said: “The referendum will be used more to negotiate with very big institutional owners and it could result in sub-portfolios sold to the city.”

The result of the popular vote could also lead to the creation of a “roundtable” to think through “more clever solutions than going down this road [of the expropriation]”, the investor said, pointing to the city’s rent cap, called Mietendeckel, which was repealed earlier this year.

In this sense, domestic property owners might be affected in the medium term.

Vonovia and Deutsche Wohnen will have to discuss “how the market can be regulated in a way that it makes sense”, the investor said. The result could be seen in the next six to 12 months.

Vonovia has paved the way for a merger with Deutsche Wohnen by acquiring a 60.3% stake in the company on the premise of bringing forward its commitment to what is called the Future and Social Pact Housing for Berlin. Under the pact, rent will increase by a maximum of 1% per year for three years, and in line with inflation over the subsequent two years.

The two companies have sold 14,750 residential units to municipal housing companies in Berlin and are prepared to build 13,000 new residential units.

Vonovia said it will continue to focus on finding constructive solutions for the housing market in Berlin despite the result of the referendum. The challenges in the housing market can only be solved if housing companies, politics and society join forces to find solutions, a spokesperson for Vonovia said, adding that the expropriation will not alleviate the concerns of the Berlin residents.

Deutsche Wohnen intends to take an active part in working on solutions for the housing market, a spokesperson said.

“I believe in a rental cap of 10 years, and I believe that most of the rental cap apartments will end up in social housing funds,” Beyerle said. “We have to find a solution to bring people in affordable houses in urban areas.”

In his view, the administrations should divide the market between high-end properties and affordable housing – “while now the market is only new developments in high-end housing and they should put a break to this”.

The unnamed investor said the market needs regulations, especially in large cities. “I can imagine that the administration in Berlin, or even on the federal level, is going to look at how to deal with the increase in rents: a moratorium or maybe a rent cap coming back in a different shape – something that is ok for owners and for tenants.”

A solution, for instance, could lay with a new federal law, called Baulandmobilisierungsgesetz, which gives communities the pre-emptive right to take over properties and to municipalities the option to acquire land at market value easily.

“We will see this law being used more frequently,” the investor said. “We have seen in Berlin too that the communities have tried, not yet successfully, to exercise their pre-emption right in a share sale structure where you sell the shares of the holding company. You can see how much the focus has increased on the municipalities to transform the units into more affordable places.”