The five-year rent cap announced for Berlin has resulted in the top sixty publicly traded property companies in Germany losing around £7 billion in value over the second quarter of the year.
According to data compiled by the European Public Real Estate Association. The 7 per cent fall in value compared to the previous three months was by far the worst performance among European countries.
Deutsche Wohnen, Berlin’s biggest apartment owner, has lost a quarter of its value since the five-year rent cap was proposed.
Berlin city officials acted after escalating rents which have risen by more than 50 per cent in recent years as property investment companies and overseas property investors moved into the Berlin property market.
With interest rates around the world at all-time lows, the lower yields on property may still 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 still talk that that there could be a legal challenge on the basis the rent cap is a price-fixing and/or market manipulation mechanism.
The rent cap plan would allow small, fixed rent increases in case landlords decide to renovate their apartments, but large improvements would require city approval first. If landlords ignore this rule, they could face fines up to €500,000.
While the rent cap should only affect large corporate landlords, overseas property investors need to make sure that their purchases in the Berlin buy to let property market are not affected.
Jakob Maehren, a German property company which owns 2,000 apartments told Bloomberg. ‘We’re moving in a fatal direction, 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.’
However, it may be that smaller overseas property investors could find opportunities in Berlin as the larger corporate landlords reduce their portfolios due to the rent cap.