One of Europe's largest real estate groups currently believes it is impossible to invest in Germany given the expropriation plans in Berlin.
The Swedish real estate group Heimstaden Bostad will not allocate any further capital to Germany as long as the expropriation proposal is on the table, said co-CEO Christian Fladeland in an interview with the Bloomberg news agency. The real estate group owns around 20,000 apartments in Berlin worth around five billion euros. That corresponds to 15 percent of your portfolio.
“Of course I believe that you can’t invest in Germany if you make laws like that,” said Fladeland. “Even though this is Berlin-specific, I think it has very strong implications for how you can assess the risk of foreign direct investment in a country.”
A possible Left-led coalition in Berlin has agreed to push forward a law that would force private landlords with more than 10,000 apartments to transfer properties above that threshold into public ownership. The compensation should be limited to 16 billion euros. The law is planned for 2028 and implementation for the following year.
Fladeland estimates that around half of Berlin's Heimstaden portfolio could be affected. If the compensation is 40 percent below the market value, this could result in a loss of one billion euros. He sees a “very, very low probability” that the expropriations will ultimately actually be implemented. However, the uncertainty is already influencing where the company invests its money.
Berlin is struggling with a housing shortage and sharply increased rents. This has encouraged political support for greater government control of the rental market. The Left ran in the Berlin House of Representatives election last month with the promise of implementing the results of a 2021 referendum. A majority voted in favor of transferring large private real estate holdings into public ownership.
The city has been slow to provide space for new housing and needs to attract more private capital to increase supply, Fladeland said. According to the CEO, the expropriation push threatens to have the opposite effect by discouraging investment without creating additional housing.
“With this measure, I can't think of a worse way to actually stop any capital from coming into the city and helping solve the real problem,” Fladeland said.
The proposal still faces significant political and legal hurdles. In July, the federal government agreed to introduce a law that would prevent federal states from expropriating private housing. At the same time, it is expected that a Berlin law would be constitutionally challenged.
Fladeland expressed confidence that an expropriation would ultimately fail in court.
The Left, the Greens and the SPD want to start formal talks about forming a government next month. The terms of the agreement for expropriations can still change.
“I find it very, very difficult to imagine how the politicians who were so aggressively touting this to voters a month or two ago will suddenly change course,” Fladeland said. “I think it needs to be blocked at the federal level if it’s going to be blocked.”
Other large landlords also warn in a similar way. Vonovia SE CEO Luka Mucic emphasized that companies would direct capital into markets where investments were welcome and where there was “reliability and legal certainty”. He said the planned corporatization was unconstitutional and would not stand up to legal scrutiny.
For Heimstaden, the immediate financial risk is significant, even if Fladeland believes the worst scenario is unlikely. According to his estimate, under the proposed regulation, the company's Berlin properties worth around 2.5 billion euros could be affected by expropriation.
The estimated loss of one billion euros “has a significant impact on us,” he said. Even in that scenario, the company would still have enough room to maintain its investment-grade credit rating, he said.
The unlisted Heimstaden Bostad, whose main owners include billionaire Ivar Tollefsen's Heimstaden and the Swedish pension fund Alecta, unlike Vonovia, does not have a share price from which development can be seen. However, its publicly traded bonds provide an indication of how the market views the risks associated with the company.
