Vonovia turns project developer, pioneers low-cost building

As it gets ever more difficult to find residential portfolios at the right price, the larger players are looking at creating their own new stock of housing, and benefiting from the extra margin accruing to developers in Germany's bubbling housing market (see article on BUWOG in the May issue of REFIRE).

Germany's largest housing company, the Bochum-headquartered Vonovia SE, announced plans earlier this month to build about 2,000 new apartments a year and said it had set up "an extensive investment programmme" to meet its goals. The move will make Vonovia one of the biggest residential developers in Germany at one blow.

The company is already the country's largest landlord, and became even bigger when taking over listed Austrian housing company conwert Immobilien AG in March for €2.7bn. That added 24,500 apartments to Vonovia's holdings, bringing its stock up to 355,000 apartment units.

CEO Rolf Buch had already announced back in May that the company planned annual investment of about €1bn over the coming years in new construction, roof extensions and refurbishments in its housing stock, starting with capex of €730m this year.

The company's ambitious development plans have been fuelled by the apparent success of a pilot project in Bochum, where the company is headquartered, which started last year. Here the company has been building serial housing using prefabricated elements, including complete rooms, and achieving building costs of €1,800 per square metre, well below prevailing building costs. Still, Buch believes "it ought to be possible to build even cheaper", as he said in a recent interview in the Welt am Sonntag newspaper, while avoiding comparisons with traditional "Plattenbau" or the pre-cast concrete housing development of earlier eras, particularly in eastern Germany.

Vonovia is plowing a pioneering furrow in the development of new housing technology to create a form of standardised housing, albeit with different visual features. Buch has however been a proponent of lower building costs, if Germany is to make inroads into its problem of a big shortage of affordable housing, particularly in the big cities. Any additional measures to subsidise housing are not the solution, he says, and will not provide the necessary incentive for builders to build.

Vonovia has struck a deal with the European Investment Bank (EIB) to finance the company's capital expenditure in its housing stock. The EIB is providing Vonovia with a €300m loan on favourable terms, backed by the European Fund for Strategic Investments (EFSI), part of the European Commission's Investment Plan for Europe, the so-called "Juncker Plan". The plan is expected to trigger over €19bn in investments in Germany, and €209bn across Europe, according to the EFSI's figures.

Vonovia said that the structure of the eight-year unsecured funding provides it with a "high degree of flexibility at very favourable conditions."

According to EU Commission Vice-President Jyrki Katainen, in a statement from Brussels, "Upgrading housing units to ensure that they meet the latest energy-efficiency standards is a process that demands investment. That is where the European Fund for Strategic Investments can play an important role. Today's agreement is another demonstration of the important role EU support plays in enabling investments that can help deliver on our broader objective of maximising energy efficiencies and, at the same time, improve the daily lives of thousands of families."

Separately, Vonovia wasted little time is selling on a portfolio of about 2,500 apartments from the conwert Immobilien takeover to Zentral Boden Immobilien Gruppe (ZBI), which is 49.9% owned by fund manager Union Investment. The units are primarily located in Duisburg (1,000), Gelsenkirchen (150) and Chemnitz (600), with the rest spread across North Rhine-Westphalia.