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Bull and Bear at the Frankfurt Stock Exchange
It was initially hailed as a turning point. The German government’s decision to override the debt brake and unleash €500 billion in fresh borrowing—mostly for infrastructure and defence—was framed as a decisive step toward restoring the country’s ailing competitiveness. But for Germany’s battered listed real estate sector, it has felt more like a boomerang to the head.
Since the announcement of the so-called financial “bazooka”, residential property stocks have gone into freefall. Vonovia, LEG Immobilien and TAG Immobilien—all of which posted solid full-year results—have watched their share prices slump by between 15% and 19% since the start of the year, even as the DAX index has soared to record highs.
The mechanism is simple, if unforgiving: more public debt issuance means higher yields on Bunds, which in turn means pricier borrowing across the board. Construction loan rates have surged. Refinancing costs for highly indebted property companies are climbing once again—just as these firms were starting to regain their footing.
Analysts see upside - but bond markets tell a darker story
Take Vonovia. Germany’s largest landlord booked a €962m net loss for 2024—still painful, but a sharp improvement on 2023’s €6.7bn write-down-driven red ink. The company is proposing a €1.22 dividend, up 36% year-on-year. CEO Rolf Buch insists the crisis is behind them and that the firm is “capable of acting at any time and in any direction”.
Analysts broadly agree on the company’s operational progress, but still, price targets are being trimmed. Morgan Stanley, Deutsche Bank and Jefferies have all cut estimates, citing interest rate risks, stagnant FFO growth, and potential pressure on Vonovia’s 2028 EBITDA goals. The average price target still implies a 35% upside—but the share price has stubbornly refused to cooperate.
LEG Immobilien, meanwhile, is in technically better shape—back in the black with €68.9m in net profit and a modest uptick in portfolio values in H2 2024. But the sentiment penalty has been just as brutal. Morgan Stanley and Deutsche Bank slashed price targets, while Goldman Sachs warned of tighter margins due to a rising weighted average cost of capital. Only Warburg Research continues to strike a bullish tone, describing the sell-off as overdone and the dividend as attractive.
TAG Immobilien, often overshadowed by its larger peers, is performing above expectations. The firm’s €175m in 2024 FFOI beat guidance, portfolio values are stabilising, and a €930m liquidity buffer has not gone unnoticed. Analysts at Jefferies and Baader maintain buy/add ratings, and the average price target implies upside of more than 36% from current levels.
Debt-financed stimulus turns into a real estate headwind
The irony is not lost on investors. A stimulus package of this scale would, under normal circumstances, be cause for celebration—especially when it addresses Germany’s chronic underinvestment in public infrastructure. But for property companies, the consequences have been swift and painful.
Yields on ten-year Bunds have risen to around 2.8%, up nearly 80 basis points since January. Building loan rates now stand at 3.69%, marking the sharpest weekly increase since the global financial crisis, according to Barkow Consulting. For capital-intensive firms still lugging hefty debt loads, this is poison.
Vonovia’s loan-to-value (LTV) stood at 45.8% at the end of 2024. LEG’s was 47.9%. These ratios have improved in recent years—thanks largely to asset disposals—but neither company has the flexibility to weather another prolonged spike in funding costs without consequence. Both firms have shelved large-scale disposals and are eyeing selective acquisitions once again. That strategy now looks exposed.
Not another crisis - yet
To be clear, few observers believe the real estate sector is sliding back into full-blown crisis. Analysts from IW, Warburg Research and LBBW agree that fundamentals remain sound, rent growth is intact, and valuations have already corrected significantly. The pain, for now, is financial—not operational.
Still, it’s hard to ignore the echoes of 2022–2023. Rising rates compress valuations, force down NAVs, and reduce the appetite for risk across the board. Should Bund yields creep further upwards, another round of portfolio markdowns may be on the cards. Dividend payouts, debt covenants, and future construction plans will all come under fresh scrutiny.
Vonovia says it still intends to restart its newbuild programme in 2025. But with infrastructure and defence projects now competing for labour and raw materials, private-sector developers may find themselves priced out of the very recovery they hoped to ride.
Investors eye NAV discounts, but remain wary
For institutional investors, the situation presents a familiar dilemma: do you buy the sector at a discount on the thesis that the worst is over—or wait for clarity on the refinancing environment before stepping in?
Refinitiv consensus data shows that the majority of analysts remain in “buy” territory across Vonovia, LEG and TAG. But the bond market has made its view clear. The political deal to suspend the debt brake has reopened questions about inflation, interest rates and credit risk. And listed property companies are once again the canaries in the coal mine.
If Berlin’s spending spree was meant to stabilise the economic outlook, it has—at least in the short term—destabilised the balance sheets of some of the country’s biggest real estate names. The real question now is whether that’s a buying opportunity, or merely a pause before the next leg down.