The largest German real estate groups see an end to the wave of devaluation in their residential portfolios.

The real estate group LEG significantly limited its losses in the first half of the year and only had to write down its portfolio by 1.6 percent. Industry leader Vonovia had already declared at the half-year mark that it had left the real estate crisis behind it. Vonovia had written down the value of its portfolio by 1.7 percent in the first half of the year.

"The devaluation cycle is coming to an end in the foreseeable future and we are seeing an upturn in the transaction market," said LEG CEO Lars von Lackum. "We expect values to stabilize significantly in the second half of the year," he added. He promised shareholders a significantly higher dividend for 2024. This was well received by investors. LEG shares rose by 5.3 percent in the morning to a two-and-a-half-month high of EUR 85.42. Vonovia shares also rose.

Rapidly rising interest rates from the European Central Bank (ECB) and high construction costs caused problems for real estate companies last year. Real estate prices collapsed. Numerous project developers slipped into bankruptcy. Industry leader Vonovia and LEG had to report losses in the billions in the previous year. LEG's portfolio had lost almost 17 percent in value cumulatively since its peak in mid-2022. But now the groups are sniffing the morning air again. The Kiel Institute for the World Economy (IfW) has also stated that there are signs of a turnaround in real estate prices. Investors are regaining confidence in the long-term increase in the value of real estate. The housing shortage is also leading to high rents - which is good news for corporations, but less so for those looking for a home.

"We are optimistic about the future," said von Lackum. "After a long time, the overall market is also giving us a tailwind again." There is increasing movement in the transaction market. The behavior of investors who want to buy apartments from LEG has also changed. They are no longer just looking at the price - but also for a quick deal. After all, the value of the properties could now rise again. Since the beginning of the year, LEG has agreed the sale of around 2,900 apartments for around 285 million euros and has already completed some of them. Overall, the prices are slightly above the book value. Vonovia CEO Rolf Buch had already announced his intention to switch back to growth soon.

For LEG, however, the reduction of debt through the sale of apartments continues to be important. "Don't start running just yet, Lars," said CFO Kathrin Köhling. The operating business of the listed number two on the German housing market, with over 165,000 apartments, went well in the first half of the year. LEG achieved a result of 110 (previous year: 118.6) million euros for its most important earnings figure, the cash inflow (AFFO). The same period of the previous year was characterized by a positive special effect of 16 million euros. Without special effects, AFFO would have increased by 6.9% and would therefore have been significantly higher than the previous year's figure.

LEG has raised its forecast for AFFO for the year as a whole to between 190 and 210 million euros - up from 180 to 200 million euros previously. Net rent increased by 3.3 percent in the first half of the year. At the bottom line, the Düsseldorf-based company posted a loss of 143 million euros in the second quarter, compared to more than one billion euros a year ago due to property devaluations.

(Report by Matthias Inverardi and Tom Sims, edited by Olaf Brenner. If you have any questions, please contact our editorial team at berlin.newsroom@thomsonreuters.com (for politics and the economy) or frankfurt.newsroom@thomsonreuters.com (for companies and markets).)