Half-Year Report 2020

Fair Values

Major market developments and valuation parameters that have an impact on the fair values of Vonovia are assessed on an ongoing basis. Due to the market momentum recognized in the first half of 2020, Vonovia decided to perform a new valuation on the 20 German locations that account for the largest fair value shares. The list of the locations to be valued was extended to include six additional German locations in which considerable changes in value had been observed, as well as Vienna and the portfolio in Sweden. The selection includes the lion’s share of the portfolio, accounting for more than two-thirds of the total fair value. This revaluation led to net income from the valuation of € 1,812.3 million (H1 2019: € 2,258.7 million).

In addition, buildings under construction (new construction/development to hold) were completed during the reporting period. A fair value measurement is performed for the first time when the properties are completed. This resulted in a valuation effect of € 26.5 million for the period from January 1 to June 30, 2020 (H1 2019: € 17.7 million).

We are currently observing stable demand for rental apartments and no negative impact on market values as a result of the coronavirus pandemic. Potential effects on future price developments will depend to a considerable degree on how the pandemic progresses and the associated economic conditions, and are impossible to reliably predict at present. Residential real estate could become more significant as a relatively secure form of investment. The demand for residential real estate could, however, also change depending on the duration and extent of a possible recession. Vonovia is keeping a close eye on market developments.

At the end of January 2020, the Berlin House of Representatives passed the Act on Rent Controls in the Housing Sector in Berlin (referred to in short as “rent freeze”). This came into force in February 2020. It remains disputed whether the law is constitutional. Assuming that the rent freeze is found to be constitutional, future rental income or rental development will have to be reduced for the period leading up to, and including, 2025. This could have a negative impact on fair values. Likewise, it cannot be ruled out that declining vacancy rates and fluctuation as well as lower return requirements of investors (yield compression) will subsequently have a compensatory effect on fair values. The potential implications can be estimated via the sensitivities shown in the notes to the financial statements in this report. There is no evidence of any impact on fair values at present.

The recognition and valuation of investment properties are explained in detail in the consolidated financial statements for 2019.

Fair Value
Fair value is particularly relevant with regard to valuation in accordance with IAS 40 in conjunction with IFRS 13. The fair value is the amount for which an asset could be exchanged between knowledgeable, willing parties in an arm’s length transaction.
Rental Income
Rental income refers to the current gross income for rented units as agreed in the corresponding lease agreements before the deduction of non-transferable ancillary costs. The rental income from the Austrian property portfolio additionally includes maintenance and improvement contributions (EVB). The rental income from the portfolio in Sweden reflects inclusive rents, meaning that the amounts contain operating and heating costs.
Vacancy Rate
The vacancy rate is the number of empty units as a percentage of the total units owned by the company. The vacant units are counted at the end of each month.