17 Investment Properties

The values as of June 30, 2023, include assets of € 421.8 million (December 31, 2022: € 663.7 million) that are measured at cost, as their fair value cannot be reliably calculated on a continuing basis. Impairment losses of € 81.3 million were recognized on these project developments in the reporting period based on the need for impairment identified as part of the ad hoc goodwill impairment test. These were reported under depreciation, amortization and impairment losses.

Fair Values

Vonovia determines fair value in accordance with the requirements of IAS 40 in conjunction with IFRS 13. We refer to the detailed information set out in the consolidated financial statements for 2022.

Vonovia measures its portfolio in Germany, Sweden and Austria internally on the basis of the discounted cash flow (DCF) method. Under the DCF methodology, the expected future income and costs of a property are forecast over a period of ten years and discounted to the date of valuation as the net present value. Furthermore, the terminal value of the property at the end of the ten-year period is determined using the expected stabilized net operating income and again discounted to the date of valuation as the net present value. In addition, the valuation of the portfolio in Austria is based on the assumption of sales strategies for the recurring sales of apartments for a subportfolio. Attainable revenues are calculated based on sales prices for comparable apartments (market approach) and are reported in the appropriate period in the DCF model. In order to take the sales potential into account, the DCF detailed period is extended to 100 years for the Austrian portfolios and no terminal value is used.

In order to reflect changes in value during the year, Vonovia performs a new valuation on the existing residential real estate portfolio* for the purposes of the half-year financial statements.

The value developments and values for the real estate assets in Germany and Austria were also subjected to a plausibility check performed by the experts CBRE GmbH and Jones Lang LaSalle SE. They confirmed that the portfolio value as of June 30, 2023, is plausible and consistent with the market. The plausibility of the internal valuation of the Swedish portfolio was assessed by an external valuation conducted by Savills Sweden SE. The market value resulting from the external report is consistent with the internal valuation result.

The real estate portfolio of Vonovia is to be found in the items investment properties, property, plant and equipment (owner-occupied properties), real estate inventories, contractual assets and assets held for sale. The fair value of the portfolio comprising residential buildings, commercial properties, garages and parking spaces, project developments and undeveloped land and inheritable building rights granted was € 88,242.8 million as of June 30, 2023 (December 31, 2022: € 94,694.5 million). This corresponds to a net initial yield for the real estate portfolio of 2.7% (December 31, 2022: 2.5%). For Germany, this results in an in-place rent multiplier of 26.9 for the portfolio (December 31, 2022: 29.2) and a fair value per m² of € 2,415 (December 31, 2022: € 2,590 per m²). The in-place rent multiplier for the Austrian portfolio comes to 24.2 (December 31, 2022: 25.8) and a fair value per m² of € 1,684 (December 31, 2022: € 1,742 per m²), for Sweden to 18.5 (December 31, 2022: 20.1) and a fair value per m² of € 2,017 (December 31, 2022: € 2,248 per m²).

The inflation rate applied to the valuation procedure comes to 2.1 %. For the Austrian portfolio, a sales strategy with an average selling price of € 2,406 per m² was assumed for 48.4% of the portfolio. 

The result from the valuation of investment properties amounted to € -6,382.9 million in i H1 2023 (H1 2022: € 3,115.9 million).

The material valuation parameters for the investment properties (Level 3) in the real estate portfolio are as follows as of June 30, 2023, on average, broken down by regional markets:

Sensitivity Analyses

The sensitivity analyses performed on Vonovia’s real estate portfolio show the impact of value drivers dependent upon market developments. Those influenced in particular are the market rents and their development, the amount of recognized administrative and maintenance expenses, cost increases, the vacancy rate and interest rates. The effect of possible fluctuations in these parameters is shown separately for each parameter according to regional market in the following.

Interactions between the parameters are possible but cannot be quantified owing to the complexity of the interrelationships. The vacancy and market rent parameters, for example, can influence each other. If rising demand for housing is not met by adequate supply developments, then this can result in lower vacancy rates and, at the same time, rising market rents. If, however, the rising demand is compensated for by a high vacancy reserve in the location in question, then the market rent level does not necessarily change.

Changes in the demand for housing can also impact the risk associated with the expected payment flows, which is then reflected in adjusted amounts recognized for discounting and capitalized interest rates. The effects do not, however, necessarily have to have a favorable impact on each other, for example, if the changes in the demand for residential real estate are overshadowed by macroeconomic developments.

In addition, factors other than demand can have an impact on these parameters. Examples include changes in the portfolio, in seller and buyer behavior, political decisions and developments on the capital market.

Due to the special situation in Sweden, where changes in inflation will have a considerable impact on future rent increases, it has been assumed that at least one-third of any change in inflation will spill over into rental growth.

The table below shows the percentage impact on values in the event of a change in the valuation parameters. The absolute impact on values is calculated by multiplying the percentage impact by the fair value of the investment properties.