The Berlin senate's plans to tackle the city's sharp rise in residential rents, which caused anxiety among investors in recent weeks, are not as extreme as previously feared.
The senate's draft bill published Aug. 30 proposes freezing residential rents at June 18 levels, around the time when plans for a five-year rent freeze were first put forward by Katrin Lompscher, Berlin's senator for urban development and housing. Rent increases are possible under some circumstances, but otherwise will be frozen for the five years the law remains in place.
Residential rental properties will be subject to rent ceilings between €5.95 and €9.80 per square meter per month. The rent ceilings will only be cut if rents are above 30% of a household's income. Local Berlin newspapers had reported leaked details Aug. 26 of the draft bill, which showed plans for absolute rent ceilings on residential rental properties between €3.42 and €7.97 per square meter per month.
Analysts reacted positively to the less radical proposals in the official draft bill. "Overall, [the draft bill] looks less harsh than the extreme version leaked last weekend," Jefferies analyst Thomas Rothaeusler said in an Aug. 30 report. "Our first take: It's still a rent freeze — specifically limiting re-lets — but rent cuts should be limited as the 30% rental cost ratio looks comfortable."
The leaked details of the draft bill reported in the German media had caused disappointment among investors and analysts, who said they represented an average cut in rents across the market rather than the freeze on rents that had previously been expected. Some warned the measures were unconstitutional and would almost certainly be challenged in court. Vonovia SE, Germany's largest listed residential landlord, which owns and operates about 40,000 units in Berlin, said the measures meant its portfolio in the city would lose around €25 million in rental income in 2020 alone, according to an Aug. 26 company statement.
Deutsche Wohnen SE, the largest listed residential landlord in Berlin with around 115,000 units, said it was not ready to comment on the draft bill because the company was still reviewing the proposal. But Deutsche Wohnen had previously cautioned the Berlin authorities against imposing severe rent controls in the city. Following the June proposal of a five-year rent freeze, the company offered to implement a rental policy that limited a household's rent to 30% of its income, a measure present in the draft bill.
"In our view, this news is considerably better than what the market was fearing for Deutsche Wohnen and Vonovia," JP Morgan Cazenove analyst Neil Green said in an Aug. 30 report. "We expect a positive share price reaction to this news."
Deutsche Wohnen's share price rose by almost 10% in Aug. 30 trading, while Vonovia's rose about 3.5%.
Other details of the draft bill include the possibility of consumer price indexed rent increases up to the rent ceiling, while ceiling adjustments are also possible under certain conditions. Apartments that have been modernized in the last 15 years have the possibility of adjusting their rent ceiling by €1.4 per square meter per month.
A review of the draft bill will take place over the next two weeks, with a decision by the senate on the final draft law scheduled for mid-October.
