Vonovia in Focus as Real Estate Values Continue to Decline Before Fed Meeting | MarketScreener
On Wednesday, investors avoided investing in the real estate sector as they awaited the U.S. interest rate decision. The Stoxx Europe 600 Real Estate sector index experienced a decline of 2.3%, dropping to its lowest point since October 2022. Vonovia was hit particularly hard as a negative study from Morgan Stanley caused their securities to become the worst performer in the Dax with a discount of 4.1%. This marks the lowest point for Vonovia since 2014.
On Wednesday, Morgan Stanley analyst Bart Gysens expressed his overall wariness towards continental European stocks due to low returns, vulnerable rental income, and excessive debt. This combination of factors heightens the likelihood of requiring capital increases, he warned. Consequently, shares in Aroundtown or Grand City Properties observed a decline of approximately three percent in the MDax or SDax.
On Wednesday, Gysens lowered Vonovia's status from "Equal-weight" to "Underweight" and reduced the target price by a significant amount, from 30 to 19 euros. Although he commends the move made by some businesses recently to skip dividend payments in order to fortify their balance sheets, he has a point of concern when it comes to Vonovia. This company had only reduced its dividend rather than skipping it altogether. As a result, Gysens worries that additional actions will be required to mend the company's balance sheet.
Investors are anxiously anticipating the Fed's decision on Wednesday. Some think that due to the banking sector's recent troubles, the Fed will financially moderate. However, others believe that high inflation will require further increasing interest rates. Experts predict a slight increase of 0.25 points, but a larger one like the suggestion by Fed Chairman Jerome Powell is doubtful after the market unrest.
Increasing interest rates pose a challenge for the real estate industry since it results in a more difficult financing scenario for companies and a general decline in the real estate market. Furthermore, real estate entities need to decrease the assessed value of their property holdings, which were previously overvalued during the period of zero interest rates.
The real estate industry has been experiencing a prolonged decline. By the end of 2021, the Stoxx Europe 600 Real Estate index had stagnated at 200 points, representing a significant drop from the previous year's low point, which had seen a 50% cut. A brief rebound in early 2023 was short-lived, as the industry suffered a setback. Thus far, real estate has been one of the worst-performing sectors of the year, while the Dax 2023 index is currently showing a positive gain of nine percent.
