Major market developments and valuation parameters that have an impact on the fair values of Vonovia are assessed every quarter. In addition to the revaluations performed during the year, the entire portfolio was revalued at the end of 2021.
As in the previous year, Vonovia’s portfolio has shown very positive development. The demand for housing continues to outstrip the supply. The extensive investments made in the energy-efficient modernization of our buildings and improvements to the fittings in our apartments also had a positive impact on rental growth. Since the return expectations of property buyers have dropped further, the increase in market values is ahead of rent developments (yield compression). The positive effects resulting from the high demand, modernization and yield compression have resulted in a considerable 14.3% increase in the value of our property portfolio compared with the previous year, after adjustments for acquisitions and sales and excluding currency effects. In addition to the internal valuation, Vonovia’s real estate portfolio, excluding Deutsche Wohnen, was also valued by the independent property appraisers CBRE GmbH in Germany and Austria and Savills Sweden AB in Sweden. The market value resulting from the CBRE expert opinion deviates from the internal valuation result by 0.1%. The result from the external valuation was adopted for the Swedish portfolio.
Deutsche Wohnen’s portfolio was valued by the independent property appraiser Jones Lang LaSalle SE parallel to the internal valuation. The market value resulting from this external report deviates from the internal valuation result by 0.6%.
Vonovia’s project developments for subsequent management within its own portfolio are measured using the cost approach until the construction work is complete. Deutsche Wohnen’s project developments were measured by Jones Lang LaSalle SE using the residual value method as of the cut-off date of September 30, 2021. These values were as part of what was still the provisional purchase price allocation reviewed and adopted and were updated to reflect the current reporting date. The values of Deutsche Wohnen’s care facilities as of December 31, 2021 were determined externally by W&P Immobilienberatung GmbH and included in the balance sheet.
The Act on Rent Controls in the Housing Sector in Berlin passed by the Berlin House of Representatives was declared unconstitutional and, as a result, null and void by the German Federal Constitutional Court on April 15, 2021. The development then observed in Berlin in the period leading up to December 31, 2021 has been included in the year-end valuation for 2021.
Regular Determination of the Fair Values Creates a Transparent Valuation of the Company’s Properties
Calculating and showing the fair values provides a control parameter inside the company and also helps to make the development of the value of our assets transparent to people outside the company.
The fair value of the portfolio of residential properties was determined, in accordance with IAS 40 and IFRS 13, on the basis of the International Valuation Standard Committee’s definition of market value.
Vonovia, in principle, measures its portfolio on the basis of the discounted cash flow (DCF) method. Under the DCF methodology, the expected future income and costs of a residential property are forecast and discounted to the date of valuation as the net present value. The income in the DCF model mainly comprises expected rental income (current in-place rent, market rents as well as their development) taking vacancy losses and also sales revenues for an Austrian subportfolio into account. The expected rental income is derived for each location from the latest rent indices and rent tables (including Value AG, Immobilienverband Deutschland [IVD] and the Austrian Economic Chambers [WKÖ]) as well as from studies on spatial prosperity (Federal Institute for Research on Building, Urban Affairs and Spatial Development [BBSR], Prognos, Value AG, Federal Statistical Office, Statistics Austria, etc.). The expected sales revenues are derived from historical sale prices as well as market data (e. g., the Austrian Economic Chamber [WKÖ], EHL). On the cost side, maintenance expenses and administrative costs are taken into account. Further cost items are, for example, ground rents, non-allocable ancillary costs, rent losses and, in Austria, selling costs. All cost items are inflated in the reporting period. Modernization measures carried out in the housing stocks are factored in by decreasing the current maintenance expenses and adjusting market rents. The commercial properties in the portfolio are mainly small commercial units for the supply of the local residential environment. Different cost approaches were used to those for residential properties, and the capitalized interest rates were adjusted to reflect the market specifics.
The recognition and valuation of investment properties are explained in detail in the Notes to the consolidated financial statements (Chapter [D28] Investment Properties).
The fair value of Vonovia’s real estate portfolio comprising residential buildings, commercial properties, garages and parking spaces as well as project developments, existing areas with construction potential and land areas with inheritable building rights granted was € 97,845.3 million as of December 31, 2021 (2020: € 58,910 million). The determination of fair values led overall to net income from fair value adjustments of investment properties of € 7,393.8 million (2020: € 3,719.8 million).