Berlin housing market faces investment crunch

Berlin

BERLIN'S plan to control surging housing costs is diverting investment from the squeezed market even before a rent freeze comes into force, according to the city's largest residential landlord.

While German courts are likely to strike down legislation to control rents for five years, "the damage has already been done," said Philip Grosse, chief financial officer of property owner Deutsche Wohnen SE.

The initiative by Berlin's government has been sowing doubt since it was proposed in June and caused delays to "much-needed investments" in the city's housing stock, Mr Grosse said. "The longer we have that uncertainty, the worse it will be."

Deutsche Wohnen has postponed construction projects in Berlin and will instead focus on other cities. The company said earlier this month that its inability to raise rents significantly, combined with potential mandated rent reductions, presents a risk to cash flow of as much as 330 million euros (S$496 million) over five years.

"The city of Berlin is creating its own civil code which conflicts with the federal regulations," Mr Grosse said. "Our constitution explicitly forbids that."

The CDU - Chancellor Angela Merkel's party, which is in the opposition in the city - plans to challenge the measures in Germany's constitutional court, according to a party spokesman.

There has been one upside to Berlin's rent freeze for Deutsche Wohnen: the movement to force the city to buy out big apartment owners is faltering. Only 29 per cent of Berliners are in favour of a proposed referendum, according to a survey published in the Berliner Morgenpost on Friday. In the same poll, 71 per cent backed a rent freeze. BLOOMBERG