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The outlook for 2022

The COVID-19 pandemic was an unexpected event that had a huge impact on a global scale. Economically, the housing market proved to be a safe haven. At the same time, we realised the importance of being prepared to manage unforeseen events. Forecasting market developments remains difficult and is subject to uncertainties. This is why we usually work with various scenarios. There are a number of trends that have been around for a number of years and will continue to be relevant in the years ahead. These are: Affordability, Climate change, Shift in demographics, Urbanisation and transit-oriented development and Proptech. The majority of developments in the housing market can be traced back to these trends.

We believe affordability and climate change are currently the most relevant topics. The affordability of housing is under pressure, primarily due to the housing shortage that is driving up house prices and increased cost of living, driven by rising energy costs, which recently accelerated due the Russian invasion in Ukraine. In a reaction to this, the government is looking for ways to intervene and we expect to see a continuation of the trend towards more regulation in the liberalised rental sector in the coming years. To mitigate the impact of climate change and to comply with the goal of being Paris proof in 2050, the government is planning to raise national sustainability targets.

These ongoing challenging market conditions, increased inflation, higher ESG standards and potential additional regulation of the liberalised rental sector are developments that could impact the performance of our existing portfolio. At the same time, most of these developments come with an upside. Mitigating any threats and building on opportunities will make us stronger in the long term. The figure below shows the impact of the key developments on our financial results and asset values.

Rental growth will be reduced due to the potential regulation, but will remain inflation linked. Vesteda is committed to keeping rental homes affordable and will moderate its rent increase in 2022, as in previous years. Regulated leases are increased by a maximum of 2.3% and liberalised leases by a maximum of 3.3%. For pensioners, we will offer the possibility to request a remission of the rent increase, should they not be able to pay the rent increase and meet the criteria of this arrangement. Property values are expected to remain steady due to a higher reversionary potential and the underlying high demand for affordable homes. We also expect to see some positive developments with regard to reletting costs, subsidies and a reduction of the landlord levy.

We expect to see an increase in our operating expenses, investments and management expenses. Increasing requirements with respect to quality, governance, IT and sustainability, in combination with a rise in general cost levels, are driving up our expenditures and investments.

The additional investments will increase the quality of the portfolio and result in a future-proof organisation, which will in turn reduce our overall risk levels. By complying with higher ESG standards and scoring better on affordability and sustainability, we can attract more green and social funding under attractive terms.

Our organisational structure and in-house property management enable us to exploit economies of scale. We can accommodate the expected growth of our portfolio relatively easily with limited additional overhead, thanks to our pipeline of new-build acquisitions in the liberalised and regulated mid-rental sectors, and the possible acquisition of existing portfolios. We are seeing a trend in M&A of asset managers in all categories lacking the size to respond cost efficiently to increasing regulatory, compliance and IT requirements. Vesteda has this scalability and is therefore an attractive partner and well-equipped for continued growth.

Overall, we expect to realise ongoing stable realised returns and more normalised unrealised returns at relatively low risk. We will remain an attractive proposition to the benefit of all our stakeholders.