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Outlook for 2024

Market developments

The Dutch residential investment market is expected to bottom out in 2024, with a slight increase in transaction volumes and a moderate increase in prices (source: CBRE). However, the ongoing market dynamics, international turbulence, inflation, higher interest rates, the transition to sustainable energy, and increasing government regulation, will continue to pose challenges to the market.

The Dutch economy is expected to grow by 1.1% in 2024, which is a significant improvement from the mild recession experienced in 2023. The Netherlands Bureau for Economic Policy Analysis (CPB) and many leading institutions (Bloomberg, ING, Rabobank, etc.) believe it is possible the ECB will lower its interest rate policy in 2024, in line with the lower inflation. The CPB also suggests that the inflation rate is expected to remain high in the Netherlands, but a tight labour market, higher wages, and government support will limit the impact on purchasing power. Investors expect inflation to be back close to the ECB’s target by the end of 2024 (source: CPB).

The housing shortage in the Netherlands is expected to rise to 415,000 homes in 2024, which will further impact the residential investment market. Dutch residential investments remain an attractive asset class, generating stable direct returns. While possible regulation, high construction costs and interest rates are creating short-term uncertainty, the long-term outlook remains positive. Demand for mid-rental segment homes remains high, leading to high occupancy rates. In addition, investments in sustainable homes and homes for middle-income households have a positive impact on society. Investments in sustainability increase affordability for existing tenants, by lowering their energy costs. Investments in new-build projects for middle-income households will also provide affordable housing for future tenants.

Furthermore, investments in sustainability will accelerate in the coming years. The European Union wants to encourage this by changing the legal and regulatory requirements and improving transparency and reporting on ESG-related matters.

In short, the main market developments we expect in 2024 are:

  • Moderate economic growth;

  • Volatile inflation, declining slowly towards (but just above) the target level of 2%;

  • Moderate increase in the prices of owner-occupied houses;

  • Declining interest rates due to monetary policy;

  • Further bottoming out of negative market value developments;

  • Stabilising initial yields;

  • Improved market conditions for asset transactions (block sales);

  • Limited level of new housing projects, mainly due to current high construction costs and regulation;

  • Continued housing shortage, especially in the affordable segment;

  • Clarity on legislation related to new regulations in the mid-rental segment;

  • Acceleration of the energy transition.

Impact on our portfolio

The ongoing challenging market conditions have an impact on our portfolio and on the affordability of housing. The current proposal for mid-rental regulation is an attempt to improve the affordability of housing, although we believe the only way to resolve this issue is to build more homes and reduce shortages. However, there is a great deal of public and political pressure to implement regulatory measures. At the same time, the economic developments with respect to interest rates and inflation are also expected to have an impact on 2024 results.

Given the quality of our portfolio, Vesteda is well positioned to respond to these market developments. We expect our operational performance to remain solid, driven by high demand for our mid-rental homes. Inflation will have an impact on the cost of housing for our tenants, and also on the operating expenses of the portfolio. We expect a slight increase in our gross/net ratio for the medium term, as the cost increase will not be fully reflected in annual rent adjustments. The rise of interest rates has an impact on our cost of debt, and this puts pressure on our results.

As a result, we will closely monitor our financial targets and remain committed to our long-term strategy, plus we will continue to invest in the quality and sustainability of our portfolio. The investments will increase the quality of our assets and result in a future-proof portfolio, which will in turn reduce our overall risk levels. By complying with higher ESG standards and scoring better on affordability and sustainability, we will be able to attract more green and social funding at favourable terms. These improvements also help to largely mitigate part of the impact of the proposed mid-rental regulation.

Furthermore, we are planning to increase divestment volumes of assets that do not meet (or cannot meet) long term portfolio criteria, and we have reduced our target for new inflow to reduce our future financing needs.