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Message from the chairman

Dear stakeholders,

Last year was a very good year for the Residential Fund, which ended with a total return of 18.1%. Of course, 2018 was an excellent year for the residential real estate market as a whole, yet we still managed to outperform the MSCI Netherlands Property Index by 0.5%. There was certainly no let-up in the transaction volume last year, as both domestic and international investors were once again very active and we saw a lot of asset and portfolio deals.

There was a lot of pressure on the market from investors, as the real estate market in general and residential in particular are still very attractive compared to other asset classes, with bond rates still low and the stock market proving remarkably volatile in light of geopolitical developments. Despite this pressure from investors looking to increase their exposure to residential real estate, the Residential Fund managed to add € 480 million in new assets to its investment pipeline last year, almost € 300 million higher than our plan of € 200 million. These acquisitions included some top-notch assets, 396 homes in the iconic Sluishuis on Steigereiland in Amsterdam, 350 homes in the Hembrug project between Zaandam and Amsterdam and the Rachmaninoffhuis office-to-residential transformation project in Utrecht, as well as projects in other parts of the Netherlands.

We now have a secured pipeline of more than € 700 million, after once again managing to make the most of our market positioning and our responsiveness to good opportunities. All our acquisitions were on or above our defined hurdle rates and we did not make any concessions on our investment criteria or on the quality front.

Given that many of these projects will take some two years to complete, it will be some time before our investors will see cash out, but these are all investors with a long-term perspective who believe in our strategy.

Another noticeable trend last year was the acceleration of the drive to increase the sustainability of the Dutch real estate sector as a whole and housing stock in particular, partly driven by the Paris Climate Agreement and moves by the Dutch government on its own energy agreement. This is where the efforts we have made over the past few years to make our portfolio highly sustainable are really paying off. We once again retained our GRESB 4-star sustainability rating and we unveiled a series of plans to make our homes even more sustainable, both existing assets and future assets.

We also devoted more attention to the satisfaction of our tenants. Tenants’ expectations keep on increasing and evolving, triggered in part by the high rents across the country, especially in major urban centres like Amsterdam.

This brings us to the nationwide discussions about the ongoing decline in the affordability of homes in the major cities of the Netherlands, in both the owner-occupier and rental segments. The ever-increasing shortage of affordable homes, largely due to the lag in the production of new homes, constitutes a real danger to the liveability and vibrancy of our cities. A growing number of large municipal authorities have introduced or are proposing to introduce legislation aimed at tackling this issue. But this will only ever be a short-term solution. It may even be counterproductive, as regulating maximum rents or rent increases affects the business case for investing in residential property. Local authorities cannot afford to ignore the interests of investors, as they account for a part of new housing production. The last thing we need right now is a slowdown in the production of new homes. We and our peers in the sector believe the only long-term solution to this problem is to build more homes. One solution to stepping up the production of new homes may be reducing land prices. The entire sector is still discussing the issue of affordability and I’m hopeful that by working together we will arrive at a solution that recognises everybody’s interests.

Another major issue that dominated the market for much of last year was the government’s plans to scrap the dividend withholding tax. One consequence of the abolition of dividend withholding tax was that Fiscal Investment Institutions (FIIs) would no longer be allowed to invest directly in Dutch real estate. This would have had a major impact on the Dutch sector funds that Bouwinvest manages and required Bouwinvest to restructure its investment funds to mitigate this impact. Thankfully, due to a strong lobby and due to certain circumstances, the government abandoned its plans to scrap the dividend tax and the proposal to ban direct investments in real estate for FIIs. This lifted the cloud of uncertainty that had hung over the Dutch real estate market and led to an immediate uptick in investor interest.

We can now return our full focus to the optimisation of our residential portfolio through acquisitions, sustainability measures and disposals. And we will address the issue of affordable homes through a clear focus on the mid-rental segment. We do not expect returns to remain as high as the past few years, as valuation movements are likely to return to more normal levels, but with a direct return of around 2.5%, normal valuations levels will still put us around our plan return of between 6% and 7%, which is still a very healthy return compared to other asset classes. We also welcomed four new investors last year and a number of investors increased their commitment to the Fund. We hope to welcome even more new investors this year and in the future, which will give us the resources we need to achieve our ambitious growth plans.  

All that remains now is for me to thank our investors for their continued faith in our strategy and all our employees for their hard work and commitment to Bouwinvest in 2018.  

Dick van Hal

Chairman of the Board of Directors

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