Market risk overall

Due to the sudden growth in inflation 2022 was marked by sharp policy rate increases by central banks. This led to valuation corrections in real estate from Q4 2022 onwards. Policy rates were further increased in 2023, albeit in a more moderate way as central banks were slowly regaining control of inflation. The present political instability in the Middle East will also increase geopolitical instability, with already direct effects visible in supply chain related risks. Although the economic consequences are yet unknown, a reignition of inflation is lurking.

These market circumstances are evaluated on a continuous basis, and are taken into account, both in the daily management of the Fund and in the investment and divestment decision processes. 

In the political landscape of the Netherlands, but also in an international context, we are seeing both a shift towards the political ‘right’ and increasing polarisation. Furthermore, following last year's elections, the Netherlands is currently governed by the outgoing administration. This leads to ambiguity on its overall vision on the real estate market and more specifically on (new) regulations.

Market liquidity risk

As part of its continuous portfolio optimisation, together with the redemption requests the Fund had received in the previous year, the Fund continued its sales process for a number of assets that no longer met the Fund's objectives. The Fund still observed a significant reduction in market liquidity. This reduced market liquidity is taken into account in both the strategic and tactical management of the Fund.

Credit risk

Within the area of credit risk, no material risks occurred in 2023.

Liquidity risk

Within the area of liquidity risk, no material risks occurred in 2023.

Business risk

Business environment risk

Rental market regulation changes

On 7 July, the Dutch government collapsed due to a disagreement between coalition parties over asylum policies. New elections were held on 22 November. Until the new cabinet is formed and installed, no decisions will be made on sensitive subjects, as these will be up to the next cabinet. 

In the meantime, the Affordable Rent Act has not been declared controversial and has been discussed by the Council of State. The Council of State issued its advice on 20 November,  which included several alterations to be made in the act. The caretaker cabinet expects the act to become law as per 1 July 2024.

Legal & claim risk

Provision rental contract annulled

The Fund filed a court case against a tenant in Amstelveen, in which the Fund tried to recover rent in arrears. Although the tenant did not specifically protest against earlier rent increases, during the proceedings the judge conducted an ‘ex officio’ review based on European consumer law. The court found that, based on the rent increase clause in the lease agreement, it was unclear to the tenant which circumstances were taken in consideration for the determination of the annual rent increase. Therefore, this clause was annulled, and the court ruled that the Fund should not have passed on any rent increase from the start of the lease, in this case 1 July 2015.

This decision can have a material impact on all the other lease agreements related to residential units. The Fund has therefore appealed against this judgement. The Fund has filed its first procedural documents (the so-called memorie van grieven, or statement of appeal) on 9 January 2024.

Several other landlords (including (most) IVBN-members) are dealing with the same issue, since most of the landlords work with contracts based on the ROZ standard model, and therefore have similar clauses. On 5 October 2023, in a court case involving another landlord, a judge announced that they would ask the Dutch Supreme Court for clarification on the matter by asking preliminary questions. Following these questions, IVBN members decided to jointly register as stakeholders with the Supreme Court, rather than individually. Many residential investors in the IVBN, including Bouwinvest, have provided input for the argumentation as to why we believe the rent indexing clause is not unlawful. The Supreme Court's answers are expected in autumn 2024. 

Tax risk

Fiscal structure of Fund

Legislation prohibiting fiscal investment institutions (Flls) to directly invest in Dutch real estate has been adopted and will become effective on 1 January 2025. For this reason, a restructuring of the Fund into a tax transparent so called closed fund for mutual account (‘gesloten FGR’ in Dutch) is planned for 31 December 2024. A closed fund for mutual account is not subject to income tax. This new legislation also includes a conditional exemption from real estate transfer tax for shareholders with a so-called substantial interest (>=33⅓%) upon a restructuring that is triggered by this change in the FII rules.

Increase in rate real estate transfer tax (RETT)

After the increase of the RETT rate as per 1 January 2023. Its exact impact on the real estate market could not be specified due to market volatility.

Operational risk

Within the area of operational risk, no material risks occurred in 2023.

ESG risk

Within the area of ESG risk, no material risks occurred in 2023.

Compliance risk

Within the area of compliance risk, no material risks occurred in 2023.

There were twenty-eight data breaches with respect to the processing of personal information. Five of these were reported to the regulator, the Dutch Data Protection Agency. Some of the data breaches occurred at processors, such as property managers. All data breaches were investigated and, where necessary, additional control measures were taken. Bouwinvest has informed the data subjects.