On Tuesday, investigators searched the headquarters of the largest German real estate concern Vonovia. As reported by WDR and Süddeutsche Zeitung, the prosecutor’s office is looking for evidence of a possible case of corruption.

Bochum’s public prosecutor’s office confirmed the large-scale search “in the field of commercial criminal law on Tuesday morning,” but declined to comment on the content at this time due to ongoing investigations.

Bribery for contracts

German media reports that a number of Vonovia employees are suspected of receiving bribes when awarding contracts to construction and trading firms. Vonovia owns 549,000 apartments in Germany alone. The group has to place large orders with supplier companies for building maintenance.

Vonovia told WDR and SZ that investigators had requested the document review because there was a suspicion that awarding orders to subcontractors would be problematic.

“The prosecutor’s office seems to be bringing charges of corruption against individual employees and subcontractors at the operational level in the technical field. Vonovia, as the injured party, fully cooperates with the authorities and provides them with access to the necessary documents. We are interested in a quick and comprehensive explanation of the charges,” said the company’s representative.

High rent, frozen investments

The raid caught the largest European real estate concern in a difficult moment. The group is controversial not only because of its market power. Tenant initiatives accuse the company of charging too high rents, and some call for the company to be expropriated.

The company was also criticized when management recently announced that, despite Germany’s housing shortage, it would not start any new construction projects this year. Vonovia wants to reduce construction and renovation costs and only complete projects it has started. The reason: Inflation and higher interest rates have made real estate so expensive that Vonovia has been forced to raise base rents for new apartments “up to 20 euros” per square meter to offset its costs, CA president Daniel Riedl said. But this is “completely unrealistic” in many areas of Germany, and therefore investment in new construction will be frozen.

Corruption in the procurement of construction companies is not a new phenomenon. A few years ago, one of Vonovia’s predecessor firms already had a corruption scandal that resembles the current investigation. More precisely, it was about Veba Immobilien, which later, after a series of takeovers and renamings, became part of the Vonovia Group.

A short story

Vonovia SE is a German real estate concern based in Bochum. The company owns more than 565,000 apartments in Germany, Austria and Sweden. Its history begins with Deutsche Annington, which in 2001 successfully applied for the purchase of railway flats.

Competing with competitors such as Viterra, Gagfah and more recently Deutsche Wohnen, Vonovia has become the market leader. The company’s shares have been listed on the stock exchange since 2013 and have been part of the DAX since 2015. In September 2020, Vonovia was included in the EURO STOXX 50.

The concern has repeatedly been criticized for invoicing additional costs related to the maintenance and modernization of property it owns or manages. In the midst of the crisis and galloping inflation, Vonovia is growing profits again: in the first half of 2022, operating profit increased by 36% compared to the previous year, reaching 1.06 billion euros.

The profit boost will come primarily from the takeover of Deutsche Wohnen in 2021, which will also benefit from new buildings. And sales increased in the first six months by almost 35%, to 3.1 billion euros.

The company raised the rent until the end of June to 7.44 euros per square meter, which is 3.1% more than the previous year. In June 2022, Vonovia’s board president, Rolf Buch, said that inflation is not going unnoticed even in rental rates, which will continue to rise.

“If inflation is consistently at four percent, rents will have to rise accordingly every year in the future,” Buch told Handelsblatt, citing the fact that “otherwise many landlords will have serious problems.” “We cannot pretend that inflation is bypassing the rent. It won’t work.”

Civic and political reactions

The announcement and the rationale behind it drew a lot of criticism as Vonovia’s boss proposed a record dividend for shareholders.

SPD General Secretary Kevin Kuehnert sharply criticized him. Buch’s claim that rapid price increases are forcing the housing group to raise rents in line with inflation is “absolute nonsense,” Kuehnert told Der Spiegel.

“Vonovia and other real estate concerns spend only a controlled portion of their rental income on services and goods that have really been hit hard by the current price hike. A large part of Vonovia’s rent goes to the generous dividends paid to the company’s shareholders,” Kühnert criticized, noting that one euro of rental income earned Vonovia 37 cents in dividends.

The president of the Berlin Tenants’ Association, Rainer Wild, even saw a violation of the law. The legislative framework “does not provide for an increase in rent according to the level of inflation,” he noted.