FRANKFURT (dpa-AFX) - New signals on monetary policy and analysts' downgrades weighed on real estate stocks on Wednesday, in some cases significantly. The corresponding European sector was the weakest in the Stoxx 600 sector overview in the morning with a discount of 0.6 percent at last count. After the interest rate turnaround of the central banks had hurt the industry last year and caused the sector to slump by almost half by October, it then began to recover somewhat. This recovery is now faltering.

The reason for this is statements from the ranks of the European Central Bank (ECB). Its council member, Francois Villeroy de Galhau, rejected recent market speculation about a possible interest rate hike of just 0.25 percentage points in March. It is too early to speculate on the March rate decision, Villeroy de Galhau told Bloomberg TV. In addition, the president of the French central bank made clear that ECB President Christine Lagarde's hints about future interest rate moves of 0.50 points are still valid.

Indications of interest rate developments sometimes move the real estate sector quite strongly. Interest rates are an important criterion for the general demand for apartments and houses, as well as for the refinancing of the sector. If interest rates rise, this makes the financing of property and land buyers more expensive. On the previous day only a message had driven the courses. The news agency Bloomberg had reported that the ECB could possibly reduce its pace of interest rate increases in March. However, the price gains dissipated quickly.

Under pressure put the real estate values in midweek but not only the statements of monetary guardians. It also burdened pessimistic tones of the U.S. investment bank Bank of America (BofA). Their analysts Marc Mozzi, Markus Kulessa and Allison Sun remain "after the apocalyptic year 2022" also cautious for the European industry in 2023. The impact of higher interest rates and rising debt services is likely to be more severe and longer-lasting than many believe, the experts wrote, capping their 2024 earnings estimates at a level five percent below consensus.

They also removed their buy recommendations for Vonovia and Grand City Properties, downgrading Grand City twice from buy to underperform with a price target slashed from 23 to 8 euros. Here there was the reference to high loan-to-value ratios, credit risks and falling prices in London. They justified the new vote for Vonovia with high debt maturities and the lowered dividend.

Vonovia recently lost 2.2 percent to 27.10 euros in the leading Dax index. Grand City slipped 3.2 percent to 10.83 euros in the small cap index SDax. Both stocks were among the weakest in their respective indices./ajx/tih/jha/