UPDATE 1-Berlin rent freeze prompts Deutsche Wohnen share slide

Deutsche Wohnen and other German property companies' shares were hit on Monday by the Berlin city government's approval of a plan to freeze rents in the German capital for five years.

Shares in Deutsche Wohnen, the largest private landlord in Berlin, fell by as much as 4.5% in reaction to the blueprint approved on Friday by the Berlin Senate, which also includes capping subletting contracts. The plan will be sent to parliament this month, where it is expected to be approved and will go into effect on January 2020.

Deutsche Wohnnen shares were trading 3.6% lower at 0714 GMT, while shares in Vonovia, Grand City Properties, TAG Immobilien and LEG Immobilien were also down. Under the plan, initially drafted in June, rents will be frozen for five years from June 18, 2019, with the possibility of an inflation-related increase of about 1.3% only allowed from 2022 and very limited hikes allowed to pay for modernizations.

Jefferies analyst Thomas Rothaeusler said the agreement reached by Berlin's governing parties was slightly watered down from a previous draft and he expected listed companies in the sector would have to provide guidance on its impact. Rents in Berlin, for long far cheaper than in other major European cities, have more than doubled since 2008 as around 40,000 people a year have moved to the German capital, where some 85% of residents rent rather than own homes.

Opponents of the rent freeze say the policy could worsen Germany's housing crisis as it would scare off real estate investors eager to build in urban centers. But the Social Democrats, which form Berlin's government together with the Greens and far-left Die Linke, and are Chancellor Angela Merkel's junior coalition partners on the federal level, have raised the idea of a national rent freeze.

This resonated in the most populous European Union country, where most people rent and only 46% are homeowners.

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