Hypoport SE

XETRA:HYQ

Earnings Call Transcript 2022-Q4

[Operator]

Ladies and gentlemen, welcome to the Webcast Results Full Year 2022 of Hypoport SE. At our customers request, this conference will be recorded. As a reminder, all participants will be in a listen-only mode. After the presentation, there will be an opportunity to ask questions via the telephone lines.

I now hand you over to Ronald Slabke, who will lead you through this conference. Please go ahead.

[Ronald Slabke, Chief Executive Officer]

Yeah. Welcome from my side as well. We are looking back at full year 2022, a turbulent one. And as usually, I will go with you through market environment and the numbers of the segments. I will focus today a little bit more on the market environment, because I feel the need to explain more what happened actually and especially what it means when we're looking forward in the near-term and long-term future, and we are, in the core, talking about the German housing market.

Okay. But you are aware of this that Hypoport is present in three industries here in Germany: credit, real estate and insurance. You are aware of this that Hypoport is a network of double-digit numbers of subsidiaries in these three industries digitalizing them, but with the focus still and -- or let's say, heavy exposure to the German mortgage market.

So, let's go to the German mortgage market. What actually happened with -- what influenced the year 2022 in the way that -- so, when you want to understand the German housing market and the German mortgage market, we need to look back more than a decade in the time before 2011 where this market was best described as stable. We had low number of units finished because of stable base off inhabitant. Actually, we expected to shrink in Germany from a number of people living here, households as well. Rents were stable, more or less growing with inflation rate. Real estate prices were stable, more or less growing with inflation rate.

Mortgage volume was stable, something around €50 billion per quarter, plus/minus €5 billion. It was a pretty boring market when I entered this market more than 20 years ago, and it's stayed like this until 2011. So, actually what comes from this time is a heavy regulation of new constructions and the renting market. New constructions, because we expected to just focus on modernization and maybe already a little bit energy efficiency at this time, so we wanted to increase the density of our cities, not really building new. And when you see Germany, we never had the intention to -- in the last 20 years, to build a lot of suburbans or something like this, things that you know from the [under-section] (ph) markets. So, we wanted to increase the density of our cities. And in the renting market, because of the huge stability, we've regulated it heavily to make sure that, let's say, the landlords and the rentees are fine with a stable situation.

So, what changed in 2011 was the freedom of movement within the European Union, so an integrated labor market. And because of the lack of labor of certain level of skills here in Germany, since 2011, Germany sees a net inflow of people 100,000 every year migrated to Germany net and increasing the number of inhabitants in Germany. So, from a more or less stable to shrinking economy, the Germany turned to grow.

In the first couple of years, we had enough of vacant space in, especially, the metropolitan areas, which was a bit occupied. So, vacancies were reduced and slowly rents and real estate prices started to climb, especially the prices faster than the rents for a long period of time, you can say until 2021, because of declining interest rates as well. During this time, the prices, in average, doubled in Germany, while our mortgage volume in the market just grew from €50 billion -- or from around €50 billion to around €70 billion.

The reason for this underperformance of the mortgage market is that not more equity went into it, but less transactions were closed, especially German households missed this opportunity over a period of a decade. There are studies that show that more than 1 million people that you would have expected to buy, but then you see what -- who bought before 2011, didn't buy after 2011. So, we had declining homeownership ratio in Germany during a period of low-interest rates, because Germans didn't trust in these price increases, which they saw in this decade.

And yes, since 2015, institutions like Bundesbank warned that prices are inflated and kept families from switching from renting market to the homeownership market. From today's perspective, a huge disaster for our society. Okay. So, just to understand the German mortgage market, it was not in the booming state until 2021. It was just a slow growth, thanks to the huge demand for housing here in Germany.

So, now we are reaching the year 2022, and with this -- and from the beginning of the year, a high level of -- an increasing level of inflation. As the market expected, ECB, I think, they [indiscernible] easing policy. They stopped buying government bonds and the latter started to increase the short-term interest rates. So, market reacted with a sharp increase in long-term interest rates.

You can say from a mortgage perspective, we rise -- we rose from roughly 1% below interest rate for a 10-year mortgage to close to 4% in the late summer of last year. So, 300 basis points up in interest rates. This leaded in the beginning of the year to a spike in mortgage volume.

In the first quarter, we closed more than €80 billion in mortgages, a new record high for Germany, because lots of people closed existing financing projects for building homes, buying homes or refinanced a mortgage risk, which were due in the next couple of months or years.

In the second quarter, we saw a normalization of this volume. And for us surprising -- or for everyone surprising you can say, after the summer, people didn't come back and the mortgage volume -- let's say, the first, the transaction volume, but at this, the mortgage volume in the market tanked to a level unseen before.

Today it's easy to explain why this happened. Because it never happened before, we were all surprised. Core reasons that, let's say, [indiscernible] that Germans acquire home or plan to build a home because of a trigger event. I will come back to this later. These trigger events just occur and normally it takes a couple of months for a German family after a trigger event to close a deal for homeownership.

During the year 2022, we saw in the beginning because of the sharp rise of interest rate that people were -- had difficulties to adjust the reality to their dream. And everyone started this process were then [indiscernible] to build a dream of a home, but because of the sharp rise of interest rates in the first half of the year, people couldn't catch up fast enough with the rising cost and couldn't dilute their dreams as fast as they should have done this.

And in the second half of the year, people saw that real estate prices were trickling down, something you could read all the time in the newspapers. So, the hope of better deals of being able to afford your dream stayed and interest rate more or less stayed stable on a certain level. Since summer last year and the last eight months, you can say, the 10-year interest rate is pretty in the same range all the time. So, people in the second half of the year waited for the opportunity to buy something cheaper, and we saw declining prices by roughly 15% over the time in average. So, the hope to be able to acquire something, which is close to your dream just stayed.

And with this, we ended the year 2022, and we communicated this already that, especially in the last quarter, we saw that we reached a new baseline, you can say, a low level, but a stable level when we looked on the three months at the end of the year.

So, for now, in this environment, Hypoport performed. And yeah, let's look at the details of the, let's say, three product areas of the mortgage market, how they developed to still understand them slightly better, and then I'll come to the results how Hypoport performed in this environment.

So, the sharpest decline in -- during 2022, we saw in new constructions. You can say that at the end of the year, roughly only one-fourth of the volume was left from previous -- compared to previous year. So, the building imploded because of high construction prices on one side and this sharp increase in the cost of the interest rate side, and the hope of declining prices short-term to be fair, so nobody -- let's say, not nobody, only 25% roughly of the people still signing something to build something in the near-term future. This was no surprise in the end.

The highest impact had a decline in purchase. So, existing homes to be acquired by someone looking for a new apartment, roughly 50% down from the peak, 30%, 40% down from previous year. And here you see this mismatch between what I'm able to afford and what is the current price level. And this is just slowly declining prices of properties, and it doesn't match still. It would have to decline roughly one-third to meet the affordability the people had a year ago.

A little bit surprising for us, the decline in refinancing. And yeah, at the beginning of the year, we saw a peak outside of the typical renewing volume, because people really use this short-term interest rates, which were sharp going up to refinance already future mortgages more than they usually do. But it stayed on a pretty low level to the end of the year. And slowly, we see that people are waiting pretty long before they really refinance something, so they postpone this decision as long as possible, hoping that the interest rates still come down.

And as well a little bit surprising, modernization. So, energy efficiency, decarbonization is on a pretty low level in the second half of 2022, even when there is more and more political pressure to this, and even there are some incentives and subsidies to do it. But people hesitate to invest in their properties, something which is not in line with the general agenda that we see right now.

So, this is the development this, let's say, four segments of the market -- four core segments of the market. And now we get to the area of how Hypoport and the segments performed. We start as usual with the Credit Platform. In the center, Europace with its mortgage mortgage business, but as well there is personal loan business on Europace. And besides Europace, there's fundingport, REM CAPITAL in this segment with the business in corporate loans.

In the mortgage business, Europace lost 8% of its transaction volume. We were close to €100 billion a year ago, and it was €90 billion of mortgages and building society saving products. And last year, this looks like that we just went with the market because market was down roughly 9% as well. Be aware that Bundesbank -- the market reference of Bundesbank is delayed. These are delayed numbers, delayed figures. They need to be already in the balance sheets of the banks. So, they saw this decline a couple of months after we saw the decline in the transaction volume already. So, while we saw a stabilization at the end of the year, Bundesbank is still going down, especially when you see the January numbers.

So, with this in mind, we are absolutely certain that we gained market share last year double-digit. And one reference point which we have is Interhyp, as the largest German mortgage broker, who reported its numbers and was down 15% last year based on volume. And this 15% is, in our perspective, still a market share gain, because Interhyp usually as we gain market share. So, we expect the market, in reality, to be down roughly 20% compared to Interhyp and our numbers.

Okay. This side, even in this special environment, we see a market share gain, and we see this in all four segments of the market. Pretty visible in the co-operative banking area, plus of 3% and the volume still saw -- we don't know how much cooperative banking sector lost in market share -- or in volume last year, but we can expect an outperformance of minimum 25% of this number.

A little bit more difficult with the savings banks, minus 7%. What we see in the market is that they lost market share in 2022, so they underperformed the market. And when the market is at minus 20%, they may have ended up with minus 25%, minus 30%. So, in relative, we gained market share in this group and about this we are certain.

Private banks were pretty stable from the market share last year. We were slightly growing, so everything in line. Brokers in the first half of the year lost some market share because in the time of lots of volume, banks prioritized in their credit decision process their own branches and mortgage brokers lost some market share. In the second half of the year, in this tough market environment, branch network of banks heavily underperformed the mortgage brokers. So, even if the mortgage brokers lost significant in volume, bank branches lost much more.

We see this on the Europace platform as well. There is a difference of roughly 20% in performance between bank branches and brokers using Europace. And this is just an indication how heavily traditional operated bank branches were hit, which are not even users of Europace.

So, from a Europace perspective, a good news is that our stronghold and mortgage progress in this new market environment of higher interest rates and consumers who need to compare a lot and find the best deal are growing and expanding their market share, because with this, there's a natural way for Europace to grow besides the fact that Europace will keep gaining market share in cooperative and savings banks as well.

So, on next product area, personal loan business, plus 29% in a more or less stable market environment. Our focus on B2B and white label personal loan business for banks and advisors is paying back. It's more and more needed to have a risk ventile [ph] and a price ventile when you're operating in this competitive market environment where consumers tend to compare, as well find the best deal online. And if you want to be competitive in this, you need -- and you have a traditional way to access consumers, you need Europace as well.

Nice development last year as the rollout of GENOFLEX in the cooperative banking sector. So, beside the private banks and now the next group is adapting to a more open approach for their client base. And with the successful initial launch last year, we expect further growth here in 2023.

The last product area in the Credit Platform is corporate loans and financial advising, especially regarding subsidies here in Germany. Still under the old government, we saw great subsidy programs for German Mittelstand, especially climate-related and energy efficiency related. This leaded to a lot of business for REM CAPITAL at the second half of 2021 and first half of 2022.

The new government is now in place for almost 15 months. Still there are no new subsidy programs. Everything what they brought up in the first year of their being responsible for this area, still, let's say, small budget. We expect over the period of -- until the next voting on the federal levels due in now three and a half year that they need to live up to the expectations. And the Ministry for Business is run by the Green Party, so we expect here sharp change in the next three years.

But for now and for the second half of 2022, the attractiveness of government-sponsored program was low, and so was the new project volume of REM CAPITAL. It's not an unusual level for REM CAPITAL, but we are, for now, pretty far away from the extremely high and attractive environment, which we saw a year ago.

So, in total for the Credit Platform, it was -- you can -- it may look like a stable year, so after a record first half year, we lost, in a year-over-year comparison, in the second half of the year, significant in volume because of the market environment, especially in the mortgage market, but as well because of the special situation in the small and medium enterprise financing [road] (ph).

So, you can say, it was a tough year looking back. We had to adjust our structures. We had to cut down on our workforce in the Credit Platform as well. But already mentioned here, we kept all innovative projects alive going forward, so -- especially around the mortgage road with our heavy investments in consumer-facing technology, automated advice processes and automated credit decision processes, we keep investing there because we see this as a core driver for future market share gains and margin expansion in the Europace road.

Next segment close to this, Private Client. As you know, the mortgage -- the Dr. Klein franchise system is in the core in mortgage brokerage business as well. Dr. Klein lost 7% in this market environment, so gained market share as well, outperformed Interhyp closest comparable -- closest competitor by 8%, which is great. So, a great performance of Dr. Klein in this direct competition. Especially in the second half of the year, with this tough market environment, we see that our decentralized structures of interpreter nurse in the local communities performs better than what bank branches can do in this business.

So, out of this crisis, mortgage brokers will live as winners in every local business, plus the online world is already heavily dominated by them and consumers, which are more attracted to information right now, consider for a much longer time what they are going to do are more often in touch with mortgage brokers than they were before this crisis environment.

Unfortunately, we, for the first time over a decade, lost a number of advisors. Our franchisees are smart as well. They see that they have less leads to advise on, so they reduced their workforce. They kept their better-converting advisors, but -- especially advisors with weak performance had to leave the franchise system, and so we lost 40 of them. It's a pity, because it was hard to build it up. On the other side, this resizing is necessary in the current market environment. And I'm sure we'll be able to regain this as soon as a number of leads going up again at our franchisees, we'll react fast at this moment as well.

From a financial perspective, it was not a record year for Dr. Klein for -- as well for the first time for a long period, but still, Dr. Klein performed all-in-all pretty well in this situation. Stayed pretty profitable over the whole year and even at the end of the year and the most toughest situation of the market, which we saw by now was profit and cash flow positive and made a good business.

Okay. And next segment Real Estate. You have asked this that we split the market in three groups. We have in homeownership market which was shrinking as I said, but still something around 20 million units and 40% to 45% market share here in Germany, which is our full core focus this, the whole Europace mortgage business, Dr. Klein business, but as well GEWOS, FIO and VALUE.

Besides this, there's renting market, and you can say, there are two types of renting market, the housing companies, typically municipal-owned or cooperative owned so social housing, which is roughly 6 million units. And another target group that we serve under the belt of Dr. Klein WoWi. They are you can say stable. They are -- now let's say, I will talk about this in a moment when we talk about the financing platform.

And in between, you have a group of smaller landlords, so typically private, which bought renting apartments for their pension or do this a little bit more professional. This is an area of business with 6 million units, which we are not really addressing. And from today's perspective, I'm pretty happy about this, because this is a market and which is under pressure because of regulation. And looking forward, I expect this market to shrink in favor of the homeownership market.

But, let's say, first, 2022, how we performed, let's look first on the homeownership market where we use our strong position in the mortgage market with slowly every [third] (ph) mortgage going for Europace in the market to use this strength to expand valuation work as well in 2022, we increased our market share and valuation to roughly 11%. So, in the value chain to go behind Euro is easy. In the other direction, in front of you, it's more difficult that we lost market share there.

The reason here is that our core target group, the real estate agents of banks, lost heavily market share, because let's put it mildly, when you need to sell a home really when selling homes is your core competence, you can't just sit in the branch of a bank. You need to be more active. Up until the beginning of the year, homes sold themselves, you just have to manage the process. But since the second quarter, you really need to sell something, and selling is not a stronghold of real estate agents of banks.

And second, even with our support, they are still far behind in digitalization, in online presence. And people much more intensive researching and looking around, and other agent groups are more effective with this, and we see as well a growing C2C market here in Germany, which the banks still don't address properly.

So, how does the different units performed in this in detail? So, FIO on the transaction side and the real estate broker side grew, so we could add additional clients, especially in the cooperative banking sector where FIO has still a huge growth potential. But at the same moment because of mergers between savings bank or between cooperative bank, the gross number declined.

In total, the transaction volume declined by 28%, more than market. Market was down. No figures out right now, but our expectation, 15% to 20%, and they lost 28%. We could gain revenue because of additional services on the platform and the very successful FIO business in the managing system for either renting market. So, ERP system for homeowners grew from a small basis but getting slowly significant here in this number. So, let's say struggling environment, struggling clients, but we were growing and -- but have to invest substantially in this business to gain traction here.

Talking about gaining traction, VALUE AG, with a strong link to our other mortgage businesses could gain additional clients. So, more and more banks use more and more services of VALUE AG. And the number of valuations went up, so the number of involvements in the value chain of VALUE AG increased, which is great, and we could increase our revenue with this.

But let's say, the -- VALUE AG was, in 2022, not affected by the turbulent market environment. Most of the time, we had difficulties to scale our business with the amount of new clients that we are onboarding and delivered the execution resources for this. And they hit heavily when BaFin in the second quarter prohibited online inspectors because of a rollback of all Corona-linked easiness for the banks.

This surprised us, the necessary adjustment in our resources to be able to offline, again, do the valuation and inspectors costed us a lot of money and a lot of traction. In the third quarter alone, it was €3 million, and in the fourth quarter, it was another substantial amount added to this. And BaFin did this all just to roll back to a year. Now, this video inspectors allowed again at the end of the year, but they put us in travelling issue that the ATV is then lower when you inspect the property remotely. So, still, it's not that the digitalization efficiencies coming back fast. So, with this very volatile regulatory environment, VALUE AG lost a substantial amount of money even without this turbulent market around this. This was a very intensive year for VALUE AG and fully unnecessary in this moment.

Okay. Third product area, housing associations. So, I said already, it's a stable environment, especially from the number of units, you can say they don't change the number of apartments they own and manage. Recently, they started to build. You can say in 2022, this stopped. So, the number of new social houses financed dropped sharply here in Germany because of the interest rate rise in combination with too high regulation of building and renting housing. So, the whole real estate industry and especially the housing associations are in some kind of strike. They don't finance anymore, they don't plan to build anything until the regulatory environment is changed.

We could, in this really tough environment, outperform the markets or take heavily market share. We found things that had to be financed still, especially in the area of modernization, some acquired properties when the price was okay. And we could even increase in this environment our mortgage volume on financing platform for housing associations by 2% and our revenue out of this by 25%. So, very successful year for this unit. It will be challenging in 2023 if the regulatory environment is not changing.

Overall, for the segment, a year of growth plus 12%. This is fine, but it's heavy investments, especially VALUE AG costed us too much money in 2022, and this [indiscernible] regulation was painful. The whole segment is not fully affected by the market environment, but we focused, especially in this area our approach to reduce costs and find a new balance between investments and future growth.

So, last segment, Insurance. And let's say, we entered Insurance already seven years ago with the goal to be a little bit less dependent on the lending market and especially the mortgage market. Unfortunately, still we couldn't grow to a size where the stability of the insurance industry gives stability to Hypoport in general, but now in the current environment, in this personal loan business and the personal mortgage business, especially we can say that thanks that the insurance industry is just a stable market environment, a small incremental growth in premiums and not affected by recessions, inflation or other core macroeconomic events that we see right now.

We have three areas of digitalization, the product areas where we digitalize: the personal insurance part, the Smart InsurTech; the employer-linked pension market with ePension; and the industrial insurance market with Corify. All three are relevant markets here in Germany. In all three, we have small market shares for now with different goals, which you can say.

In the private insurance area, the Smart InsurTech, we are still in the process of migrating existing clients, which we acquired with existing on-premise solutions to a centralized platform, 10% of migration in the last year -- additional migration of volume in the last year is below expectation. We had heavy investments in the last five years in this area to speed up this process of migration as we were not successful to speed this up. So, as -- and because of the need to readjust our investment strategy for the Group, in general, we reduced here our investments and we don't try the additional investments anymore to speed this process up and we don't expect it to slow it down to be honest for upcoming years.

The validation rate increased to 30%, so our links -- our interfaces with insurer increased relevance for the volume. So, for the first time, you can say, more than €1 billion in the platform is synced automatically with the information and the databases of the insurance companies. So, for every additional service, this is relevant that we have this quality of information of data in the joint platform. But still, it's a long way to go to finish the migration and finish the integration with the insurance companies here. Yeah, it will be -- it will stay a growth path. I'm sure about this. Just we will not invest so heavily anymore in this area. And it's part of our saving program that we executed end of last year.

Completely different story, the industrial insurance market, where with an acquisition we gave this [well traction] (ph) on the client base, managing their existing insurance portfolios. And together with them in the last year, identified the need for a platform for auctioning new insurance risks in industries and got a pretty good feedback for this idea of our existing clients as well put into new clients for the platform. We are in the developing process for the platform and, in summer this year, we expect to go live with better and change the way how industrial insurances are underwritten here in Germany. And this is a pretty cool thing, and we expect here a potential, very valuable business to be identified next to this pretty slow-moving private insurance business.

Yeah. The last one as well, faster developing than expected to be fair. Our employee-linked pension digitalization platform, where there a huge level of complexity. But we -- in this, four parties involved where a lot of data need to be exchanged, a lot of complexity is there, and especially employers to fulfill their obligations there, needs a technology and we are here in a good position in the market, just two grown up companies are competing to digitalize this market. And it has, as you can see, a huge potential in front of us.

Okay. In total insurance business was growing last year. The 26% looks better than it actually was -- there was this -- an acquisition of AMEXPool, which for the first time recognized in our numbers. Organic, we grew by 6%, still outperforming the increase -- the growth of the industry, substantial but well it's -- the dynamic was below our expectation, and so we have reduced our efforts and investments going forward 2023. So, 2022 will be the last year where we lost money in this segment, and I expect the growth speed to sustain in this area of high one-digit and maybe we reach even double digit, thanks to the industrial area.

So, these better four segments, when we look on the top -- total group level and the total year, you can say, lose of probability. Thanks to this sharp change in market environment that we were, let's say, pretty surprised by the intensity of the drop in our core market. When you look on just the fourth quarter, you'll see that the current market environment is costing us revenue and profitability, but the necessary adjustment that we did at the end of last year, we feel pretty comfortable going forward even if the market environment would stay tough for a longer period.

On a long-term view, yeah, you can say in 2022, Hypoport entered a new phase after seven years of strong growth from 2014 to 2021. We are now in some kind of a quality growth we call it, where in the tough market environment, we will take market share to grow. And as soon as we see a normalization of our, especially core market, we expect a fast increase in profitability and it will not take seven years from now.

How long will it take? We talked about in the next area. But before we look in the market, just a reminder, we communicated this already, in the fourth quarter, we reduced our workforce and restructured a lot of areas as well in our other costs. We had one-off -- a net one-off effect of minus €4 million to execute this all end of last year, but with this, our cost base compared to the third quarter was reduced by roughly €10 million per quarter. So, for 2023, we expect €35 million to €40 million less cost than we would have had if we would have continued at the cost of Q3.

It's a pity that we lost so many talents on the way, but as you know, we were in a heavy investment situation at the beginning of the year and had a lot of ideas, which we -- and projects, where we looked for new opportunities. We stayed with this -- all the projects which are all divisible to clients and where we see traction. So, especially around the mortgage business world or Corify in the insurance industry, or GENOFLEX, the company's banking sector in personal loans, there we keep investing, because we see the near-term trends and see this as very well invested money even right now in the second -- in the current circumstances. And for us, it's enough that we are cash flow positive. Even in the circumstances, we don't need to generate exceeding profitability right now by shutting down more innovative projects. So, we keep the balance between where we are still putting our money even in these tough situations and there we see the trends in this market environment as well.

We've talked about our capital increase. We raised €50 million, especially as a signal to everyone in our core industries that Hypoport -- is their Hypoport is a strong, reliable partner in every market environment. So, [collaborate] (ph) with us and solve your problems with us. We are part of the solution. We are not weak. Don't try to get a bargain with us right now. Try to get the solution for your problem with us and this is where you need to look at.

Okay. So, looking on our core market and the question is how it is going to perform near-term. You need to understand how the German mortgage market works, how German households actually decide to make an investment and acquire their first home and leaving the renting market, entering the homeownership market.

So, core trigger events are children. Especially, to build something new, you do this because you expect children or they just arrived. To purchase your first home, it's typically well triggered by children, sometimes as well because you fell in love and you want to move together, sometimes because you're divorce and you need an additional home, and sometimes because you changed area of your living, you moved to a different metropolitan area and you were used to live in your own home and you want to keep this. So, these are the reasons why you're buying.

In Germany, you don't upgrade because interest rates are low or you can afford more. Germans buy once and they leave their home with their [feet first] (ph). This is very important to understand this because the -- not the interest rates change is the core reason right now why the market is down. The core reason why the market is down right now is that the trigger events are there, but people need to adjust their dreams to the reality. And reality is right now mortgage rates of roughly 3.5% to 4% and trickling down property prices. And this trickling down to property prices gives an incentive to wait. So, as long they're trickle down, people still have the hope that they can afford more than they could right now. So, this adjustment of the dream, which you enter this decision process, is slowed down.

From our perspective, and let's say, the current price to up to 15% from the peak in May last year on average. And to be fair, especially energy-efficient homes dropped much less, more or less close to zero, while energy inefficient dropped sharper. But eventually, we saw a drop of 15%. And depending on what you are looking for, this is relevant for you or for the total market it's 15%.

If you would like a total adjustment to the interest rate increase, which occurred in the beginning of 2022, you would need the price drop of roughly 30% to 35%. Over time, because of increasing incomes, the affordability gap closes from both sides. So, we are at minus 15% on the top line of the price and we are with the income 5% to 10% up. And let's say, it's raised first who wants to buy or able to buy a property is going to close the deal, so it's not the average of income, it's what the target group and -- let's say, we are not talking about social housing here.

We are talking about people who are able to afford a home and upper third of the German income level. So, the ones who is developing its income the fastest, catches the properties first. So, the gap is slowly closing. We see this as well in the dynamic and the price changes. We started slow in May. In the summer, 1% per month decline in property prices. At the end of the year, we reached roughly 2% per month. And now we are already down to 1% decline only. So, the decline is slowing down. We expect in the next couple of months already that we are getting to a stable price environment, and just the short after this, we will see increasing prices here again.

Core reason is that migration is high, demand is high, the renting market is fully frozen, sharp increases in rents, you can say plus 10% easily right now on a yearly basis. City of Munich adjusted for that 21% increase compared to two years ago. And for Berlin, the second largest portal here, reported last week an increase of 27% on a quarterly basis. So, the renting market is really fully frozen now and -- so if you have an increase in income, you have a trigger event. You just need to buy to resolve this and you need to just adjust your dream to what you're really able to afford.

And we see these dynamics ongoing and, as I said, expect for the next couple of months already a turning point. From there, we expect that, thanks to the frozen renting market, we will see transaction numbers higher than before 2022. In the beginning, this still lower volumes per transaction because of the lower prices. So, from this €250 billion to €300 billion market we had in 2021, when we lease this current situation, we will come to roughly €250 billion-plus market for the same type of acquisition of properties and building properties.

What comes on top of this is the decarbonization investments that are needed. So, for Germany right now, the laws implemented to upgrade your heating starting 1st of -- effective January 1, 2024, which will lead to additional investments in the next 10 years of roughly €1,000 billion. And plus on EU level right now, a new [indiscernible] in final negotiation where all homes with an energy efficiency level below D needs to be upgraded until 2023 -- that is 2032 -- sorry, 2032, so in the next 10 years, which leads to additional investments of €1,500 billion here in Germany.

So, part of these investments are renting markets or more or less, good half of it. But for the homeownership market, we expect investment needs in average for the next 10 years just based on the current regulation and the current environment of €80 billion in addition. So, this adds up to a total market of something around €350 billion in the near-time future. From a market volume where we are right now in January, Bundesbank reported €13 billion, so €150 billion if you annualize it. So more than doubling of the market volume we expect for the upcoming years. The question is that how fast it's going to get there, and not if.

And with this in mind, put our guidance into perspective. So, for this year, it's really difficult to predict how fast this transformation of the market will go forward. Let's say in a slow speed and slow normalization, we expect still in comparison to last year, a decline on a full-year basis. We are pretty sure that our first half of this year is better than the second half of last year, but this first half of last year was really a record level. If the second half of this year, we get close enough, we don't know.

So, we expect a decline in revenue in total from up to 10% and a decline in our profitability up to 30% for total year. But just a certain level of normalization. From an investor perspective, from my perspective, much more important is our long-term view. And from here, they have double-digit growth there. And I just described it, we are talking about €350 billion market up to €400 billion market from €150 billion where we are right now, so that's a huge growth potential and our incremental margin in most of our business model is 100%.

So, the question is will 2024 or 2025 be a new record year for Hypoport, not if that's coming a new record year for Hypoport. And our last record year was 2021, and this is not long ago. And we have a track record of double-digit growth for 20 years and we will keep getting back on this track as soon as we see a normalization in our core market.

Okay. This said, I am happy to answer additional questions if I didn't answer everything which was out there already.

[Ronald Slabke, Chief Executive Officer]

Yes, thank you. No problem, if all questions are answered. If you have some more, contact our IR. Actually, what I did mention is after the -- we saw a stabilization already in the last few months of the last year. January, February was in line with this perspective. So, we saw the pattern from here. We see incremental movements up. And this in mind, in two months, we will update you on the development of the first quarter here how fast the environment is developing, how we are performing in this. I'm pretty sure that from here, there's only one direction, and happy to keep you updated there.

Thanks for all your time, and see you here at the beginning of May.

[Operator]

Ladies and gentlemen, thank you for your attendance. This call has been concluded. You may disconnect.