Hypoport SE (HYPOF)
Q3 2022 Results Conference Call
November 14, 2022 11:00 AM ET
Company Participants
Ronald Slabke - Co-Founder and Chief Executive Officer
Presentation
Operator
Dear ladies and gentlemen, welcome to the webcast Results Q3 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. [Operator Instructions]
May I now hand you over to Ron Slabke, who will read you through this conference. Please go ahead.
Ronald Slabke
Thank you. Welcome from my side as well for the presentation of the Q3 results. As you know, we are operating in three core industries in Germany, credit, real estate and insurance and especially in the world between credit and real estate, there happened a lot in the last quarter, so a lot to talk about.
But first of all, let’s talk on the total group. We see that Hypoport is growing over a period of the last nine-months. We had the net growth. And when you look in the third quarter and see how our market shares in a different industry developed, we keep digitalizing these two industries and when markets are down, then just our numbers are coming down an IP as well. We can’t change how the market looks like right now.
And so how our total numbers looks like? Revenues up still double-digit, when you look on the three quarters behind us, profitability stable compared to last year for now. And when you look under the different segments, we will a double-digit growth in the credit growth compared to the market, which is when you just look on the figures of Bundesbank - Bundesbank is heavy duty later.
So let’s say, we are certain that, we took market share even though our Private Client division where we are at plus 5% in this comparison and take into consideration that, all the references are slightly delayed.
Yes, property finance or real estate, property performed plus 6% in revenue, compared to the market of minus 6% based on [Gavos] (Ph) we expect Gavos to correct this down as well. I don’t see that they expected to changes in the second half of the year.
And good news in insurance plus 35% from our side in a stable market environment and this market is really stable. It is very stable premium volume plus 1% as always secure market environment, and something that gives us some baseline here right now.
I said a lot about markets already and that something is going on and most of you will be aware of this. Just have a look together on the numbers. German residential mortgage volume based on Bundesbank and last fifteen-years, you can see for a period until 2015, it was pretty stable around €35 billion to €50 billion backwater. From there, we grew to, let’s say a level of €70 billion, €75 billion thanks to increasing property prices here in Germany.
Parallel, we saw a decline in transactions, so this was not the market was going hot, especially German residential. They are not used to this price development and it didn’t buy. So the market slowed down, until beginning of this year. And then interest rate stock wise, we saw some additional volume in the market. Sales cycles got short. We peaked with the transaction volume or the new market volume at above €80 billion in the last quarter. And since then saw a decline, which this market never saw in the last 25 years.
So current figures on Bundesbank says for third quarter, we were roughly €55 billion. This is delayed because the reports of banks to Bundesbank happens pretty late in the process. When we look on the market, we would say, third quarter was below or on the level of the financial crisis in 2009 roughly. So really, especially market environment, you can say, a black swan, something unusual for the terminal residential mortgage market in general.
So how we got here? First of all, and you are aware of this, worldwide, we saw a rise in inflation since more in the year now. And thick inflation right now in Germany from above 8%. This is an historical not documented area, as for Germany. Late, ECB reacted on this and started to increase the short-term interest rate.
Already before this, you can say, since the beginning of the year, markets reacted and changed the long-term interest rate. This resulting in a heavy change as well in the cost of mortgages in Germany, because German buyers, homeowners tend to refinance 10-years plus fixed rate interest rate mortgages.
So they are heavily-linked to the long-term interest rate in Europe and Germany. So bond, 10-years bond is a typical compare for us, and just the increase in the bond markets of the interest rates, the mortgage market went up as well.
From 1% to 4%, it means for the typical homeowner that their rate, the monthly payment roughly doubled. And this had a heavy impact on the affordability of homes. So everything that you could afford a couple of weeks ago, you couldn’t afford anymore, a couple of weeks later.
So in today’s perspective, the property you dreamed of buying a year-ago, you can’t afford today anymore. And so this leads already a lot of - potential buyers to reconsider their decision and wait for a better environment.
Better environment is a lot of hope in this and I tend to call this the speculation. So the buyer side hopes for a sharp decline in prices. Something you often read in newspapers for the last roughly seven-years now that German property prices are inflated by 15% to 30%. You read the same today.
And the buyer side, hopes now that, the prices comes down so that the need or let’s say, that it gets again affordable to buy more or less the same property that you could have bought a year ago.
In reality, we saw prices peaking in April. And since then, they came down roughly by 3% by now. So a steady small declining of prices in average. Germany, we have reached where it is a little bit - dropped a little bit more already. We have stable regions here like Berlin in the pricing, but overall 3% decline. So the hope of buyers in the last month that prices will decline sharp, didn’t realize and so family, such as seekers tend to wait for a better opportunity.
This is a core reason as well why this market is right now in a dysfunctional situation, because on the other side the seller side, the owners of properties look on the inflation. And I think that just waiting will bring their prices up, with an extremely high inflation rate right now, plus the cost of constructing home went up between 15% to 20% year-over-year.
Every brick you own gets fast more valuable level. And so the seller side is maybe a little bit irrational that expect prices to fast come back to the level we in April and even exceeded. So they are waiting. And in this dead lock situation, we see a sharp drop in transactions. Another part of the market is new constructions - as well as sharp decline.
I can go already next slide here. When we look on the year based figures, we can see that year-on-year are down by 50% and when you look on the historic level of construction in Germany, you can say that, for a long time, we were around 150,000 to 200,000 units in Germany. Then it took us ten years to ramp up the production of new homes to 300,000 units, which we reached in the last two years. And now there is this decline of 50%.
Again, our expectation level for next year 100,000 units. We see that, the long - let’s say, the long ramp up phase to finally get enough home ready for all the migration that we see, all the sharp increase in households, which you see here at Germany is again back to a depressing level, because we need 400,000 units to be finished every year to just stabilize this market, and a product production of 150,000 per year. It is far below what is needed to compensate the net migration to Germany, because of the need of our labor market.
And this a well gives some hope for the seller aside, so the decline in construction will stabilize this market and will make sure that house prices doesn’t come down as fast and as far as the seeker side is hoping right now.
There is all in an environment there we look to an upcoming recession. It is still not clear, if it is a mild one or a harder one, depends a lot from the energy prices, which came down lately a lot. So will be interesting to see how rough the situation will be to make this clear, it is not that German households don’t buy because of an upcoming recession. They are not buying because of the hope of lower prices. And the inability to fast adjust their let’s say, what they are seeking for to their affordability level.
So the better choice in our opinion would be to just buy a smaller or a cheaper apartment than they for a chance that prices come down. We don’t expect this to happen. We expect maximum 10%. We expect maximum decline of 10% in property values. And from there we will increase again. And again a lot of people missed a chance to release the renting market and acquire home.
By the way, renting market. As a very special situation here in Germany, we have a high rent regulation, so it is difficult to increase rent of existing rentees. And you can’t terminate a rent contract, it is infinite. And with this it really gets difficult for investors to acquire properties and rent, especially when the rentee is in the property already.
So the renting market under this conditions is effectively shrinking. There is not a lot of new supply coming to the renting market. If you want to buy, if you want to change your home and you have to leave an existing renting apartment, the chance to find a similar expense of new apartment is extremely low.
So the pressure in this market, which is constantly increasing because of trigger events and families trigger event means, you want to move together, you get children’s or you want to split. This trigger events there is a rising pressure in the market and the only chance to really solve this problem especially in metropolitan areas is by acquiring a home. Now you don’t have a chance anymore to rent something this market divide out.
That is the situation for now. Looking on the performance of the different units in this market environment, we start as always the credit platform. Your pace with their core product mortgages in the center. And we are moving via personal loans, to this corporate finance business or from capital and funding for later.
So mortgage volume on your pace up four percent for the first nine-months, down 70%. So slightly double-digit when you just look on the third quarter, the method slow down compared to the last years, because of the market environment in the third quarter.
So this sharp decline in market volume of something around 30% and partially in 50% in new construction is something that we feel in our numbers and where we can’t decouple from the market, even when we expect to take market share right now.
Thanks to the fact that mortgage brokers and price comparisons what their core offering is something which gets much more expensive - much more interesting and important again for consumers.
And pilot development in this interest saving product outbound here in Germany. We see the, quite an impressive rally in the market, plus 17% up this volume on your pace plus 10% of in [Indiscernible] bonds is usually sold together within mortgage product and secures the interest rate after this - product there and it is fixed interest period.
That is why not as fast growing as the market because in the market it is sold just as a saving product to optionally use it in the future for mortgage. So not linked to a direct mortgage financing right now. A lot of consumers try to secure the current interest rate for a future buying and 10 to 20-years and are using this bond right now for this.
When we look on the different sales channels, in third quarter, we expect that brokers took market share from bank branches. Again, we expect this because consumers - the consumers who are seeking a mortgage right now are much more sensitive regarding rates. We see this in our own broker channel that the advice processes takes longer, and we are talking much longer about affordability and the effective rate of the products.
While in the cooperative bank and savings bank world, we see a certain slowdown on activity on our platform and we expect that a similar slowdown is going on in the branches. There are some reports for - especially from some heads of saving bank organization in a certain regions that since September, they don’t see any mortgage business in their branches anymore.
Whatever this means in numbers. So it is not public, but yes, we expect that in this heavily slow down market, especially banks with traditional sales approach are under stress. For us, for the first, three quarters, it still means our numbers and both sectors are up. We are gaining market share there. This is certain we just, are in the current environment a little uncertain how high our structure gain is. How much marketing have you we take.
So our next product, personal loan business, something which slowed down during the first three quarters in Germany, where we take heavy market share plus 37%for the first nine-months. We see that as well as slow down together with the market, but we are gaining an absolute numbers and relatively a lot of market share.
The reason for this is that our offering via independent advisors and the banks is more focused on restructuring existing loan portfolios of consumers, while the slowdown is focused on new loans generated on the point of sale their consumers reduce their consume, and this is their appetite for new credits. While in the restructuring business, you can say the tough time before and during a recession is still on the way.
For this market, we see as well quite some potential in the next quarter. Together this team bank, we are rolling out your pace in the corporate banking sector called gain flex. We are still pilot phase, the good results more and more cooperative banks joins this and offer for their restructuring the European solution to their clients.
Next credit market corporate finance here in Germany. Especially dominated still by our advice approach linked to a subsidized subsidies and subsidized loans for the German middle stunt in this business we had a strong first half of the year as well, thanks to an attractive program of still the old government, which funded the energetic modernization of building here in Germany. And we enabled the German Middletown to use this to optimize their CO2 exposure.
The new government still didn’t bring any relevant programs to the market, and so we are facing right now a period where we see a lot of demand on the client side. German Middle Start is under stress in the current market environment, but there are still no fitting program support programs from the government side to meet this need plus the credit appetite of German banks in - loans declined risk profiles got the figure. So the increasing need for financing is not met as well by the supply side of the banking industry.
There is a growing market for private placements and credit forms in Germany right now to meet this need. But for now, third quarter was not the time for a lot of transactions. And even then it is advice business we are as well transaction based here and so we saw a significant slowdown in the corporate finance business.
We are working on the digitalization of this market. We launched funding port together with IKB one of the larger German corporate finance banks here. And for now, the market environment slows down the rollout because the fit in credit criteria made it more difficult to match business between the needs of the - let’s say the corporates and the offerings of banks.
But looking forward, this especially the increased appetite of Middletown for financing in the current environment increases the market volume, which we would see after normalization of the market going to make environmental spend.
So in total for the credit platform, it means that we were still growing double-digit on nine-month basis, but strongly supported by intensive course in the first half of the year. Third quarter was for this segment just has gone to a long period below the compare quarter in the last year. And profitability went sharp down in the third quarter.
Looking forward, we don’t expect anymore to meet our target here, that we see a double-digit growth top and bottom line. The current slowdown in the private mortgage business is too intensive to compensate this with market share growth, as well as when you look on profitability, even then I introduced you to our cost savings program and a German labor conditions is nothing you can adjust passed. So we see there is a slowdown in profitability. We saw it in the third quarter, we will see it in the fourth quarter.
So, next business and a segment fully exposed to the mortgages business here in Germany. Our private client business the franchise network Dr. Klein, 200 franchises employing more than 600 advises, something which profited a lot in the first half of the year from the good market environment. But now under the current situation, saw a sharp decline in client demand, which - given the traditional taking of market share can’t be compensated in this speed. So our Dr. Klein still grew by 5% on the nine-months figures, but saw a sharp drop more than 20% in volume in the third quarter.
Again, when you compare this to Bundesbank, which right now reports zero flat volume take into consideration that there is a time lag between what bank considers. So Dr. Klein took market share over the period of nine-months and we are pretty sure when we see the numbers of - Bundesbank in the next couple of months that, if you to get the confirmation that the top market share as well in the third quarter, just in the fast declining market.
What is important is because markets will come back that we keep as much advisers of our franchises as possible. This is a complicated process, because our franchisees are independent to hire new people in this environment, let’s say, it is difficult to convince them to do this because it just doesn’t make sense because there is not enough advice there, enough demand for advice.
So we can’t keep our track of double-digit growth in head count here right now. So we are right now at plus 2% and we expect a further decline because it is just makes sense from the perspective of an owner to reduce its exposure and reduce the number of people here -.
So the good is that from perspective of risk profile that is huge workforce. It is not on our payroll and so we are a little bit more flexible here, than other market participants, especially bank branches, where the advisers are on payroll and it gets really costly in such a market environment and you have not the cost to structure for you workforce.
The segment in total, reported still a small growth in-line with volume growth plus 5%. Profitability is already declining because of the hard hit in the volume decline in the third quarter. And let’s say, a scalable business model on the way up is opportunity as well, the scale business model on the way down.
So we are losing faster profitability than we are reducing our revenue site here, so minus 41% on the third quarter, on the EBIT side as a result of the scalable business model and our interest to keep our franchise system and our central function for the franchise system as intact as possible for the upcoming normalization of the market.
So our next platform, housing real estate. Here we are addressing roughly 60% of the market on one side. We address together with the private mortgage business we just talked about the home ownership occupied the market. On the other side, we address the institutional housing sector, the social led loan here in Germany.
I told you a little bit earlier that renting market is different but as well, heavy stress because of rent regulation. And let’s say is not offering solutions anymore for the seekers. This is especially a situation for the private, typically small landlords here in Germany.
The rent regulation, the increasing cost to maintain property and if you have to refine it or you want to buy new, the sharp increase in interest rates makes it pretty tough to operate as a landlord.
Lots of small landlords are sitting on high increase in book value of their properties, and we really hope that the current stress level brings them to sell the properties to homeowners who seek to own their home. And we expect in the next couple of quarters that there is a shift in home ownership in Germany because of the stress small landlords have.
We are just focused on the homeowner occupied market or the institutional sector. So a change with - whatever happens in the this housing market is something that helps us in the two markets that we address.
So first market we address, home ownership, with the strong position of EUROPACE roughly a 30% market share here in the mortgage business. This - we addressed the transaction market, market share down when you expect that they gave us number of roughly €180 billion is correct.
We expect this number to decline. But as well, we see that banks with their real estate agent offerings are under intense stress and we are offering dissolution to them more about this in a moment.
On the other side, property valuation, something where we heavily invested in the last years and quarters, market share up first time above 10%. So we would be gaining market share here in a market which is still not affected by the decline, but it will come down as well slightly with the decline in mortgage volume and numbers of transactions here.
First, more details about the transaction side of the market. We gain clients, especially in the cooperative banking sector, thanks to figure corporation between general pace and fire. And the fact that for banks to generate leads out of their own agent business is getting more and more important and we digitalize this process.
In general, our clients lost volume sharply minus 26% in the first nine-months and accelerating even when you compare the quarterly results. So this tells you a little bit about what is going on in the real estate agent market here right now.
We could grow our revenue side in this market because we offer solutions. So especially to bring potential buyers or convert potential buyers or the buyer to a mortgage lead is something which gets more and more valuable, especially in the stress market environment right now, and where we are able to gain on both sides. On the agent side, additional clients and/or on the mortgage advice side, additional banks [Indiscernible].
In the value achieve world of valuation, we have a good traction in signing up the new clients out of - corporate partner of your case. They start to use first services. So valuation volume increases double-digit product mixes a little bit, not in our favor right now. So cheaper products are typically used first, and so our revenue increases slightly below the valuation increase. But we are growing that is the important part.
Something very sad happened in the third quarter. At the beginning actually, - German regulator decided to discontinue the digital based inspection option. So we were expecting 40% of properties. And we talk about more than 10,000 properties per month via in digital approach with the clients.
And this ended this because it was linked to Corona. And by ending this virtual inspections, they created a lot of stress in value achieved because suddenly we have to again bring some inspector physical to the property, means we needs a drive there. And we had to hire a lot of people. We needed additional infrastructure and the whole system was imbalanced in the third quarter to supply the banks the necessary - regulatory necessary inspection of properties.
So we are in a process of getting this transformation done away from digital back to the offline way, and in a costly way. The source is more or less in the third quarter, still has a lot of optimization ongoing. We are working on this in the fourth quarter still. But this was an expensive change in regulation, which BARDA gave us here.
Now we switch to the institutional housing association side, a business which was - or industry which used the low interest rates - still low in rates in the first half of the year, a lot in intensively. In the third quarter, they slowed down new project and finances significantly similar to the private client sector, similar reasons.
Sharp increase in interest rates were not met by sharp decline and property values or typical usage of mortgage CSS. Well, let’s say energetic modernization of properties. They slow down this kind of project as well because of a mismatch between interest rate costs and ability to increase rent rents.
This industry rates for two things to change first prices. And you can say in this professional environment, the probability of sharp declining prices is higher than in the consumer segment because you meet the professionals here.
For them, as discounted cash flow on the portfolio on the property is a typical way to do a variation. And the sharp increase rate that the DCS models gives a clear view that existing apartment complex where devalued.
So, we expect in the next couple of quarters a positive change here that we will see again, transactions. And this sector is committed to acquiring even in the current in the current times renting apartment. Because they usually are municipal owned or company owned. And they follow their interest of their shareholders, in this case.
Pilot to this German housing sector needs to get CO2 neutral until 2024. The sector needs to invest €500 billion to improve the energy efficiency of their existing housing stock. And this is something where we expect as well an increase, a sharp increase in mortgage volume in the next couple of quarters.
Just what is needed is the right subsidy programs as well from a government side, something the current government is committed to, just didn’t execute it by now. So the pressure is rising as well on the political side here to deliver what they talked about.
In general, the whole segment is growing double-digit. The end of the permission for the virtual inspections and for value achieved cost us an extra of €3 million third quarter. So the transformation was very expensive. Will still cost us some money in fourth quarter, but it is we will come back to normality here and then beginning of next year.
In general, you can say that this was a heavy investment case for us and short quarter and actually as well in the whole first nine-months. It is an area where we have to look pretty much in detail, how we want to go forward, how many projects parallel we are going to fund, based on the change of the general probability of throughput.
So last segment, Insurance. You are aware of this, we have an offering already active, smart interest for private insurance pensions, or corporate or employer-linked insurances. And during the year decided to address the industrial insurance business, which we are in as well as a separate product line.
In all three product lines, we are now pretty focused on this business models, which are in there -- restructuring case already during the whole year. And managed some good progress for of these product areas.
First of all private insurance business plus 14% and the migrated volume to a transaction based model, could be faster still slowdown down too much of this focus for a long time for us to market share take because of there was some industrial business in it and we struggling with the IT projects of our clients to bring them forward to ramp up this part of fully digitalized policies in our portfolio in our IT system.
But we are progressing and the new focus that we shape this year, it takes effect and will increase speed and profitability in this product area. And the good news here market is not affected by the geopolitical environment right now. So we are able to organically grow here.
Industrial business. Here you can say at the beginning of the year, we are pretty surprised about our role in this business. You can say, it is relevant share already of the industrial insurance business in Germany, which is powered by our traditional insurance management software and together with our clients, we decided to develop the platform for the underwriting risks.
To clarify, it is under development right now and we plan to announce in the first half of 2023. So this is an opportunity for us, which we see here to monetize on the strategic position that we have in the market.
And last product area, e-pension. An employer linked insurance product for pension and since a couple of months now, it is health insurance. It is a fast growing business where we digitalize existing portfolios, optimized the processes that between HR department of the employer and insurance company and gate traction here so signed up some interesting clients and was 44% on a clean growth.
For whole segments, double-digit growth, including an organic acquisition of [indiscernible] without this it would just be 5% this is below our expectations that is by the restructuring during this year. We finished nine-months as slightly decline profitability.
But it is part of the - is one of the reasons of the change in focus and the new structure we gave this unit, for this year we expect to stay on track, no major changes from market environment. And for next year, we expect that we see the turnaround here finally, because of the new focus that we gave the units.
In total we are still on track to take market share in all three industries. We are still on track with the golf path, and you look on the nine-month figures. Q3 was first time depressed by the market environment I can’t stress this enough.
We, let’s say we saw a sharp decline in positivity in Q3, but with the first two very strong quarters we are still on the level, like last year. Yes. So from our perspective, something significant changed. And when we look on a long term perspective, we see that, Hypoport once again enters the new phase of company development you can say.
We started with seven years of startup like growth, fast top end part nine. Then we had the crisis environment around financial crisis where we were keeping our profitability stable and we are just taking market share in the depressed market environment, or more or less, stable market environment. Then we saw a long period of eight years of strong growth and expanding our business top and bottom line again.
And now a new crisis environment started, and we need to focus again on growth, quality, expand our market share in the declining market environment. This will cost us profitability now and for the next couple of quarters, we are going to talk about this in a moment. But at the end of this period we will be stronger and get a different, much larger, much more important company for the whole market than we are right now.
So, talking about the outlook a little bit, what is going on right now and how long it may take this very special market environment, which we see right now, in the private mortgage business. If we see some important factors, which keeps, owners and seekers right now to close deals, from the perspective, especially of the seeker and potential buyer side is the highest rate levels keeping them from doing transactions.
Property prices don’t fall fast enough in their perspective. Inflation takes a toll on the affordability because other things get more expensive. Income doesn’t rise, so fast right now, like prices of day-to-day goods. We see, especially for the building site, as construction costs are heavily affected and plus 10, plus 15 to plus 20%, it gets really difficult to stay in budget or to create a new project.
Energy cost, this is already normalizing again, but additional regulation linked to energy efficiency is a pain. And the lack of compensating subsidy programs for the new regulation is an issue and need to be addressed. And our current government has a green part in it. And by now they are far behind what the last government offered in subsidies for homeowners and builders to get more energy efficient.
Let’s start negative factors. The positive ones that will drive transaction volume back to normal on first. Trigger events happen all the time in Germany and Germans buy because of trigger events. So the people want to move together. People get children and need more space. People want to split and need separate homes or apartments. This is something which triggers transactions in Germany.
And this is happening. Just the transactions are missing, means the stress in families are just accumulating right now. And it does this already for a longer period. In the last decade, roughly a million people less switched from renting to home ownership because they fear the two high prices. Now they fear or they hope again on declining prices sooner or later the stress is so high that they need to do something. And this is it is like let’s say it is a market where pressure is fast right now.
So beside this, what is good is numbers of properties offered on the market are increasing plus 50% roughly compared to last year right now. So there is more supply coming to the market. This is great. On the other side, for this family’s household under stress, the option to rent something is shrinking less and less renting supply sharp increase in rents. So it new rents you really can’t increase existing rent a lot.
But new rents went up 1.6% in the third quarter. So on a yearly basis, we talk already about 7% rent increase. This is not far away from the inflation and there this is terrifying. And the other options just to acquire something and have a stable annuity payment for the next 10 to 15-years.
Inflation may as well have an impact on the effectiveness of home ownership because it historically value of property increased together the inflation rate. We see that things that are already under construction are more sales sold to investors. So the chance that homeowners, which usually refinance using platform, using business models, which are using your basis higher.
The regulation around energy efficiency, may increase supply, especially from all the households which can’t afford to renew their home and increase the energy level like government is forcing them to. Some rents may see as well the energy bill and decide to switch over an energy efficient homeowner ownership. So there’s, a lot of pressure coming from this as well to the market and which may increase the liquidity in this market and with this - the number of transactions.
And yet, last but not least, this what I said, our government sooner or later needs to live up to its expectation and bring some sub programs to the market, which address climate change or housing crisis. And we are facing here a more and more tougher environment right now. So it needs to come.
Beside this, as a group as working on this cost structure because with the current stressed environment and knowing that this will not vanish in a couple of weeks or months, we are working on this, that we decrease our cost level across the whole group.
We expect to reduce our work force by up to 10%. We expect to add some additional options for our employees to just work part-time. So the 80% is a wide offering to a lot of employees to just reduce our cost base in alignment with the decline of the market. We expect this to be effective in the first quarter, 2023 under German labor rules.
It takes some time to adjust but you will see the results in the Q1 figures and it will be substantial to meet the declining revenue site. What we will continue is our focus on keeping market share in strong position.
So we will continue innovative projects, which lift up to the expectations short term where we see results in Q1 or during 2003 already, we will postpone and delay and pause projects, which have further, which in all of our segments.
So how long can this period of let’s say depressed stress market environment be? Historically, we saw the declines of maximum four to six quarters. In Germany, we saw already two quarters of decline because it is a black swan and we never explained something like this. We are uncertain how long it will take. So our protections in total four to six, four to eight quarters.
And if you are subtracted two quarters, which are done already, so still two to six quarters, it may take under the market normalizes again. So this, for this period, we are preparing ourselves now with our cost cutting program as well and looking then forward for the new race.
And then, after normalization of this market and when you think and invest about this after this period of stress environment, expect German mortgage market to be a very attractive position and expect us to have taken market share during this period and be a more relevant player in this.
So just to give you some numbers when you look on the historic environment that we never saw really, boom in Germany, in the mortgage market, we talk about an average volume of 280 billion in mortgage volume, which will come back. And this is in the powered by strong net migration to Germany.
So a lot of more people who will look for a solution will drive prices up, will drive construction up again, and pretty sure they will drive up the efficiency of usage space as well. And in Germany, be happy for a long period now, tendency that the square meter per person went up constantly.
So German government wants to get to a level of 400,000 units built per year. Our expectations that we see right now are sharp drop and let’s say the Q3 numbers reflect 150,000 units built. This is far away from this what is needed. So if you don’t find a - if government doesn’t find a way to normalize this via subsidies, the stress on the pricing side will be higher. We expect that new comer solution and this is an addition of 30 billion per year is needed to get from, let’s say, our last level of 300,000 units to this 100,000 units, that are actually needed.
Next is, the whole energetic transformation of the housing sector, until 2025 to 2045, to bring the German housing stock to a neutral energy efficiency level or they are €3.5 trillion needed to be invested for housing, for the home ownership market, which is roughly 50% of this. It means to invest €80 billion per year. Still the incentives are missing, but the stress there. And if you want to meet this addition at €80 billion need to come at the - somehow. So they will increase the volume of the mortgage market.
And last but not least, there are one million households who missed the last decade to move from rental to home ownership. They are waiting for the opportunity and their renting market is locked. It is not going to give them a relief. So some of them that has to migrate to their home ownership market via a mortgage and buying home.
So in total, we expect after the normalization of the market, the German mortgage market will come back to a volume of €300 billion to €400 billion. We saw is already in the last quarter that this is possible and we expect this again and there is a lot of macro dynamic here, long-term trends that will power this.
So when you look on the Hypoport, this is an opportunity right now, we are in this opportunity. So talking about opportunity, expect us to grow double-digit cut off market and as long as the market is normal and stable, it means a double-digit growth on top of that plan.
If something like right now occurs, the period delivers an under performance on the profitability level. But this is only short-term as long as this occurs. So for now, we don’t update our guidance for it anymore, we will see how we finish this.
We will have some restructuring costs in the fourth quarter, next time when we talk to each other in the beginning of March, we will give you a guidance for 2023, knowing how the market started. And for now, we are working on our cost efficiency program and try to use as much opportunity in the market as possible and get to actually market share for the upcoming normalization.
So at this moment, I would like to hand over to the moderator. If there are some questions from your side, feel free to ask.
Question-and-Answer Session
Operator
Ronald Slabke
Okay. Thank you. Yes, so let’s hope that answered questions already during my presentation. If you have other questions please contact our IR. We are working here with a huge focus on the using this current market environment in the best interest of our shareholders.
Let’s stay in touch, beginning on March with the company’s update about how we are going towards what we achieved already and we have to see the potential for the in the future. Up until then stay safe, bye, bye.
Operator
Ladies and gentlemen, thank you for your attendance, this call has been concluded. You may disconnect.
For further details see:
Hypoport SE (HYPOF) Q3 2022 Earnings Call Transcript