A radical proposal to seize large housing portfolios is back on the agenda in Berlin, threatening deeper losses in real estate stocks. Vonovia SE and Grand City Properties AG have plunged 20% this quarter, suffering the worst of a sector selloff triggered by rising interest rates. Analysts say they could spiral even lower if the anti-capitalist Left party, which won an election in the city this month, pushes ahead with its pledge to take properties into public ownership to deliver more affordable housing. The party needs the support of others to govern and faces steep hurdles in executing its expropriation plan, but the prospect of prolonged political and legal wrangling is hanging over big landlords such as Vonovia, which owns more than 130,000 residential units in the city.

The Left party is holding exploratory talks on forming a coalition, but even if it can lead an administration willing to pursue expropriation, it would almost certainly be challenged in Germany’s constitutional court. Equally, any attempt by the German government to prevent states from nationalizing housing would likely end up in the court, leaving the issue unresolved for years. Deutsche Bank AG analyst Thomas Rothaeusler wrote in a note before the election that prolonged regulatory uncertainty would be “structurally damaging” for the property industry even if the chance of expropriation ever happening was slim.

Firms that wouldn’t be directly affected by expropriation in Berlin have also been swept up in the selloff. TAG Immobilien AG has fallen 22% this quarter, weighed down by rising interest rates, and the prospect of further increases in the cost of borrowing. Still, Clouard at Jefferies says stocks have been so beaten down that they’re starting to look attractive, even if there’s no obvious catalyst on the horizon to trigger a rebound.