A boom in the German property market

Germans have caught “the property bug”, says James Wilson in the FT. Worries over a sticky end to the single currency, along with a surge in inflation following European Central Bank liquidity injections, have fuelled demand for tangible assets such as housing.

Foreign investors seeking a haven have also poured into the market. “People are afraid to have their money in the bank [elsewhere in Europe] and Germany is the most stable economy,” says Anne Riney of estate agency Engel & Volkers. Historically low interest rates, meanwhile, have made mortgages far more affordable.

So it’s no wonder that house prices are buoyant. A Bundesbank survey tracking prices in 125 cities revealed a 5.5% increase in prices in 2011 and that pace has continued into this year. In some cities prices are rocketing. According to property consultancy Jones Lang LaSalle, median prices in Berlin have jumped by almost 40% since 2009.

Nonetheless, it seems too early to worry about a German housing bubble. Prices had stagnated for a decade before beginning to tick up in 2005, so they haven’t had the multi-year run-ups typical elsewhere, says Finanzwoche. Nor have they departed from the fundamentals. Building has increased, but it still lags behind demand for new dwellings. And mortgage lending has risen only slightly in recent years. So far, at least, it’s a case of boom, not bubble.

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