Rising property prices in Germany spark fears of a bubble - Europe - World - The Independent

Rising property prices in Germany spark fears of a bubble

 

Berlin

First, America's real estate bubble popped. Then came Ireland's, then Spain's. All that escaping air may have been flowing into Germany, where economists are now warning that the first signs of a property bubble may be starting to appear.

German property prices have been zooming upward in recent years, as international investors pull their money out of struggling countries such as Greece and Spain and move it into Europe's biggest economy in a desperate search for stability. If further price rises are followed by a crash, Germany, which has footed much of the bill for its neighbors' bailouts, may enter a rough patch of its own, analysts say.

Bubbles are notoriously difficult to diagnose as they happen, and not all economists agree that Germany is entering one. But danger signs are there, many say. With rock-bottom interest rates, low unemployment and new money flowing in from foreign investors, many analysts say, Germany may experience an unpleasant pop in just a few years if prices keep rising.

The consequences could be wide-reaching, since significant portions of the 17-nation euro zone's crisis response plans depend on Germany's continued good economic health. If the country's finances were to slip or if German voters felt themselves more vulnerable, Germany's economic ability and political will to foot the cost of the bailouts may fade, analysts say.

"If we learn from the U.S. experience, we should be cautious, even if we up to now aren't in a bubble," said Kai Carstensen, an economist at the Ifo Institute in Munich. "When I talk to politicians, they always say, well, it's different. That's what you always hear; this time is different."

"We are shielded against a bubble better than the U.S. or Ireland," Carstensen added. "But it's not impossible."

Germany's central bank has declared itself on guard against prices that rose about 5.5 percent last year nationwide.

That rate is "something that we will need to watch," said German Bundesbank President Jens Weidmann in March.

Prices since then have only gone up. In fashionable Berlin, some analysts say prices have spiked 20 percent in the last year, though others say the rises have been more modest. Brokers say that much of the interest has come from foreign buyers seeking to protect their money from Europe's turmoil by investing it inside what have been the euro zone's safest borders.

Germans themselves are also more interested than ever in buying property. Only 43.2 percent of Germans own their own homes, according to government statistics. But unemployment rates are the lowest in decades, and low interest rates are making it cheap to take out home loans and unattractive to park cash in savings accounts.

Germany's central bank reported in June that construction permits for new housing were up 9 percent between the period from September 2011 to March 2012 and the same span a year earlier. Much of the growth has been in apartment buildings, an indicator of investment activity, not just in the purchase of homes by buyers who intend to live in them, the bank said.

The distinction is important because it can determine how the economy would be affected by a sudden drop in prices. Homeowners who make a large down payment — in Germany, 20 percent or more of the purchase price is common — and live in the home they purchased can often ride out a downturn. Profit-driven purchases for investment, financed by heavy borrowing, may have tougher consequences for the overall economy should a bubble burst, economists say. But they also say they have not seen indications of major borrowing-driven purchases in Germany.

Much of the investment is being paid for in cash, and the rises are coming at the end of a long period of stagnation, economists say. Prices are about 20 percent higher than they were at Germany's reunification in 1990, they say, not a cause for alarm. And the market's upward direction is also powering growth in Germany's economy more broadly. It is slated to grow about 1 percent this year.

"The price increases in the last years are very well supported by fundamental data," said Thorsten Lange, a real estate analyst at DZ Bank, who said it was unlikely that Germany was heading into a bubble. "You need a longer term of stronger price growth" for that to happen, he said.

Nor does the froth appear to be building on itself.

"If you define a bubble as, 'the price is only high because investors believe that prices are going to be higher in the next year,' then you have no bubble in Germany," said Ulrich Kater, the chief economist at DekaBank.

But in cities such as Berlin — long known as an unusually inexpensive European capital — anxiety about future housing costs is palpable among long-time residents. Protests against gentrification and price hikes seem to happen every other weekend.

Among real estate agents, a robust market brings only good cheer.

"We've noticed a lot more interest from people abroad buying apartments in Berlin," said Anne Riney, the head of the Berlin-Mitte office of Engel & Voelkers, a real estate firm. The Mitte district of Berlin has seen some of the fastest price hikes.

"People have lost trust in banks, they're afraid of inflation, they've never had this kind of economic crisis before, so they don't know what to expect," she said. "They're putting their hard-earned savings into something solid."

- - -

Petra Krischok contributed to this report.

Life and Style
tech
Arts and Entertainment
Robin Thicke's video for 'Blurred Lines' has been criticised for condoning rape
music
Voices
Yes supporters gather outside the Usher Hall, which is hosting a Night for Scotland in Edinburgh
voicesBen Judah: Is there a third option for England and Scotland that keeps everyone happy?
News
John Travolta is a qualified airline captain and employed the pilot with his company, Alto
people'I felt like that was the lowest I’d ever felt'
PROMOTED VIDEO
News
ebooksAn unforgettable anthology of contemporary reportage
News
peopleThe report and photo dedicated to the actress’s decolletage has, unsurprisingly, provoked anger
News
A plane flies close to the eruption of the Icelandic volcano
newsAnd yes, it's quite something
Sport
Tito Vilanova passed away aged just 45
footballThe club's former manager died in April, less than a year after he stood down
Arts and Entertainment
Benedict Cumberbatch
artAnd it's even for a good cause
Arts and Entertainment
While many films were released, few managed to match the success of James Bond blockbuster 'Skyfall'
filmsDaniel Craig is believed to be donning skies as 007 for the first time
Life and Style
techCriminals are targeting an e-reader security flaw
Life and Style
tech... and together they're worth at least £100 million
Arts and Entertainment
Matt Damon as Jason Bourne in The Bourne Ultimatum (2007)
filmMatt Damon in talks to return
Arts and Entertainment
Evil eye: Douglas Adams in 'mad genius' pose
booksNew biography sheds light on comic genius of Douglas Adams
Arts and Entertainment
Fringe show: 'Cilla', with Sheridan Smith in the title role and Aneurin Barnard as her future husband Bobby Willis
tvEllen E Jones on ITV's 'Cilla'
News
newsBut just how much does a 122-carat coloured diamond go for these days?
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs General

Retail Business Analyst

£40000 - £50000 Per Annum: Clearwater People Solutions Ltd: Our retail client ...

Senior C++ Developer

£400 - £450 Per Annum possibly more for the right candidate: Clearwater People...

PE Teacher (Female)

Negotiable: Randstad Education Bristol: Teacher of Girls PE for Wiltshire scho...

Retail Business Analyst - Retail-J

£40000 - £50000 Per Annum: Clearwater People Solutions Ltd: Our retail client ...

Day In a Page

Mystery of the Ground Zero wedding photo

A shot in the dark

Mystery of the wedding photo from Ground Zero
His life, the universe and everything

His life, the universe and everything

New biography sheds light on comic genius of Douglas Adams
Save us from small screen superheroes

Save us from small screen superheroes

Shows like Agents of S.H.I.E.L.D are little more than marketing tools
Reach for the skies

Reach for the skies

From pools to football pitches, rooftop living is looking up
These are the 12 best hotel spas in the UK

12 best hotel spas in the UK

Some hotels go all out on facilities; others stand out for the sheer quality of treatments
These Iranian-controlled Shia militias used to specialise in killing American soldiers. Now they are fighting Isis, backed up by US airstrikes

Widespread fear of Isis is producing strange bedfellows

Iranian-controlled Shia militias that used to kill American soldiers are now fighting Isis, helped by US airstrikes
Topshop goes part Athena poster, part last spring Prada

Topshop goes part Athena poster, part last spring Prada

Shoppers don't come to Topshop for the unique
How to make a Lego masterpiece

How to make a Lego masterpiece

Toy breaks out of the nursery and heads for the gallery
Meet the ‘Endies’ – city dwellers who are too poor to have fun

Meet the ‘Endies’ – city dwellers who are too poor to have fun

Urbanites are cursed with an acronym pointing to Employed but No Disposable Income or Savings
Paisley’s decision to make peace with IRA enemies might remind the Arabs of Sadat

Ian Paisley’s decision to make peace with his IRA enemies

His Save Ulster from Sodomy campaign would surely have been supported by many a Sunni imam
'She was a singer, a superstar, an addict, but to me, her mother, she is simply Amy'

'She was a singer, a superstar, an addict, but to me, her mother, she is simply Amy'

Exclusive extract from Janis Winehouse's poignant new memoir
Is this the role to win Cumberbatch an Oscar?

Is this the role to win Cumberbatch an Oscar?

The Imitation Game, film review
England and Roy Hodgson take a joint step towards redemption in Basel

England and Hodgson take a joint step towards redemption

Welbeck double puts England on the road to Euro 2016
Relatives fight over Vivian Maier’s rare photos

Relatives fight over Vivian Maier’s rare photos

Pictures removed from public view as courts decide ownership
‘Fashion has to be fun. It’s a big business, not a cure for cancer’

‘Fashion has to be fun. It’s a big business, not a cure for cancer’

Donatella Versace at New York Fashion Week