by Gauk
Thu, May 3, 2018 1:33 AM

German property prices have been stagnant for most of two decades.

But in the past few years, the mood in some parts of the country has started to resemble a gold rush. In Munich, Hamburg and Berlin, apartment prices appreciated by 10% last year. Nationwide residential property prices rose by 5%.

So what's going on? One factor is a fear of inflation. Since the years of hyperinflation in the 1920s, Germans have had a visceral fear of money becoming worthless. Many worry that the European Central Bank's (ECB) liquidity measures could eventually stoke a strong surge in inflation.

With cash offering historically low interest rates, demand for hard assets, such as property, has risen. Unemployment at a 20-year low and robust real-income growth, along with low interest rates on loans, is also stoking an appetite for property. Moreover, many Europeans from outside Germany, fearing the consequences of a euro collapse, are keen to invest in hard assets. German banks have received plenty of cash from the troubled periphery and the ECB's cheap loans have made more cash available to lend.

An increase in the number of single households, a trend expected to last until 2025, and the sluggish recent pace of new construction are also factors. Germany’s ten biggest cities are missing more than 100,000 flats with affordable rents.

The boom has yet to turn into a bubble, however. While there are localised bubbles, even in the highly sought after cities price rises have only slightly outpaced rental increases. That points to a sustainable market upswing. An Anglo-Saxon-style credit binge to go with the housing boom seems unlikely.

The German property boom is another example of the diverging fortunes of southern and northern Europe. The prospect of a property bubble in Germany could prompt the ECB to refrain from further liquidity injections and may even prompt a rise in interest rates, thus making the periphery's life even harder.

It’s safe to buy property in Germany.

published by Gauk



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