German property prices have sharply risen according to Goldman Sachs, despite the depressing performance of the rest of Europe.
After an era of quiet and stable prices and despite the depressing performance of the rest of Europe’s housing market, German property prices have sharply risen according to Goldman Sachs.
Home prices in German cities such as Berlin, Hamburg, and Munich have risen between 5% and 20% year-on-year according to analysis by German bank Helaba and Jones Lang LaSalle.
According to Deutsch Bank, this increase is attributed to the growing number of Germans flocking to the cities to find employment and investors rushing to snap up assets perceived as safe haven as other investment options run out, trends that likely to continue.
Quite expectedly, such increases have led to fears of a property bubble, especially after Barclays senior European economist Thomas Harjes noted that ‘many of the ingredients for a future house price bubble appear to be in place’.
‘Once a broad-based positive price trend is established, it often feeds on itself and could result in price exaggerations.’
However, Harjes quickly added that only a limited risk for such future price exaggerations is seen, mainly because the German authorities, including the Bundesbank and banking supervisor Bafin, are on high alert.
He also said that the telltale signs of a housing bubble, such as strong increase in bank credit, undifferentiated strong upward price trend, and very high transaction volumes are not yet apparent in the German market.
‘The German housing market is considered stable by international standards,’ said Stefan Mitropoulos, an analyst at German bank Helaba, adding that the house price increase is quite expected because of the low supply and high demand in cities. ‘There has been low building activity in the last year and a high demand for housing in the cities where populations are rising,’ he added.
Mitropoulos, however, didn’t discount the risk of an urban housing bubble. ‘The main risk is not that prices are too high but that they are going to continue to rise,’ he said.
‘As a result, if the robust increase in prices for German residential real estate continues, an overheating in certain markets cannot be ruled out over the medium term,’ he continued.
By Rodel Ambas Jr
10 December 2012