Nearly one-third of German cities have experienced ‘explosive’ growth in house prices in the last four years and risk entering a speculative bubble, according to a study by the German Institute for Economic Research (DIW).
Nearly one-third of German cities have experienced ‘explosive’ growth in house prices in the last four years and risk entering a speculative bubble, according to a study by the German Institute for Economic Research (DIW).
The research, which examined the 127 largest German cities, found that while the market was generally stable, local markets varied considerably. In 45 cities ‘unusually strong’ growth was recorded in either the newbuild or the existing property market, including 22 locations where it was found in both.
The strong performance of the German property market in recent years has led to concern in political circles that the country is vulnerable to the kind of bubble effect seen in the US, UK and Dutch markets before 2008.
The researchers found that in the majority of cases the German price increases were accompanied by rises in residential rents and were therefore unlikely to be the result of speculative buying.
However, in 40 cities the price trend in either new or existing property could not be explained by a corresponding rise in rent levels.
DIW concluded that the German market as a whole was not at risk of overheating and political intervention was unnecessary, but a close eye should be kept on regional developments.
The greatest concentration of price rises was in the southern provinces of Bavaria and Badem-Württemburg, which contain 16 of the 22 cities where both new and existing markets showed explosive growth.
With the exception of Potsdam, all the cities experiencing explosive growth were in former West German provinces.
The study also noted that Germany has a relatively low proportion of home ownership and investment landlords tended to take a conservative line. The market is also less influenced by the legacy of exaggerated house price growth driven by excessive lending.
A separate analysis by residential property broker Immowelt focusing on Berlin found that house prices had risen by 68% since 2009, following a fall of 15% in the previous five years. The total increase since 2004 was 43%, while rents rose by 45% over the same period.
Immowelt CEO Carsten Schlabritz said that an unexpectedly strong rise in demand in the capital, combined with low newbuild activity, meant that prices were likely to continue to increase.
Read more in the attached DIW report (German) below