| Click for the Finfacts Ireland Portal Homepage |

Finfacts Business News Centre

Home 
 
 News
 Irish
 Irish Economy
 EU Economy
 US Economy
 UK Economy
 Global Economy
 International
 Property
 Innovation
 
 Analysis/Comment
 
 Asia Economy

RSS FEED


How to use our RSS feed

Follow Finfacts on Twitter

 
Web Finfacts

See Search Box lower down this column for searches of Finfacts news pages. Where there may be the odd special character missing from an older page, it's a problem that developed when Interactive Tools upgraded to a new content management system.

Welcome

Finfacts is Ireland's leading business information site and you are in its business news section.

Links

Finfacts Homepage

Irish Share Prices

Euribor Daily Rates

Irish Economy

Global Income Per Capita

Global Cost of Living

Irish Tax - Income/Corporate

Global News

Bloomberg News

CNN Money

Cnet Tech News

Newspapers

Irish Independent

Irish Times

Irish Examiner

New York Times

Financial Times

Technology News

 

Feedback

 

Content Management by interactivetools.com.

News : EU Economy Last Updated: Dec 4, 2013 - 7:50 AM


Bundesbank worries about possible housing overvaluation; German prices up 8¼% in 3 years
By Michael Hennigan, Finfacts founder and editor
Dec 3, 2013 - 9:08 AM

Email this article
 Printer friendly page
Deutsche Bank Pesentation [pdf]

Housing prices in German cities have been rising so strongly since 2010 that a possible overvaluation cannot be ruled out, according to the Deutsche Bundesbank, the German central bank. Over the past 3 years, the prices for houses and apartments have risen by a total of 8¼%.

This is the finding of an article contained in the Bundesbank’s most recent Monthly Report. According to this article, there are no signs of substantial exaggerations in the housing market as a whole. Nevertheless, price rises have been observed in urban centres, in particular, which “are difficult to justify based on fundamental factors”, the Bundesbank says.

The rise in prices in the past 3 years is due to a “marked gap between property prices in urban and rural areas”, the article explains. In Germany’s largest cities, prices of apartments have risen by more than one-quarter during this period. The Bundesbank says that this could “give rise to fears of a broad-based property price boom”.

Exaggerations in urban centres

Calculations prepared by the Bundesbank indicate that prices in the urban housing markets could be up to 10% higher than the level which can be explained by demographic and economic factors alone. “In the attractive large cities, the upward deviations in this segment are as high as 20% in some cases”, the study revealed. This applies to price developments in the large cities of Berlin, Hamburg, Munich, Cologne, Frankfurt am Main, Stuttgart and Düsseldorf. These figures are the outcome of an empirical study. As the Bundesbank emphasises, however, these findings are fraught with a considerable degree of uncertainty.

According to the Bundesbank, it is, however, unlikely that the rise in prices will remain limited to urban centres. As it states in its Monthly Report, there are “clear signs of a dispersion from cities to their surrounding areas”. It cannot be ruled out that “inflated expectations or speculation motives are fuelling a regional dispersion of price impulses”, the report goes on to say.

Low interest rates are fuelling the demand for property

According to the article, the price hikes are being driven by the strong demand for property, which has been greater than would generally be expected during a period of economic recovery. In addition to the improved economic outlook, the Bundesbank says that the impact of the financial and sovereign debt crisis has also played a role in this development. The German property market, for example, which had thus far been calm became more attractive to international investors after the property market price bubble in the US and in a number of European housing markets burst. Furthermore, the appeal of property investment has grown given the lower returns on financial assets in recent years. “The belief that the value of one’s assets can be best secured through property ownership was certainly an argument for many households to consider investing in property”, the Bundesbank points out.

Any price corrections in the housing market at the current juncture could give rise to perceptible wealth losses for households, the report explains. In light of current developments, however, the Bundesbank believes that it is very unlikely that this will result in macroeconomic risks or dangers to financial stability. In the Bundesbank’s assessment, given the limits on mortgage lending, lenders such as banks would probably not be severely affected. According to recent surveys, banks have reported a tightening of their lending standards and only a moderate increase in the volume of mortgage loans to households.

Incentives for investors intact

The Bundesbank is not expecting an easing of price pressures in the short term. Despite the steep growth in housing construction, the housing supply is still not sufficient to meet the additional demand for housing. This is particularly the case for apartments. Against this backdrop, the Bundesbank is opposed to restricting the amount by which rents can be increased. Further robust growth in the construction of multiple-family dwellings can only be expected for as long as investors continue to see enough yield potential in the buy-to-let market, the Bundesbank says.

Check out our subscription service, Finfacts Premium , at a low annual charge of €25

Related Articles
Related Articles


© Copyright 2011 by Finfacts.com

Top of Page

EU Economy
Latest Headlines
Spain's strong recovery to slow in the next few years
Italy's Mezzogiorno is Achilles' heel of Euro Area - lowest birth rate since 1862
Euro Area GDP grows at weak 0.3% in Q2 2015
German GDP up 0.4% in Q2 2015; France's GDP stagnates
Germany's Surplus: Lots of critics; Credible solutions scarce
Euro Area industrial production dips in June and May after a flat April
Greece faces two years of recession according to EU officials
High EU youth unemployment rate not as bad as it seems
Eurozone retail PMI surges to highest since January 2011
ECB monetary policy still tight for Southern Europe
German exports fell in June — surplus at record; Exports up 13.7% year-on-year
Eurozone manufacturing sector continued to expand in July
Weak euro unlikely to have significant impact on Euro Area growth
Is Euro Area Ireland's top trading partner?: EU28 is overwhelmingly UK's
German car firms boost exports from Spain, UK, Portugal, Czech Republic, Slovakia, Hungary and Romania
Flash Eurozone manufacturing/ services PMI close to four-year high despite Greek crisis
Krugman calls euro a Roach Motel; Hotel California gets 1-star grade
Greece & Euro Crisis: July 2015 articles from Finfacts
Greece and other poor countries in Euro Area will not become rich
Euro Area manufacturing/ services PMI hits four-year high in June
Western European car market: Recovery continues
Greece could become a failed state like Venezuela
Multinational companies pay on average 30% less tax than domestic competitors in EU
EU's list of 30 tax havens omits the biggest 4 in Europe
China to invest in Juncker's European investment fund
Greek talks collapse; Game theorists gambling with future — Germany's vice-chancellor
German exports and industrial production in strong rises in April
Tackling Inequality: Scandinavian countries have the most successful welfare systems in Europe
Eurozone unemployment fell by 130,000 in April 2015 — down 849,000 in 12 months
Eurozone service sector business activity slowed during May
German 2015 GDP forecast cut; Jobless level at 24-year low
Eurozone manufacturing in modest acceleration in May
FDI into Europe at record in 2014; UK on top: Germany location for future investment
Eurozone economy loses growth momentum; Jobs growth rises
Athens leak suggests Juncker has plan for Greece
Draghi will not end QE early but warns of risks
Eurozone grows faster than US and UK in Q1 2015
German GDP at slower pace, France faster in Q1 2015
Germany may cut income tax; Germans still shun risky investments
Germany had record exports and imports in March 2015