Germany’s Rising Property Prices Described as “Dangerous”

Last Thursday June 19, German Finance Minister Wolfgang Schaeuble warned about the risks of loose monetary policy for Europe’s largest economy, saying low interest rates were already spawning ‘dangerous’ rises in domestic property prices.

Schaeuble has expressed concerns before that speculative asset bubbles have been forming as a result of excess liquidity, but his comments at a news conference with visiting US Treasury Secretary Jack Lew went beyond his usual line that low rates must correct higher over time.

His comments come two weeks after the European Central Bank (ECB) cut interest rates to record lows to ward off deflation and kick-start growth in sluggish southern European countries.

The ECB’s move sparked criticism from German economists and the media, concerned that the bank’s one-size-fits-all policy carries risks for the steadily growing German economy, even if it hasn’t increased inflation as yet.

In the long run, the amount of liquidity is too great and the level of interest rates too low,” said Schaeuble.

Germany’s central bank, the Bundesbank warned that the low rate environment risked creating asset price bubbles and Schaeuble has fanned the flames further by saying that the rise in German property prices is reaching ‘dangerous’ levels and need to be taken ‘very seriously’.

Until 2010, German real estate prices were relatively stable over a period of many years. However, when the euro zone debt crisis broke, the attractiveness of German property as a safe haven investment was boosted and foreign buyers were lured into the market, ultimately bringing about price increases in key areas.

During the same time, more Germans were encouraged to put their money into property instead of traditional savings by the climate of historically low unemployment, strong economic growth and rock-bottom interest rates on mortgages.

The Bundesbank issued a caution about property price rises last October saying that properties in some of the nation’s largest cities such as Munich, Hamburg and Berlin were overvalued by up to 20% – a figure that was upped to 25% in February this year.

At 46%, Germany still has one of the lowest home ownership rates in Europe and its savings ratio remains one of the highest at 10%.

Last Wednesday Germany’s financial stability committee, set up to monitor potential problems in the financial system, said it had investigated the housing market and found no evidence of a property bubble.

However the watchdog which includes members of the Bundesbank, finance ministry and financial regulator Bafin did warn that the low interest rate environment was ‘fertile ground’ for the building of financial risks.

Speculation that German property prices are inflating at dangerous levels is tempered by the prospect of the construction sector moving forward dynamically in 2014, driving growth in the nation’s economy and securing the nation’s position at the top of the European economic league tables.

Source – http://www.propertyshowrooms.com/germany/property/news/germany-s-rising-property-prices-described-dangerous_313146.html

UK house price rises: should we copy Germany’s rental model?

As fears continue to circulate that the UK housing market may be overheating, is it time to take some tips from our European friends when it comes to renting property?

First let’s take a look at how high property prices really are in the UK when compared to other countries in Europe. The best way to do this isn’t to look at the price of the property, but rather at a ratio of the property price to annual income.

The Global Property Guide calculated this by grabbing an example middle-class property of 100 square metres and comparing it to national income.

Usually the countries with high ratios are less developed ones with a huge gulf between rich and poor. However on this measure the UK is far above average: an “upscale 100 square metre housing unit” is 80.5 times the average income, according to Global Property Guide data.

Germany has a ratio of around 9.64 and in France – the country with the third-highest ratio in the EU28 –  you can expect to pay 32.97 times your annual income for a similar property.  We are closer to the ratios of Russia (120) and Ukraine (102) than we are to that of France. (full article)

Schaeuble says low rates spawning “dangerous” rise in property prices

German Finance Minister Wolfgang Schaeuble warned on Thursday in the clearest terms yet about the risks of loose monetary policy for Europe’s largest economy, saying low interest rates were already spawning “dangerous” rises in domestic property prices.

Schaeuble has long warned about the threat of speculative bubbles forming as a result of excess liquidity, but his comments at a news conference with visiting U.S. Treasury Secretary Jack Lew went beyond his usual line that low rates must correct higher over time.

They come two weeks after the European Central Bank (ECB) cut interest rates to record lows to ward off deflation and kick-start growth in sluggish southern euro states.

The move sparked criticism from conservative German economists, the media and even some allies of Chancellor Angela Merkel, who worry that the bank’s one-size-fits-all policy carries risks for the steadily growing German economy, even if it hasn’t sparked inflation here.

“In the long run, the amount of liquidity is too great and the level of interest rates too low,” said Schaeuble.

Asked about warnings from the Bundesbank that the low rate environment risked creating asset price bubbles, Schaeuble said there were signs a rise in German property prices was reaching “dangerous” levels and this needed to be taken “very seriously”.

German real estate prices were relatively stable over a period of many years until 2010, when the outbreak of the euro zone debt crisis boosted the attractiveness of German property as a safe haven investment, luring foreign buyers.

Meanwhile, historically low unemployment at home, robust economic growth and rock-bottom interest rates on mortgages encouraged more Germans to put their money into property instead of traditional savings accounts.

The German central bank began cautioning about property price rises last October, saying then that apartments in some of the country’s largest cities, like Munich, Hamburg and Berlin, were overvalued by up to 20 percent.

In February, it said overvaluations had risen to 25 percent in some locations.

However many economists have played down the risks of a property bubble on a par with those which burst in countries like the United States, Britain, Ireland and Spain over half a decade ago, with devastating effects on the financial system.

At 46 percent, Germany still has one of the lowest home ownership rates in Europe. And at 10 percent, its savings ratio remains one of the highest.

On Wednesday, Germany’s financial stability committee, a group set up last year to monitor potential problems in the financial system, said it had looked closely at Germany’s housing market and found no evidence of an asset bubble.

The watchdog, which includes members of the Bundesbank, finance ministry and financial regulator Bafin, did warn however that the low interest rate environment was “fertile ground” for the building of financial risks.

For his part, Treasury Secretary Lew said the United States had emerged from a period of excessive property prices but noted that he would like to see more new construction in areas where prices have attained pre-crisis levels. (Writing by Noah Barkin, Stephen Brown and Madeline Chambers; Editing by Alexandra Hudson)

http://www.reuters.com/article/2014/06/19/germany-usa-realestate-idUSL6N0P02SG20140619

German residential portfolios leading the way

An upcoming webinar by real estate benchmarking and analysis expert IPD is expected to show that investment in residential portfolios is reaching volumes similar to the boom period 2004-2006 with a strong investment performance underlying the positive trend.

The presentation will show residential properties achieved a total return of 8.3% – by far the highest return of all German sectors and an outperformance of 3.1% compared to the overall index. Consequently the residential sector sustained the strong performance seen in the last 5 years leading to the question whether there are signs for an exaggeration of the market.

The components of the total return, capital growth and income return, disclose different trends. Residential properties achieved positive capital growth over the last 5 years (2.2% pa on average) ending in 3.5% in 2013. Corresponding to the upswing market yields dropped from 4.9% in 2009 to 4.7% in 2013 indicating an increase in value during the last years but in a moderate way. In the same period the income return increased successive from 4.2% in 2009 to 4.7% in 2013.

Daniel Piazolo, Vice President & Geschäftsführer in Germany, IPD commented: “Typically in a boom income returns decrease significantly as we have seen at many European markets during last decade’s market cycle. Although the income return for German residential property did not rise again in 2013 there are currently no signs of an overheating of the market by the income return side.”

The competitiveness of the German residential markets emerges in an international context. The German market reached the strongest income return in the last 2 years at levels of nearly 5%. Although there are markets with rising income returns like Sweden or the Netherlands (in this case driven by negative capital growth) other markets lag in parts strongly behind at levels below 3% pa as given for France or the UK.

(source – http://www.property-magazine.eu/german-residential-portfolios-leading-the-way-28781.html)

Germans Worry Over Rising Housing Prices

BERLIN—The German economy may be thriving, but Germans aren’t letting go of their  financial angst. Their latest gripe: rising house prices.

A healthy property market would be good news in many countries. But in Germany, where even the affluent often prefer to rent rather than buy their homes, property price increases of up to 10% a year in some cities are causing nationwide anguish as they feed into higher rents.

(Read full article here)