Bundesbank sees property overvalued in German cities, but no bubble

Residential property prices in German cities are overvalued by 10-20 percent, and even more in some quarters, but there is no property bubble threatening the entire financial system, Bundesbank chief Jens Weidmann said.

“For Germany as a whole, there is no discernible substantial over-valuation of residential property,” Weidmann said in the text of a speech for delivery in Munich on Wednesday.

Germany did not face the risk of a property bubble as credit growth was not particularly dynamic, and most banks remained fairly conservative in their loan issuance.

But Weidmann said residential property price rises in Germany in recent years had been concentrated in cities, particularly large cities like Munich, and these prices were now significantly over-valued.

“We estimate that prices are between 10 and 20 percent above the values that would be fundamentally justified,” he said, adding that over-valuations were even greater in popular areas of big cities.

“In summary, one can say of the German property market: vigilance is absolutely appropriate, but alarmism is unwarranted.”

Source – http://www.reuters.com/article/2015/03/25/germany-bundesbank-property-idUSL9N0P701R20150325

Low German Inflation Continues to Hide Underlying Economic Strength

German inflation figures may be low, but stronger than expected growth rates, rising confidence indicators and an ever tighter labor market make the ECB’s monetary policy look too expansionary for the Eurozone’s largest economy. With diverging economies within the Eurozone, German is poised to expand at a rapid rate as the European Central bank waits for Germany’s neighbors to catch up.

The first wage deal for this year suggests the strongest rise in real income for many years and above average increases in labor costs are set to undermine German competitiveness in the medium term. At the same time the risk of a property bubble is also rising.

German Q4 GDP growth was confirmed at 0.7% quarter over quarter, confidence indicators are climbing higher, with especially consumer confidence rising sharply. The labor market is already tight and Thursday’s jobless numbers showed another stronger than expected dip in headline rates. Inflation may be low at the moment, but mainly due to the impact of lower oil prices and from a German perspective, monetary policy clearly is already looking too expansionary even before the ECB starts its bond buying program.

The trend will boost consumption and domestic demand as exceptionally low interest rates are limiting the willingness to save. The German GfK consumer confidence numbers Thursday, showed a sharp rise in income as well as an improvement in the willingness to buy. This ties in with the details of German Q4 GDP numbers, which showed that in this recovery consumption and not exports, is a key driving factor.

For many Germans, urged to build up private pension portfolios property investment is looking increasingly attractive. Apparently safer than stock markets, but with considerably higher returns than bonds. While the price of the average property transaction is rising, the share of income private homeowner’s use for interest rates and repayments has fallen over the past years.

The current low interest environment won’t last forever and we have seen in countries such as Spain, Ireland and Portugal what happens when investors are unprepared for a rise in financing costs. The ECB argues that safeguarding against the risks of a property bubble are up to national central banks and governments. Germany has been promising measures to limit the trend and the Bundesbank is keeping a close eye on developments, but with the ECB preparing for even more easing measures, this is an area of risk that should not be overlooked, especially considering the devastating effects of the property crashes elsewhere. IF Germany should face the same problems, who would be there to bail out the largest country in the Eurozone.

With the ECB poised to begin its bond purchase program on Monday and sovereign bond hard to source, prices will continue to move higher which in turn should weaken the European currency. (Source)

Dublin second only to Berlin for property investing – PwC

Dublin is still one of the most desirable places in Europe to invest in property, with only Berlin a better place to put money, say PwC.

According to its ‘Emerging Trends in Real Estate’ report for 2015, PwC believe Dublin is the second best city on the continent in which to buy property. The report lists the capital’s strong rental market and resurgent capital values as reasons to invest here.

“Dublin remains in the number two spot for the second year running for real estate investment and development in Europe,” the report states.

“This follows a strong year which saw a wide range of investors jostling for opportunities. Dublin has strong rental growth potential based on low supply, coupled with employment growth. Business confidence has returned and Ireland’s GDP growth is expected to continue in 2015.

“A huge amount of capital has poured into Dublin…€2.2 billion in the first three-quarters of 2014,” according to Real Capital Analytics. “Though office rents and values are recovering strongly, they still have some way to go before they regain their pre-crisis peak,” the report adds.

PwC Ireland’s head of real estate, Enda Faughnan, said there had been a “heightened interest in Dublin as a property investment centre, particularly from foreign investors”.

“There is still a lot of supply to come onto the market which will appeal to a wide range of buyers,” he added.

Berlin replaces Munich as the most desirable location in Europe for investing, with PwC citing the strong media and tech industries in the German capital as reasons for pushing up values.

Madrid, Hamburg and Athens complete the top five.

Source – http://www.independent.ie/business/commercial-property/dublin-second-only-to-berlin-for-property-investing-pwc-30908328.html

German Banks Chase Homebuyers Ensuring Biggest Profits

Commerzbank AG (CBK) is offering discounts on home loans in Germany and Deutsche Bank AG (DBK) plans to blanket the country with mortgage advisers. To keep pace, ING Groep NV (INGA)’s German unit is considering lowering interest rates in big cities.

“We’re feeling very sharp competition and we expect further competition in 2015,” said Helmut Straubinger, head of credit at Bayerische Landesbausparkasse, a Munich-based lender that lost market share this year. “A lot of banks have been pushing into the relative safety of property financing.”

Germany’s banks are trying to expand in one of Europe’s safest mortgage markets as record-low interest rates make fixed-income investments less attractive. In Germany, borrowers rarely default, employment is near an all-time high and housing prices are low compared with other European markets. Lenders earn an average profit margin of 1.2 percent from mortgages compared with yields of less than 1 percent from German government bonds, according to data compiled by Barkow Consulting.

Story: The Renaissance of Jamie Dimon

“Banks are taking market share from each other,” said Jochen Moebert, an economist at Deutsche Bank in Frankfurt. “Banks see real estate as a growth priority because it’s one segment that’s doing well.”

Lenders are competing for customers in a market that hasn’t been growing. German homebuyers borrowed 168 billion euros ($209 billion) in the first 10 months of 2014, a 0.4 decrease from a year earlier, according to Bundesbank data. The total amount of outstanding mortgages rose 2 percent from a year earlier to 1.18 trillion euros.

Loyalty Discounts

Commerzbank, Germany’s second-biggest bank, expects to increase lending this year by about 30 percent after expanding at about the same rate in 2013. The company’s market share has grown to about 12.4 percent from less than 5 percent in 2011, said Falko Schoening, head of lending at the Frankfurt-based bank. …(READ MORE)

German Residential Property Prices Rise Most in a Decade

German home prices rose at the fastest rate in at least 10 years in the third quarter as investors bought apartment buildings at a time when low interest rates make other investments less attractive.

Values climbed 5.2 percent from a year earlier, with multifamily houses gaining 7.2 percent, according to an index published today by the VDP Association of German Pfandbrief Banks. Prices for owner-occupied condominiums gained 2.6 percent as momentum in that market slowed following bigger gains in the previous three years.

Apartment buildings “continue to be sought after by institutional and private investors alike,” said Jens Tolckmitt, VDP’s chief executive officer. “The very low interest rate and the resulting search for attractive yields on investment support this trend.”

Investors are drawn to Germany’s reliable rental income and potential for further property-price gains at a time when fixed-income markets offer low yields. Low interest rates also make it cheap for buyers to take out mortgages.

Rents on new leases in apartment buildings rose 4.6 percent in the third quarter from a year earlier, VDP said.

Stocks Records

Listed residential landlords, such as Deutsche Annington Immobilien SE and Deutsche Wohnen AG, have benefited as shareholders bought the most property stocks ever this year, according to data compiled by research firm Barkow Consulting GmbH. German property companies have sold a record 4.1 billion euros ($5.1 billion) of shares this year, 15 percent more than in all of 2013, the firm said.

The FTSE EPRA/Nareit index of German property stocks has climbed about 25 percent this year, compared with a decline of about 3.5 percent on the benchmark DAX Index. (DAX) Deutsche Annington, Germany’s biggest listed landlord, has gained 39 percent this year in Frankfurt trading.

Investors seeking stable returns are also buying office properties. Office values climbed by 3.7 percent in the third quarter, while office rents rose 1.8 percent, according to VDP. Commercial properties are attracting professional investors with large cash reserves, including pension funds and sovereign-wealth funds.

Buyers acquired 25.5 billion euros of commercial properties in Germany in the first nine months, the most since 2007, according to Jones Lang LaSalle Inc. (JLL)

VDP collects price data from mortgage contracts signed across Germany by more than 30 member banks, which include Deutsche Bank AG, Commerzbank AG, Banco Santander SA (SAN) and ING Groep NV. (INGA)

(Source – http://www.bloomberg.com/news/2014-11-17/german-residential-property-prices-rise-most-in-a-decade.html)

Germany slips in world business rankings

Germany may be Europe’s biggest economy but it is only the continent’s eighth best place to do business. It’s easier to start a firm in Iran or Tajikistan than Germany, according to the World Bank.

The Doing Business 2015 report placed Germany at 14th in the world for ease of doing business, a fall of one place from its rank last year.

Germany was easily outstripped by northern neighbour Denmark, which placed fourth in the table to become the best-performing country in Europe.

The top three spots were taken by Singapore, New Zealand and Hong Kong respectively.

Other top-ten European countries were Norway, the UK and Finland in places six, eight and nine respectively.

The World Bank report analyzed how easy or difficult it was to carry out different tasks needed to start or operate a business.

They included registering a new company and buying property, construction, energy costs, availability of credit, paying tax, enforcing contract law and trading across borders.

Germany was dragged down by poor scores in certain areas. Out of the 189 countries ranked, it was placed 114th for ease of starting a business, a fall of 11 places against the previous year.

The analysts found that it took two weeks to go through all the bureaucracy needed to found a company.

That compared badly with an average of just nine days in the club of advanced economies which form the the Organization for Economic Co-operation and Development (OECD).

The costs for starting up a business in Germany were also more than double the OECD average.

And the country was in 89th position for registering property, having slipped nine places since 2013.

It took 40 days to register a German property, compared with 24 days across the OECD, while the cost in taxes and fees was 2.5 percentage points higher than the average at 6.7 percent of the property’s value.

World Bank officials put Germany in 68th place for ease of paying taxes, finding that it took companies an average of 218 hours per year to deal with taxes and that the government took in an average of 48.8 percent of profits.

The news came on the same day that researchers at the Centre for European Economic Research in Mannheim published their 2014 Innovation Index, finding that Germany remained in sixth place overall.

But the country lost ground in the ranking of economic innovation, in which it slipped from third to fifth place…..(READ  FULL ARTICLE HERE)

German Property Bubble Inflates in Cities

Germany, the Eurozone’s economic powerhouse has seen a massive increase in Germans from rural settings and foreign investors flocking to the cities for property bargains.

The financial capital of Frankfurt; Munich with its famous beer gardens and proximity to the Alps and Stuttgart, the home of Mercedes and Porsche are becoming increasingly attractive as places to live and work.

Property prices have responded to the huge increase in demand and have begun to spiral, driven largely by foreign investors searching for attractive rental yields.

Patrick Armstrong from Plurimi Global Macro Fund said, “Near zero interest rates in the Eurozone make sense for the region but not for Germany. The economy has been relatively strong and the interest rate policy is disjointed from economic reality“.

With 10-year Bund yields at 1%, free money will have to flow towards property at some point. Rental yields of 4% to 5% are attractive with current interest rates and German property is the least expensive per square meter in Western Europe.

According to research, the most expensive properties in Germany are found in Munich (an average €4,800m2). Berlin is relatively cheap at an average cost of €2,930m2, while Frankfurt properties will set you back an average €3,400m2.

Compare that with the average square meter price of £8,900 (€11,120) in London’s Westminster and Germany is a definite bargain.

However, it is Germany’s capital that is showing the highest growth in values. Prices of apartments in the trendiest part of Berlin have seen a 40% increase since 2007, while they have grown by an equally impressive 25% to 30% in popular cities like Munich, Hamburg and Frankfurt.

Germany’s Bundesbank has recently voiced concern over the health of Germany’s property market saying that “there is an increasing risk of a housing bubble in Germany”. It also warned that certain cities showed prices that were overvalued by up to 25%.

The stability of Germany’s economy provides attractive support to foreign investors in its property market. In terms of the rental market, Germans famously favours tenancy over home-ownership and the combination of a stable employment market together with rising incomes ensures consistent demand for centrally located rental properties.

Source – http://www.propertyshowrooms.com/germany/property/news/german-property-bubble-inflates-cities_313278.html

Berlin, the Startup City: Big Dreams and Growing Pains

There’s no shortage of emerging tech scenes labeled as the “next Silicon Valley,” and Berlin often tops that list.

When the Berlin Wall fell in 1989, it attracted an onset of artists, musicians and other creatives to the city. While housing prices in other European cities skyrocketed over the years — particularly in London and Paris — Berlin remains relatively affordable, offering young, aspiring entrepreneurs a lower-cost, lower-risk platform to jump-start both careers and companies

It’s easy for international workers to get visas in Berlin, too; especially compared to the U.S. The city is a multicultural hub, with a blend of British, French, Spanish and American expats. You don’t have to speak German to thrive in Berlin.

Google is one of the major players helping startups set up shop throughout the city. Although the tech giant’s German headquarters — with more than 400 people — is in Hamburg, and its engineering center, based in Munich (with 300 staffers) is much bigger than its Berlin presence (just 40 workers), it’s been focusing more of its efforts in Berlin in the past few years.

In fact, earlier this year, its Google for Entrepreneurs program helped open and sponsor The Factory, a co-working space for new startups that’s inside a refurbished brewery. It sits on a spot once occupied by the Berlin Wall and is the new home for both small and bigger startups, including the local offices of SoundCloud. The popular music company, with Swedish founders, famously moved to Berlin years ago to take advantage of the scene.

Source – http://mashable.com/2014/09/08/berlin-startup-hub/

Property Sale Trends In Europe

Like the property markets around the world, the European property markets also have their own pockets of high and sluggish growth. Given below is a brief study of five most popular markets of growth in the region which is preferred by local and international real estate investors since the situation started to improve a couple of years ago.

Malta

This picturesque island off the southern coast of Italy is well populated due to its tourism and business sector. Since 2013 it has received a significant influx of capital from international buyers who have invested in expensive properties in Malta which have appreciated at a rapid pace. Between 2010 – 13 prices of properties in their housing sector fell rapidly around 40 percent due to the financial crisis, though earlier they had been growing by 10-15 percent Y-O-Y. The purchases in general were made by European investors and followed by buyers from United States and Africa.

Bucharest

This second largest city of Romania has witnessed a construction boom with new residential units appearing in 2014. As per the latest records, the number of property transactions has grown by 8 percent in the early part of 2014 when compared to 2013 when demand was still sluggish. During the economic boom period of 2007, the number of residential units grew by 800 – 900 units every year, but during the first quarter of 2014 this same market grew by 1500 units. The majority of foreign investors are from Spain, Hungary, Germany, China and UK while Americans make 1 percent of the total investment.

Barcelona

Even though Spain was the worst affected nation by the financial crisis in 2008, it has emerged as the fastest growing property market in Europe. Stability has been achieved by the housing sector which had been falling between 2007 and 2013. Prime properties in Barcelona are selling at a rapid pace of 14 percent since early 2014 leading to a simultaneous rise in property prices and sales. Investment in Barcelona’s market has been made largely by British and French investors followed by financiers from Switzerland, Germany and Belgium.

Rome

This historical capital city of Italy is finally showing signs of growth with sale of nearly 6579 properties since the early part of 2014. Housing prices which have been falling for the past seven years are now growing by 0.6 percent. Investment in old and new properties around Rome is being largely carried out by Russian conglomerates followed by small real estate developers from Germany, France, UK and China.

Berlin

The capital city of Germany is always favoured by property investors as they are able to resell their purchases within 6-8 months. However there is a significant scarcity of supply in the city centre area which falls 2 percent below demand. As per industry estimates there is a requirement of 11000 residential units on an annual basis, but the actual construction is limited to just 6500 units on average. This has led to an increase in rentals, followed by increases of 15 percent of first time buyers. Russia is the biggest investor in the German property market followed by Italy, Greece and France.

http://www.property-abroad.com/malta/news-story/property-sale-trends-in-europe-19317968/

Why Germany risks a property bubble

HEAR the words “London property”, and “bubble” is rarely far behind. House prices in the capital rose by 20 per cent in the year to May – although last week’s Rics indicator showed that the market is now pausing for breath, as it responds to warnings over tougher mortgage standards and the expectation of higher interest rates.

But London isn’t the only place that has experienced dizzying price rises. Major German cities like Frankfurt, Munich, and Stuttgart are becoming increasingly attractive places to live, as immigrants and rural Germans flock to them. And an equally potent driver is the good old search for yield.

Plurimi Investment Managers’ Patrick Armstrong argues that near zero interest rates in the Eurozone make sense for the region, but not for Germany. “The economy has been relatively strong and the interest rate policy is disjointed from economic reality. With 10-year bund yields at 1 per cent, money will have to flow towards property at some point.” Deutsche Annington chief executive Rolf Buch agrees, saying the German housing market is in a “sweet spot” due to stable incomes and low interest rates.

According to B+D, the most expensive properties in Germany are in Munich (at an average of €4,800 per square metre). Berlin is relatively cheap (a square metre there costs just €2,930). Compare that with an average square metre price of £8,900 (around €11,120) in Westminster, and you’ll think Germany is a bargain. But Berlin is experiencing the highest growth in values. Prices of flats in the trendiest part of the German capital have risen by 40 per cent since 2007.

Just as the Bank of England has sounded the alarm over London’s market, the Bundesbank recently voiced concern over the health of German property, saying that “there is an increasing risk of a housing bubble”. Like in the UK, prices have shown signs of moderating, but analysts agree that the environment is still favourable for price and rent rises.

How do you participate in German property? One of Armstrong’s preferred stocks is Deutsche Annington, which he says is trading at a small discount. He also likes Grand City Properties, which focuses on turning around distressed portfolios. Analysts at Goldman Sachs, meanwhile, expect LEG, Germany’s second biggest property company, to continue to show “good like-for-like rental growth from an acceleration in rent per square metre growth over the next few quarters”.

Yet with all this money being attracted, are rental yields starting to fall? Buch sees no signs of this yet, though it “could be on the horizon”. For now, however, he says an improvement in capital value and residential yield is still possible for the next year. This is why his firm raised guidance for 2014.

Carolin Roth is anchor for CNBC’s Capital Connection.

Source – http://www.cityam.com/1408406765/cnbc-comment-why-germany-risks-property-bubble