German housebuilding soars to record levels
German house-building permits have soared to a record this year as investors put their money into bricks and mortar as a hedge against inflation and the EU’s sovereign debt crisis.
The number of permits leapt up 22% in the first nine of 2011 says the latest data from the German Federal Statistics Office.
“It's fear of inflation,” Heiko Stiepelmann, deputy chief executive officer for Germany's Construction Industry Association, said this week. “The strong rise is explained by a lack of profitable, and especially safe, alternatives for investing.”
A massive 27% surge in German building permits for “multi-family houses” in the first three quarters of 2011 is the highest rate since the data became available in 1997.
The European debt crisis will probably encourage more inward investment for the German residential sector in 2012 says Stiepelmann because the sector is not regarded as “risky.”
“In southern Europe, investors are currently searching for new regions to spend their money,” said Hermann Wuestefeld, a manager of closed-end real estate funds at DWS, the mutual fund unit of Deutsch Bank AG. “The German residential property estate market is the poster boy” and returns in the past decade have beaten those in other market segments, he said. Stiepelmann agrees, adding that there are signs that investors from countries including Greece and Spain are targeting the German market amid concern that the Euro currency may fail.
Rising investment in housing is unlikely to fuel a real- estate bubble in Germany because the market has suffered from a lack of supply over the last several years, Wuestefeld said.
Germany’s “residential real estate market has suffered from years of weak construction activity, so the base is extremely low,” he said. “The market can easily absorb some extra money.”
Prices for new homes in Germany climbed 4.1% in the first 11 months, according to an index compiled by Hypoport. That's more than twice the average annual increase of 1.9% since 2005.
“The growth rates we are seeing now are a logical consequence of strong returns, and increased demand meeting weak supply,” Wuestefeld said. “The residential market is probably the most underrated segment in Germany, and possibly in the world. This is just the beginning of a new cycle. We've only seen growth for two or three years and the last cycle lasted about 10 years.”