German real estate booms as people seek securityBuying a home in Berlin is widely viewed as one of the safest investments a German, or any European, can make.
That is why some real estate experts are worried the market could get overheated.
Home prices in Germany’s largest cities are booming. Building permits and home ownership rates are climbing fast. And the percentage of foreigners snapping up second homes in Germany is on the rise.
In Berlin, Frankfurt, Munich and four other red-hot markets, prices surged an average of 10 percent during the first half of 2012, according to Deutsche Bank. German central Bundesbank data show increases of 9 percent in 2011 in the country’s urban centers and 5 percent the year before. Things may not be as frothy as Las Vegas, Phoenix or Miami during the peak of the U.S. boom, but it is bordering on breathtaking in a country where home prices declined or stagnated from 2000 through 2009.
The rate at which home prices are rising in Germany is not sustainable in the long term, says Steffen Sebastian, the chairman of the University of Regensburg’s Institute for Real Estate Finance. However, Sebastian adds, there won’t be a repeat in Germany of the Spanish and Irish financial crises, where real estate markets disintegrated and economies were brought close to collapse after overextended homebuyers and banks were hit by the Great Recession of 2008.
“When we talk about bubbles of course the market in Germany cannot be compared with the U.S. market,” he said. “Usually the other bubbles are driven by excessive use of leverage by borrowing money but in Germany borrowing was always quite heavily regulated and this is not going to change.”
The boom is a consequence of the European debt crisis.