Germans more wary of bubble, but prices still expected to rise

Despite Germany's strong market position and the comparative health of its economy, has probably peaked as a destination for real estate capital from institutional investors after several years of strong price run-ups, according to property financing specialist Berlin Hyp in its latest Trend Indicator survey.

The bank's latest soundings of 250 property market participants found that 78% still view the German market as 'much more' or 'somewhat more' attractive than other European markets. This is down on the 87% that viewed the market this way in the bank's last survey six months ago. Colouring investors's perceptions are the ongoing low interest rate climate, the current political environment and the changes brought about by the refugee crisis, although only 35% of respondents said these factors would overly influence their investment decsions.

Respondents are increasingly warning of a trend towards overheating in the market, with just over half now identifying a real risk of a real estate price bubble, up on one third saying this in 2014.

Berlin Hyp's CEO Jan Bettink is also the current president of Germany's covered bond bank association, the Verband deutscher Pfandbriefbanken (VDP). He recently commented that German property prices are likely to continue to rise again through 2016, although margins for mortgage banks are under pressure from increased competition. "There is undoubtedly a certain amount of hype in the market", he said, while adding that banks were not lending excessively despite unbroken demand for housing and commercial real estate.

In its September statement the Bundesbank said that home buyers should face a cap on the amount they can borrow to avoid property crises that could rock the financial system. But Bettink said that many investors were concerned with invest their money safely, which was leading to a significantly higher share of equity in financing and higher repayments, particularly in private housing and home purchases. "The risk for the banks is now much smaller than in 2007-2008," Bettink said.

Many customers were taking advantage of lower interest rates to repay loans early, causing loan books to stagnate, or even fall slightly, something Bettink said he had not experienced before, but which gave him confidence in the market overall.

Bettink also said that Berlin Hyp was expanding its German branch network and beefing up its in-place German teams. Over the next six months the bank is opening a new branch in Stuttgart and re-opening its London office, which it closed in 2014. Being present in the British market – as against other foreign markets – is an acceptable risk, said Bettink. In the German branches more personnel from regional savings banks or Sparkassen would be present, as the owners and financing partners of Berlin Hyp, he said.