Pfandbrief association sees few signs of German residential bubble

For every doom-monger warning about the overheating prices in German residential real estate, a new study seems to appear to assure us that - no, all is under control and well within acceptable boundaries given the fundamentals of supply and demand, etc.

Among several worthy institutions giving their imprimatur this month to current market developments was the Association of German Pfandbrief Banks (vdp). The Berlin-based organisation said in a recent report that the strong growth of German house prices over the past five years is supported by underlying fundamentals and demographic developments, coupled with low interest rates, and it sees little sign of a price bubble emerging.

According to vdp’s general manager Jens Tolckmitt, “The current rise in residential rents and prices mirrors a strong demand in regions that have a population influx.” He sees the development underpinned by positive labour market conditions, rising incomes and particularly favourable interest rates.

Over the first three quarters 2012, house prices rose by 2.8%, especially driven by the apartment sector which gained 3.3%, vdp found in its report. Growth regions include Munich, Berlin, Cologne and Hamburg and university cities such as Münster, Regensburg and Trier. Rising numbers of inhabitants and households are not met by enough new developments, vdp said.

The vdp report concedes that a run on German residential assets perceived as a secure investment in uncertain times is having some effect on the markets, although it currently sees hardly any dangers for the financial markets through the increased activity in the housing sector, as the rise in residential loans is only moderate despite a significantly higher number of transactions. A lot more equity is going into today’s financing, vdp found. Another stabilising factor is the long-term interest rate fixation and relatively high amortisation rates common in Germany.