It still enjoys a reputation as a renter's paradise, but on Monday the Bundesbank issued a warning about the rise in house prices in Germany. In its monthly report published on Monday, the central bank said that properties in German cities "may currently be overvalued by between 5% and 10%".
The property boom has mainly affected larger cities such as Berlin, Hamburg and Munich, where apartment prices were up to 20% higher than could be accounted for by economic factors alone, the report says. In Berlin prices per square metre have risen by more than 30% between 2007 and 2012. Houses in rural areas, meanwhile, have been largely untouched by the trend for now.
The report lists several factors behind the rise, including new consumer confidence and low interest rates. "After the real estate bubbles in the US and several European house markets burst, the German property market, which had been quiet for many years, became more attractive to international investors."
During turbulent times on international markets, property in economically stable Germany has increasingly looked like a safe bet for investors in Germany and from abroad. "Those investing in Germany may be seeing the same opportunities British buyers saw when they got their property-buying boots back on in 2008-2009," said UK housing expert Henry Pryor. But the Bundesbank report raises doubts whether buyers will be able to recoup their investments, mentioning "considerable asset losses" if market prices were corrected.
Not all German economists are convinced by the Bundesbank's gloomy analysis. The Institute for the German Economy in Cologne looked into the subject last year and concluded that the rise in property prices was healthy and no bubble was in sight. "In Germany we've seen roughly a 10% rise in credit," said Michael Schier of the institute's real estate team. "That simply doesn't compare to the 150% bubbles we saw in some of the countries that were hit by the credit crunch."