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  • AutorenbildDaniel Hofmann

So what's this talk about a property bubble In Germany?

Picture of a bubble

The European Central Bank (ECB) has recently launched a new package of measures to stimulate the European economy, including cuts to key deposit rates to minus 0.5 per cent. This means that if banks store money at the ECB they will have to pay negative interest rates.

But what does that mean for mortgages and for investors here in Germany? 

Well, generally speaking, getting a mortgage loan should become even cheaper. Also the ECB sets the base rate interest, the interest rate that banks use to refinance themselves, and if these interest rates get even lower, banks should (in theory at least) be able to pass that lower interest onto their customers. Therefore making loans cheaper. 

And indeed, mortgage loans have never been cheaper.

Though whilst mortgage rates are as cheap as chips, there are only so many properties available for sale, hence why purchasing prices have increased over the last few years. There is more demand for properties, not enough new developments (especially in bigger cities) and this trend is set to go on until market demand and offer are at an equilibrium.  

Government intervention (like rent controls, low-income housing quotas and rent increase freezes) to alleviate the growing problem in affordable housing isn’t helping much, in fact it had quite the opposite effect. 

So are we stirring towards a real estate bubble in Germany just like some economists are saying?

If real estate pricing were only determined by interest rates developments, one would say yes. But it doesn’t quite work like that. In international comparison real estate pricing in major German cities is still relatively low. Take Berlin for example, as the emerging tech hub in Europe, more and more people (national and international) are moving there.

Most of the german inner cities have very little space left for building works and new housing developments are therefore getting smaller and smaller (in terms of footprint) to keep up with demand.

So whilst I think we live in interesting times, just look at the commercial tensions with the U.S. and the threat of trade barriers, as well as a Brexit without a deal (which is increasingly likely), and a slow down in european economic growth all is not lost and there is still plenty of possibility to invest in some real good opportunities.

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