According to Bundesbank calculations, the overvaluation of residential real estate has increased again.
(Photo: dpa)
Frankfurt With a view to the German real estate market, the Bundesbank is sounding the alarm louder and louder. The prices for residential real estate would have accelerated again in 2021, according to the current monthly report on Monday.
According to the estimates, the level in the cities is now “between 15 and 40 percent above the price indicated by socio-demographic and economic fundamental factors.” The Bundesbank’s warning is unambiguous: “Overvaluations increased in the year under review.”
Last year, the central bank still assumed an overvaluation of a maximum of 30 percent. Most recently, she has been warning of a bubble at ever shorter intervals – and is not alone in this: The European Systemic Risk Board (ESRB) recently called for concrete measures to curb the price surge on the German real estate market.
And even the leading German association of the real estate industry ZIA calls the enormous level of purchase prices in the metropolises “both surprising and quite frightening”.
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According to the Bundesbank, rents and purchase prices are increasingly decoupling – one of the most important signs of a bubble forming: Compared to the previous year, the purchase prices for condominiums in the metropolises rose by another ten to 15 percent in 2021. However, the rent level for new contracts is hardly increasing.
According to calculations by the analysis company Bulwiengesa, the increase was 2.5 percent in the cities. In the seven metropolises of Berlin, Düsseldorf, Frankfurt, Hamburg, Cologne, Munich and Stuttgart it was 2.75 percent. This development started some time ago.
Rising construction prices continue to fuel growth
In the real estate industry, it is pointed out that there are understandable reasons for the current price increase. These included the sharp rise in prices for building materials due to supply bottlenecks, the shortage of workers and stricter environmental standards. These factors are likely to play a role in 2022 as well.
At the same time, the demand for residential real estate is immense – also from abroad. Berlin in particular attracts investors who still consider the price level to be moderate compared to other markets and who, given the lack of alternatives on the financial markets, invest in residential real estate despite falling returns.
However, the industry does not want to speak of a price bubble. In its spring report last week, the ZIA came to the conclusion that there are still no signs that “the increase in lending for residential real estate financing is due to the easing of lending standards by banks”. This is usually another indication of blistering.
The Bundesbank sees things differently, it is becoming increasingly nervous and speaks of vulnerabilities in the financial system. The financial supervisory authority Bafin had therefore recently prescribed stricter rules for the banks in the mortgage business: the so-called anti-cyclical capital buffer was raised from zero to 0.75 percent, so that banks have to build up larger crisis cushions again.
In addition, a special systemic risk buffer for real estate loans of two percent is to be introduced. That could slow down new business, or at least make it more expensive.
>> Read about this: The real estate market has overheated – financial regulators are imposing stricter rules on banks
In its most recent monthly report, the Bundesbank also analyzed the supply and demand side of the real estate market. She points out that disposable income in 2021 would have increased only moderately by 1.8 percent.
The level of interest rates, on the other hand, remained practically unchanged – with an average interest rate for mortgage loans of 1.3 percent across all maturities. In view of the low increase in income and the sharp rise in prices, real estate has become more difficult to afford for many people.
This is a factor that is also increasingly being discussed in the real estate industry. Banks would “pay attention to solid financing, with a lot of equity, long fixed interest rates and high repayments,” said Interhyp, Germany’s largest broker for private construction financing. However, the high equity requirements meant that fewer and fewer people could afford their own property in view of the rising prices.
More: Six aspects that house and apartment buyers should now consider