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29th Mar 2024

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German city flats are overpriced, says Bundesbank

  • German city apartments are overvalued, says the Bundesbank (Photo: Mattias Pettersson)

Flats in Germany's major cities are overpriced by up to 20 percent, but the overall economy is not yet in danger from a real estate bubble, the Bundesbank said Monday (21 October) in its monthly report.

Prices for flats in Munich, Frankfurt or Berlin are not justified by demographics or economic factors and have grown by over 25 percent over the past three years. Real estate prices in Germany overall have grown by eight percent over the same period of time, the central bank said.

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The trend is unlikely to change over the next year as demand for apartments is still higher than the housing on offer.

Even if the overall economy is not at risk from these developments, the Bundesbank warns of "severe wealth losses among households" due to the overpriced flats.

International investors are also playing a role in the German price hike, as this market is becoming attractive to them after the real estate bubbles in the US, Spain and Ireland burst.

With low interest rates set out by the European Central Bank, investors find it easier to buy up property, the bank said.

The Bundesbank - as member of the ECB - has consistently warned against the cheap loans policy helping banks in troubled eurozone countries but driving up the risk of inflation.

Statistics however show that inflation remains low (1.1% in September) in the euro area.

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