Monday 23 April 2018

Germans are now becoming homeowners, thanks to the ECB

After decades as a nation largely of tenants and prudent savers, growing numbers of Germans are buying property. Photo: Reuters
After decades as a nation largely of tenants and prudent savers, growing numbers of Germans are buying property. Photo: Reuters

Michael Nienaber

Unlike his parents who rented their whole life, Berlin resident Sebastian lives in his own apartment and is considering buying a second property in the German capital as an investment to top up his pension one day.

After decades as a nation largely of tenants and prudent savers, growing numbers of Germans are buying property, not just to own their homes but also in search of investment returns they can no longer earn on their bank savings. The shift is being encouraged by the European Central Bank's cheap money policies and rising rents, especially in German cities.

A growing urban population and unexpectedly high immigration are pushing up a market where construction rates had been low for years. "I've a private pension scheme, but despite diligent saving, it hardly yields anything due to the ultra-low interest rates," said Sebastian, a 38-year old management consultant, who asked not to be named in full because he does not want clients to know about his financial affairs. He bought his first apartment six years ago and now wants to buy a second as a retirement fund.

In the years that followed the fall of the Berlin Wall, property prices in the city were much lower than in the likes of London or Paris. But the German capital is no longer a cheap place to live.

"The problem now is: it's really difficult to find an apartment in Berlin which is not totally overpriced," said Sebastian. Around 52.5pc of Germans owned their home in 2014, still below the EU average of around 70pc but up from 2006 when the German level was 42pc.

Strong demand for homes is fuelling a construction boom. It has helped prop up the German economy while exporters struggle due to a slowdown major markets like China.

In the last three months of 2015, construction was one of the biggest growth contributors while net trade was a drag. In the first two months of 2016, building investment further increased, raising hopes of a strong first quarter. However, concerns are growing that a property bubble may be inflating at least in some cities. If it bursts one day - a scenario that could be created by rising interest rates, higher unemployment and changing demographics - owners and lenders alike could be hurt, posing a risk to medium-term growth.

A shortage of affordable housing is also forcing poorer families out of cities, widening the social gap in one of Europe's richest societies and raising tensions after a record one million migrants arrived last year alone.

So far, Sebastian has benefited from the boom. He bought an apartment in Berlin's then up-and-coming Wedding district for €120,000 in 2010, borrowing €100,000. Today, he thinks he could sell for twice the price.

Comparing prices on property websites has become a hobby for many Germans and real estate is a frequent topic of conversation at parties - with rising rents an important driver.

Rates of owner-occupancy remain modest by EU standards. "But for Germany, it's a radical change. And it's the ECB's record-low interest rates that are driving this," said Steffen Sebastian, head of real estate finance department at the University of Regensburg.

Home buyers still finance nearly a third of their property purchases with cash, according to Interhyp, Germany's biggest mortgage distributor.

"Talk about a nationwide housing bubble is surely exaggerated," Interhyp CEO Michiel Goris said. Borrowers are also locking in record-low borrowing costs of below 2pc for up to 15 years, he added. (Reuters)

Irish Independent

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