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German home prices in some regions may be in danger of overheating, while the risk of excessive pricing across the country is still low, the Bundesbank said.
Banks are increasing their lending as demand for residential property accelerates, fuelled in part by low interest rates and a lack of alternative investments, the German central bank said in its 2012 Financial Stability Review today.
“The risk for price exaggerations for Germany overall remains low from today’s perspective,” the Bundesbank said. “However, it can’t be ruled out in regional sub-markets.”
German residential property is attracting investors seeking a safe investment amid the European sovereign-debt crisis. Low interest rates reduce profitable investment options for large institutions that typically buy bonds and are encouraging private buyers to take out mortgage loans.
Investors bought 6.4 billion euros ($8.2 billion) of German residential property in the first half, more than the 5.8 billion euros that was spent in all of 2011, according to data compiled by Jones Lang LaSalle Inc.
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