The on-going crisis in the international financial markets
is closely coupled with the US and UK housing market
crashes. This raises the question of possible contagion
with the German property market (see Die Welt 22/9/08).
Since the Credit Crunch began in Aug’07, interest rates
on Euro-denominated fixes are now closely back to
where they were when the crisis began, although they
were a good 80 basis points (0.8%) lower 6 months ago
(e.g., see iGP#5, when a 5-year fix was as low as 4.39%).
The Germany economy is visibly weaker with consequent
downward pressure on German house prices. The
German Institute for Town Planning estimates that total
property sales in 2007 were 6.6% less than in 2005.
According to the property fund Degi’s chief analyst
average property values in West Germany are only 8%
higher than in 1995, whilst in the East they’ve actually
lost 11%. With Euro interest rates expected to fall over
coming months as inflation subsides and the ECB loosens
monetary policy, a freshly stimulated German economy
should see property prices picking up again. It’s also
worth pointing out that German property’s particular
price stability over the past few years means German
banks have less to fear in lending money against an asset
that could potentially lose 30% of its value within a short
period. This means the supply of German mortgages is
still abundant and at reasonable rates (unlike the situation
in the US and UK) and there’s also healthy competition
between the various banks for mortgage custom.
Invest German Property
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