Market Analysis
Berlin property market 2013
Price bubble? Why Berlin was an exception in 2013
The Bundesbank warned of price excesses in German cities in 2013. Berlin was considered an exception. Conservative lending practices and real demand argued against a bubble.
Peter Guthmann
In autumn 2013, a Bundesbank monthly report caused a stir: in attractive inner-city locations of German cities, price overvaluations of up to 20 percent were possible. Memories of the burst property bubbles in the US and Spain were still fresh. For Berlin, however, most experts saw the situation differently.
Price increases on solid ground
The property boom running in Germany since 2010 had real causes: a strong economy, a stable labour market and historically low interest rates. In Berlin, there was an additional factor: a catch-up effect. Prices remained low by European capital city standards, and population growth was strong. The price increases for apartments in Berlin reflected genuinely rising demand rather than speculation.
Conservative banks as a safety net
Prof. Dr. Tobias Just of the University of Regensburg put it this way: "Speculative excess can be assumed at most for a few top locations in particularly sought-after neighbourhoods. A development like the one preceding the financial crisis [...] can be ruled out for Germany."
The reason lay in the lending culture. German banks issued mortgages conservatively, often requiring 30 percent equity and scrutinising both creditworthiness and property quality. The German Economic Institute (IW) found that the ratio of mortgage lending to GDP had actually fallen. "There is no trace of explosive credit growth [...] in Germany," the IW stated.
Different dynamics across the boroughs
Demand was not evenly distributed. In established locations such as Mitte or Prenzlauer Berg, prices were already high. Up-and-coming boroughs like Neukoelln still offered lower entry prices. In both cases, the trend was driven by genuine demand, not speculative deals financed with borrowed money.
The bigger risk: over-regulation
Dr. Rainer Braun of the consultancy Empirica saw a bigger risk not in a price bubble but in political intervention: "Every additional regulation scares off another investor and thus prevents sufficient new construction." Less new building would tighten supply further and push up existing property prices. For investors, this meant the political debate over housing market regulation deserved at least as much attention as the price trajectory.