Tuesday , 21 May 2024
Home Global Economy Real estate overvalued by up to 40 percent
Global Economy

Real estate overvalued by up to 40 percent

Some prices are more than a third higher than what would actually be appropriate: The trend towards overpriced real estate in major German cities continued last year. This emerges from the current monthly report of the German Bundesbank. "The overvaluations in residential real estate increased," write the analysts. "According to the latest estimates, real estate prices in cities in 2021 were between 15 percent and 40 percent above the price indicated by socio-demographic and economic fundamentals." In 2020, the overvaluation was a maximum of 30 percent.

According to the Association of German Pfandbrief Banks, on whose figures the Bundesbank relies, prices for residential property rose by 11.3 percent last year – after 7.5 percent in the previous year. Calculations by the Bundesbank based on data from the consulting firm Bulwiengesa for 127 German cities would have resulted in a price increase of seven percent. Compared to the two previous years, in which the growth rates had weakened, this was again a somewhat stronger increase.

Real estate bubble warning

According to estimates by the Bundesbank, residential real estate outside urban areas is also likely to have become much more expensive in the past year. In addition to the continued high demand, the ongoing supply bottlenecks also played a role. This is because they make the material used in new residential construction more expensive, thus causing building prices to rise. This situation is unlikely to improve in 2022 either, as there are still no signs of easing in supply chains globally.

The Bundesbank has been warning of a real estate bubble for some time. The strong price increases in Germany and other European countries are now also alarming the EU Risk Council ESRB. In this country there is a rise in house prices across the board, warned the committee based at the European Central Bank. Estimates indicated a "high and growing overvaluation". Germany should do more against the price surge. The EU Risk Council recommends introducing an upper limit for the ratio of loan amount to property value in real estate financing.

Stricter rules for banks

The financial regulator Bafin has therefore already introduced stricter rules for the banks. Germany's financial institutions should save up an additional capital buffer over the next twelve months as a precaution for possible setbacks, for example on the real estate market. An additional buffer is to be introduced on April 1, which specifically protects residential real estate loans.

Leave a comment

Leave a Reply

Your email address will not be published. Required fields are marked *

Related Articles

Global Economy

Spotlight on 2023: S&P 500 and the Significance of the 4400 Level

In our past exploration of the financial landscape of 2023, we delved...

Global Economy

AI and Data Analytics Drive Efficiency in Money Laundering Detection

BIS Innovation Hub Turns to Tech for Money Laundering Detection The BIS...

Global Economy

Russell 2000 Gains Momentum as Tech Stocks Outperform Value

Tech stocks have dominated the equity markets in recent months, surpassing value...

Global Economy

Crypto Exchange Bybit Announces Exit from Canadian Market Amid Regulatory Changes

Regulatory Shifts Prompt Bybit's Strategic Withdrawal from Canadian Crypto Market