KfW Research expects 300,000 new homes to be completed in 2016

Frankfurt am Main (ots) -

   - Sharp rise of 3% in residential construction investment
   - New construction still failing to keep up with demand, however
   - Heightened risk of localised property bubbles 

The number of new homes being built in Germany continues to rise but will still fail to keep up with demand this year. KfW Research expects investment in residential construction to rise by 3% in real terms in 2016 (up from 1.3% in the previous year), resulting in the creation of 300,000 new homes, which means almost 50,000 more than in 2015. However, between 350,000 and 400,000 new homes are required every year.

"In addition to high levels of migration from both the European Union and countries afflicted by civil war, a sharp rise in student numbers is increasing the pressure on the housing market. The rise in demand for housing is particularly pronounced in major cities and their surrounding areas, as well as in university cities," said Dr Jörg Zeuner, KfW Group's Chief Economist. According to Dr Zeuner, while the number of new homes built in 2016 will not be enough to cover the total demand, the target of between 350,000 and 400,000 new homes could be achieved in 2017. "Historically low interest during construction, sufficient capacity in the construction sector, the expansion of social housing construction and the special depreciation allowances planned by the federal and state governments will provide an additional boost to new construction. It is also crucial, however, that the growing cities quickly make sufficient land available for construction," Zeuner went on.

At the same time, KfW sees a risk of localised property bubbles developing in sought-after housing markets. This applies to major cities such as Berlin, Munich, Hamburg, Cologne and Frankfurt am Main, for example, where property prices rose faster than rents over the past year. Some investors at least seem to be speculating on their ability to implement further rent increases based on a continued shortage of housing. There has also been a leap in the volume of loans issued for private residential construction (+22% in 2015). The volume of residential construction loans with interest rates fixed for more than 10 years rose by 53%.

"The risk is growing, but it remains to be seen whether expansive lending practices will in fact result in regional property price bubbles," Zeuner commented. He reported that banks have maintained their high standards for lending, and the interest rates for most loans are fixed for more than five years. He also said that macroprudential monitoring by the regulatory authorities has been improved in the interest of preventing a Germany-wide property bubble.

The current KfW Investment Barometer is available at: www.kfw.de/investbarometer.


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