Here's Why Germany Is 'The Most Boring Property Market' In The World

One distinct feature of property markets across the world is that there is no lack of activity, ever. Real estate is always making news either for its rising unaffordability or for the possible bubble that it might be creating that pose a threat to a country's overall financial system. In fact, the most happening property markets are in Asia. Authorities in Hong Kong, for instance, are desperately trying to rationalise prices in the world's most unaffordable property market. The same is true of Singapore. In India, the government is coming up with new measures almost every quarter to battle a slowdown in the sector, which was caused by the unaffordability factor.  The United States is no different. According to S&P CoreLogic Case-Shiller data, property values rose by the most since mid-2014 in the US in October last year.

However, data are witness to the fact that there is a property market in the world that has remained unaffected by all the happenings around the globe for a very long time. According to the estimates by Green Street Advisors, property prices in Germany did not rise in the past 40 years.

In his introduction to the 13th Annual Demographia International Housing Affordability Survey, Oliver Hartwich, executive director, The New Zealand Initiative, has paid special attention to the "stark contrast" between the property markets of Germany on the one hand and the English-speaking world on the other.

"Germany is probably the country with the most boring housing market in the world. It is a place where nothing ever happens — at least as far as housing is concerned. German house prices remain stable, and if it had not been for the Euro crisis and negative interest rates, the Germans would probably still be able to buy houses for the same prices in real terms that they paid twenty or 30 years ago," says Hartwich.

"The story for other countries like Australia, New Zealand, the United Kingdom and large parts of the United States is a different one. There, house prices have gone through the (now unaffordable) roof," he adds.

Things have begun to change, though, and foreigners are responsible for that, to a great extent. Recently, about a million refugees entered the country, driving the demand for housing. The country with its stable property prices also caught the attention of those looking for safe havens to park their money. At home, falling mortgage rates assisted prices go upwards. "The European Central Bank's move negative interest rates may fuel this trend further," says a Bloomberg report.

According to Swiss financial major UBS, in 2016, house prices in Germany increased 5.6 per cent a year over the past five years. This amounts to double the average annual rate of increase since 1970. According to research institute Empirica, a gauge of advertised apartment prices in seven major cities rose 14.5 per cent in 2015, the most since 2000.

But, how did Germany property markets manage to stay boring so far?

The Bloomberg analysis attributes this to the Germans' "fondness for renting homes instead of buying them, fairly flat house-price growth, plus rather dismal demographic trends". 

But, there is more to it that has property markets of countries such as Germany and Switzerland boring yet stable — something that indicates a better health of a country's financial system.

"In jurisdictions where local decision-makers stand to gain from new development, they will be much more eager to make it happen. In Germany and Switzerland, council budgets largely depend on their ability to attract new residents and taxpayers. This is why both countries have traditionally had a more responsive and flexible housing supply side. The available financial incentives to planners and councillors made all the difference to house prices in the long run," says Hartwich.