Cheap credit is for now not fuelling a destabilising real-estate bubble in Germany but the central bank is closely watching the market, Bundesbank vice president Claudia Buch said on Saturday. Housing prices in Germany - relatively cheap compared with other European countries in the past - have risen sharply in recent years, prompting the Bundesbank to warn in May about the risk of a dangerous bubble developing.
"We very closely watch the real estate market in Germany because we know that in over-valued real estate prices there might be a risk to financial stability," Buch told an economic conference in southern France. "We don't see an immediate risk because prices are increasing, but there is not a lot of borrowing going on, so it's not a credit-financed increase in prices."
But Buch, who is in charge of financial stability at the Bundesbank, said it had less information about loan contract terms than other countries like France and was therefore less aware of credit standards. Average real estate prices in cities including Berlin, Hamburg, Munich and Frankfurt have increased by more than 60 percent since 2010, the Bundesbank estimates, reflecting solid growth, low unemployment and low borrowing costs. Buch said that the Bundesbank was generally concerned about low interest rates spurring risk taking at a time when asset valuations are already high.