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Germans build more homes in shadow of euro

Published: 21 Nov 2012 07:20 GMT+01:00

Driven by historically low interest rates and a fear of other investment opportunities, more Germans are opting to build homes, according to a report in the Frankfurter Allgemeine Zeitung newspaper.

The federal statistics office said on Tuesday that applications for building permits rose 6.2 percent in the first nine months of 2012, to 178,100.

Andreas Geyer, chief economist with ZDB, a federation of construction firms, told the paper that the pace of new permits has slowed somewhat in recent months, but that conditions remained favourable. "Employment is strong, income is high, and financing costs are low," he said.

He said he did not think the country was in danger of a housing bubble, because both real estate prices and rents were climbing, and there was not an inordinate increase in building loans.

Germany's Federal Bank is closely watching the housing market, the paper said, and has indicated in its current financial stability report that it would step in should prices become excessive.

Prices for new housing units in the seven largest German cities rose by nine percent in the past year, up from a five-percent increase the year before, the paper reported. The Bundesbank is assuming that this development will continue.

New housing is currently driving growth for the construction industry. The ZDB expects almost seven percent more revenue from this branch in 2012, and an increase of between four and six percent next year, according to the paper.

The Local/mbw

The Local (news@thelocal.de)

Your comments about this article

11:07 November 21, 2012 by elboertjie
With near zero interest rates for banks and very low interest rates for private folk, money is very cheap to come by and thus are using it to 'invest' in property.

The challenge will be when interest rates rise again by say 3% more, it would suppress the prices of property and people who wanted to speculate with their properties would be stuck with it due to lower asking prices.
14:15 November 21, 2012 by smart2012
elboertje, who gacve you a 0 interest to buy a house? can u please give me the bank name? I went 1 month ago, and they are asking for 3% already.

This is a bubble for speculator.. and when it will burts, normal people will suffer (actually they are already suffering as they cannot afford a rent or house price anymore)
15:13 November 21, 2012 by elboertjie
smart, it is near zero for banks. It is very low for private folk.

As you also say, this is a bubble in the making and pushing prices higher. Another bad side of very low interest rates, is that people who choose to rather save their money than to spend it, is indirectly penalised, because their money loose value and does not receive any interest on it at the bank.

Low interest rates is basically asking people to spend their money and not to save. I wonder if this is part of the reason why in Frankfurt so many banks and companies are developing new properties at the moment. The city is popping up with new construction site every few months with plans for skyscrapers and new malls.

The risk is, when interest rates rise, will it leave Frankfurt looking like Bangkok in the 90's, with lots of bankrupt and empty buildings?
20:23 November 21, 2012 by sonriete
The people are putting their money in bricks and mortar because they no longer trust the euro. This is what it has come to.
00:06 November 22, 2012 by Berlin fuer alles
Could be that what happened in Ireland will happen in Germany. Who will bail out Germany then if the rest of the Euro zone is austeritized (my new made up word). Dr. Merkyl and Mr. Hyde continues on her flight path up her own ass.
14:19 November 23, 2012 by zameenzad
Muslims do not pay interest as it is forbidden in Islam and their Islamic banking system also does not charge interest. That¦#39;s why they can afford nice house in Islamic countries.

When one reads the Islamic texts concerning interest, one is immediately taken by how stringent the warnings are against any involvement in interest. The Quran, for example, contains the following verses concerning interest:

¦quot;O you who have believed, do not consume interest, doubled and multiplied, but fear God that you may be successful. And fear the Fire, which has been prepared for the disbelievers.¦quot; (Quran 3:130-131)

¦quot;Those who consume interest cannot stand [on the Day of Resurrection] except as one stands who is being beaten by Satan into insanity. That is because they say, ?Trade is [just] like interest.¦#39; But God has permitted trade and has forbidden interest. So whoever has received an admonition from his Lord and desists may have what is past, and his affair rests with God. But whoever returns [to dealing in interest or usury]?those are the companions of the Fire; they will abide eternally therein. God destroys interest and gives increase for charities. And God does not like every sinning disbeliever.¦quot; (Quran 2:275-276)

Just as an insane person, unconstrained by ordinary reason, resorts to all kinds of immoderate acts, so does one who takes interest. He pursues his craze for money as if he were insane. He is heedless of the fact that interest cuts the very roots of human love, brotherhood and fellow-feeling, and undermines the welfare and happiness of human society, and that his enrichment is at the expense of the well-being of many other human beings. This is the state of his ¦quot;insanity¦quot; in this world: since a man will rise in the Hereafter in the same state in which he dies in the present world, he will be resurrected as a lunatic.

Secondly, the verses make it quite clear that there is a difference between legitimate business transactions and interest. The difference between them is so glaring that the verse does not bother to explain them, which is one of the stylistic aspects of the Quran. Thirdly, these verses clearly state that God ¦quot;destroys interest and gives increase for charities.¦quot; This is one of God¦#39;s ¦quot;laws¦quot; which humankind cannot necessarily discover on its own. The ultimate and full negative effects of interest on the individual, community and world as a whole in both this life and the Hereafter are known only to God. However, a glimpse of some of those negative effects, testifying to the truth of this verse, shall be given later in this paper. In fact, perhaps highlighting the meaning of this verse, the Prophet (peace and blessings of God be upon him) also said, ¦quot;Interest- even it is a large amount- in the end will result in a small amount.¦quot; Undoubtedly, in the Hereafter when the individual meets God, all that he amassed via such illegal means will be a source of his own destruction.
18:34 November 23, 2012 by jg.
The issue of a property bubble only arises if too many people are borrowing too much to build/buy properties - and there is no evidence of that in Germany. It seems more likely that people are choosing to move their savings into property as other investments offer lower returns and/or higher risks. Rental income looks quite high when compared with other investments at the moment.
13:35 November 25, 2012 by Englishted
@ zameenzad

All well and good shame there is no god to back it up.
21:08 November 25, 2012 by murka
Construction businesses do not spend time analyzing monetary policies and inflation. They keep their projects on ice until calculation turns black. This is what happened when borrowing in Germany became that incredibly cheap.
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