Low interest rates can be a good thing for a finance minister. They promote growth and investment and generally make voters happy.
But Wolfgang Schäuble, Germany’s finance minister, is worried about the spillover effects low rates on the real estate market.
“I think that we in part are seeing the first signs of a bubble forming,” he told the Handlesblatt in an interview.
Other top regulators are not so sure.
“The greater liquidity in the market is a risk factor,” said Elke König, the head of Bafin, the federal financial supervisory authority. But “right now,” she added, “there is no evidence that banks are significantly easing the conditions for lending. We do see a risk, but no sign of a bubble yet.”
German regulators are closely watching the situation via the financial stability committee, a group established by Schäuble’s ministry in 2013 to identify such dangers as real estate bubbles early.
Ms. König serves on the financial stability committee along with two other Bafin representatives and three from the finance ministry and the Bundesbank, which controls interest rates.
The committee sees itself as an early warning system that sounds an early alarm so that counter-measures can be taken. Bafin could make banks require borrowers bring more of their own capital before taking out mortgages, for example.
To date, data shows that real estate prices in Germany are much more moderate than elsewhere and though home ownership is on the rise, Germany has the highest share of rental housing compared to other European countries, according to a study by the consulting firm Deloitte.
In Germany, buyers have to put down some 20 percent of their own capital before they can obtain a mortgage.
Last month, the financial stability committee issued a report to the Bundestag, the lower house of parliament, about the German residential property market. It found no evidence of a spiraling increase in prices, or of increasing debt and an easing of conditions for borrowing.
During the first quarter of 2014, prices for residential real estate in Germany continued to rise slowly. According to a study by the mutual savings bank LBS, prices of homes increased by 5 percent in 2013.
“We do see a risk, but no sign of a bubble yet.”
Prices are relatively moderate when compared to much of western Europe. In 2013, the average price per square meter of a home in Germany was €1,725 ($2,320). Prices vary significantly across the country, with a square meter in Munich costing €3,150 which is €2,000 more than in Berlin, according to Statista figures.
Prices are highest in London and Paris where buyers of new property pay €10,000 or €8,100 respectively for a square meter, according to the Deloitte study.
The committee intends to keep monitoring developments on the residential real estate market, according to the finance ministry. But it is also following market trends on the stock market, as well as keeping its sights on the consequences of the low interest rates for life insurance providers.
Still, the finance ministry has warned against overestimating the possibilities nations have to act. “The central banks have to consider the consequences for the different currency zones when making decisions,” it said, referring to the European Central Bank and the Federal Reserve.