(The following statement was released by the rating agency)
Aug 21 - Fitch Ratings does not consider there to be an asset bubble across Germany for either residential or commercial real estate assets. Property prices and rents have generally moved in line with economic fundamentals. Only in metropolitan areas, particularly Berlin and Munich, have price increases been seen to exceed fundamentals such as the relative economic stability of Germany, net migration and low construction activity.
However, Fitch is also cautious given that developments in other countries had been labelled as non-hazardous until evidence proved otherwise.
Fitch believes residential property prices will increase further across Germany and particularly sharply in core property markets in the short- to medium-term, as the agency expects investor demand to remain strong. This will inflate German banks' collateral values in the long run if the gap between economic indicators and price levels increases.
"In Germany's core locations, residential property net rental yields (net cold rent after operating expenses/purchase price) of up to 400 basis points per year are still achievable, although Fitch sees great variances between different locations," says Markus Schmitt, Associate Director in Fitch's Financial Institutions group. "However, Fitch expects net rental yields to fall further due to strong investor demand and a more moderate economic outlook, potentially constraining rental growth."
There has been moderate mortgage lending growth, with outstanding residential mortgage loans increasing by only 1% p.a. since 2003. This is despite Germany having one of the lowest home ownership ratios in Europe (about 46%).
Fitch believes that underwriting criteria for residential mortgage lenders are generally adequate. However it also notes that high loan-to-value financings which are only moderately priced are available from some German banks. Additionally, commercial real estate lending standards have improved since the onset of the financial crisis and credit risks are priced adequately.
For more information, see "No Signs of Real Estate Bubble in Germany", dated 15 August 2012 at www.fitchratings.com.
Link to Fitch Ratings' Report: No Signs of Real-Estate Bubble in Germany