Stability while Europe is in political and economic flux has defined Germany’s housing market, where major cities are seeing growth in luxury real estate helped by foreign buyers, according to a new report by Knight Frank.
The populist and isolationist politics rising elsewhere is unlikely to rock the boat in Germany, where fringe conservative groups pose less of threat to the status quo. The coming elections in the fall are unlikely to upset the country’s housing market, Paddy Dring, head of the International Residential Department, wrote in the report released Wednesday.
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"While the world’s roller coaster hurtles past, these German stalwarts provide reassuringly firm ground," Mr. Dring wrote in reference to Berlin and Munich.
Both German metropolises have logged significant growth in their luxury sectors. In Berlin, high-end home prices rose 8.7% last year, and sales of homes priced above €7,500 (US$8,029) per square meter has more than quadrupled since 2011, according to the report.
Sales for homes priced above €10,000 (US$10,705) per square meter, a subsection of luxury Knight Frank calls "superprime," have also increased from five in 2011 to 18 in 2016.
"Whilst German buyers still account for a large segment of demand within the luxury sector, overseas interest not only increased but became more diverse," wrote Kate Everett-Allen, head of international research at Knight Frank, in the report, citing data from their partner in Berlin, Ziegert Immobilien.
In 2016, 16% of foreign luxury buyers in Berlin came from the European Union (excluding the United Kingdom), 14% from China, 14% from Switzerland and 13% from the United Arab Emirates, according to a data from Ziegert Immobilien.
The influx of foreign buyers is significant also because Germany has one of the lowest rates of homeownership in Europe, thanks to cultural factors and decades-old government controls on rents. Only 15% of the population in Berlin owns their home.
Meanwhile, homeownership is a bit higher in Munich, where around one-fifth of the population own. In the city—which is welcoming around 20,000 newcomers each year, mostly wealthy, well-educated people working for the city’s IT companies—luxury prices grew 8% in 2016.
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Rapid price growth in Munich, where there’s little room for new development, has led to fears of a bubble, which Knight Frank does not expect.
"While we can’t expect to see property prices continuing to rise at 10% a year," Mr. Dring wrote, "we predict a flat-lining of prices for the next two or three years, not a bubble bursting."