Euro Crisis and the German Property Market
Background
I type this short article on 1 November 2011, on the topic of the moment – the Eurozone crisis. The story is moving quickly each day, so I will not try and give a review of the “here and now” issues. However, the Eurozone has huge problems that will need tackling over the coming months and years to ensure the common currency stays together in the best way, and government debt in peripheral countries is reduced.
In this article, we will reflect on the German outlook in the coming months and predict the effect of the crisis on the German housing market and investment scene.
Current Indicators
Germany really has enjoyed a very strong period of growth, at a time when most other developed economies have suffered huge financial stresses. GDP growth has been outstanding, with 4.6% growth in 2010 and 2.9% forecast for 2011 on the back of export growth. In the 9 months to Sep 11, exports grew 14% as compared to 2010, running an enviable trade surplus of over 100 billion Euro.
At a time when European governments are running huge deficits, Germany is running a budget deficit of only 0.9% of GDP. Compare that to France at 3.4% deficit, UK at 5.5% and the peripheral countries who are running huge and increasing deficits.
The strong economy is feeding through to great employment data. In October 2011, German unemployment fell for the 27th consecutive month to 6.9% which is the lowest since re-unification.
Importantly, during this period of strong economic performance, Germany kept inflation to 2.3% during 2011.
Forward Indicators
Economists are clearly factoring in the ill-winds that the Eurozone crisis will have on the exporting ability of Germany to its fellow European partners. But of course, the country has much wider interests which will support demand for their high-quality products. The following indicators are predicted for 2012:
GDP deficit to fall to 0.6%.
Inflation to fall to 1.8%
Unemployment to fall to 6.7%
Exports to increase, but at a slower growth rate of around 1% due to lower demand in Europe
Interest rate stability, in a narrow range near 1%.
So, despite the woes of the Eurozone, Germany looks set for a positive investment climate in 2012 which is in stark contrast to Western economies as a whole.
German Property Market – Demand Increasing
After a long period in the doldrums, the attention on the German property market as a source of value and stability is now widespread.
Investors spent 6.2 billion euros on German real-estate in the third quarter of 2011, a whopping 50 percent increase from a year earlier, according to property adviser Savills Plc. About 17.2 billion euros were invested in German real estate in the first three quarters, up 44 percent from last year. This stellar growth in demand is being seen in the primary markets such as Frankfurt, Hamburg and Munich as well as the secondary markets such as Leipzig where ProVenture operate. Prime property is enjoying good increases in capital values, and more B-located units are now in higher demand for the first time since around 2007.
Our own forecast for the markets where we operate [Leipzig, Chemnitz and Bremerhaven] is very strong for 2012. Enquiry via Google for German property has increased this year by 40% for key search terms. At ProVenture we have seen this translate into increased numbers coming to our website and subsequently visiting our key markets. Monthly web visits are up from 6,000 at the start of the year to now approaching 10,000 visitors. Demand looks well set, and the economy in good shape to weather the storms of the Eurozone crisis.
As the story develops, we welcome your comments as investors in this market and will publish them with your agreement.
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