German Property Price Gains ‘Lost Vigor,’ Central Bank Says

German property price gains “lost some vigor” in 2012 as the cost of new homes rose more slowly, according to the country’s central bank.

Home values in Germany’s 125 largest cities in 2012 increased by 5 percent, the same pace as a year earlier, the Bundesbank said in a report published today, citing data compiled by research firm BulwienGesa AG. The gains may pose economic risks, even though real estate lending remains moderate, the bank said.

“We must be vigilant,” Board Member Andreas Dombret said in a prepared speech. “International experience shows that the early phases of overheating can exist along with low lending growth.”

Home prices have been climbing as Germans invest in assets that would retain their value if the euro crisis leads to higher inflation. Foreign investors are also buying property in Europe’s largest economy as they try to increase their returns amid low interest rates.

The price of newly built apartments rose 7 percent in 2012, down from 10 percent in 2011, the Bundesbank said. Home prices outside the largest cities climbed at a slower rate, indicating that there’s no sign of a countrywide bubble, the Bundesbank said.

The property boom is also affecting rents, squeezing households unable to afford to buy a home. The rental increases for new properties since 2010 are about four times as high as the 10-year average, and for existing homes it’s about three times as high, the central bank said.

“However, the gain is not anywhere near the growth rates of the early 1990s,” it said.

Rents in Germany’s 125 largest cities rose about 4 percent for new buildings and 3 percent for existing homes, the Bundesbank said, citing BulwienGesa.

To contact the reporter on this story: Dalia Fahmy in Berlin at dfahmy1@bloomberg.net.

To contact the editor responsible for this story: Andrew Blackman at ablackman@bloomberg.net.

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