German First-Quarter Home Prices Gain on Housing Shortage

German home prices rose 4.2 percent in the first quarter from a year earlier as low financing costs and a shortage of apartments in large cities extended the country’s housing boom into its fourth year.

Prices for apartment buildings increased the most, rising 5.8 percent, while owner-occupied condominiums gained 4.1 percent, according to an index published today by the VDP Association of German Pfandbrief Banks. Rents for newly leased apartments climbed 4.3 percent.

German residential property values have been driven by record-low interest rates and a shortage of homes in cities such as Berlin and Frankfurt, as people move to areas where jobs are easier to find. Prices began to rise in 2011 after largely stagnating over the two prior years.

“Residential construction is rising, but it’s still far from satisfying the high demand,” Jens Tolckmitt, VDP’s general manager, said in the statement. “Demand continues to be concentrated in urban centers.”

German home prices rose by the most in at least a decade last year, VDP data showed. Residential property in the country’s cities are about 25 percent overvalued, the Bundesbank said in February. The German government has proposed new laws to curb price and rent increases in an already tightly regulated market.

Office Gains

Office values climbed by 5 percent, while rents rose 1.9 percent, according to VDP. Office prices are being lifted by institutions seeking a profitable investment amid low yields in fixed-income markets.

VDP collects price data from mortgage contracts signed across Germany by more than 30 member banks, which include Deutsche Bank AG, Commerzbank AG, Banco Santander SA (SAN) and ING Groep NV. (INGA) By contrast, most German real estate indexes focus on the country’s biggest cities.

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

To contact the editors responsible for this story: Andrew Blackman at ablackman@bloomberg.net Andrew Blackman, Ross Larsen

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