Germany fears property price boom, with foreign investors blamed for 20% overvaluation of house

Germany's central bank has warned of a housing boom in the country with soaring property prices in the country 'difficult to justify'.
According to Bundesbank, a surge of foreign investment has seen housing in some of the economic powerhouse's major cities overvalued by as much as 20 per cent.
In a monthly report, the country's top financial institution fired a warning that price rises for apartments and flats in the major cities, did not stand up to valuations based on basic methods.
In demand: Properties such as these in the Kreuzberg district in Berlin are said to be popular with foreign investors.In demand: Properties such as these in Kreuzberg, Berlin are said to be popular with foreign investors
The statement will serve to ramp up concern of a real estate boom in Germany.
In popular cities such as Berlin, Munich, Hamburg, Cologne, Frankfurt and Stuttgart, the price of apartments and flats had risen by 25 per cent on average since 2010.
The report reads: 'Over the past three years, the prices for houses and apartments (nationally) have risen by a total of 8.25 percent.' 
The report said that the increase could 'give rise to fears of a broad-based property price boom'.
The bank said that property prices were driven up by an increase in demand for German property, caused by slumps in other countries during the economic downturn.
 More...Shutdown stand-off hit jobs growth as uncertain bosses refused to hire more workersOsborne must impose emergency tax on energy firms to help people stay warm this winter, warns ex-PM Sir John MajorIt also said that housing had become seen as a more reliable than other forms of investment.
But whereas Asian cities such as Singapore and Hong Kong have put legislation in place to tax foreign buyers in a bid to maintain stability in their housing market, Germany have welcomed investment.
Depsite the fears of a 'bubble' however, Bundesbank believes that it is very unlikely that higher property prices will lead to financial instability. 
Steady: The strength German economy under Angela Merkel has been a big pull for property investorsSteady: The strength German economy under Angela Merkel has been a big pull for property investors
The conditions placed on mortgages in Germany are much tougher than in the U.S. and other parts of Europe,  meaning that banks and other lenders would probably not be severely affected by a mini bust. 
Carsten Brzeski, a senior economist at ING, said that despite the beginnings of regional exaggerations, a bubble does not seem to be in the offing in Germany.
He said: 'There are no reasons, yet, to call the latest developments the start of a typical bubble as experienced in other countries before. 
'Mortgage growth has remained limited, loan-to-value ratios in Germany have been stable at around 80 percent and the large majority of Germans still prefer mortgages with fixed - rather than variable - rates.
'Even if the Bundesbank's assessment of a fundamental overvaluation looks justified, prices, at least in urban areas, could, in the short run, still further increase on the back of low interest rates and limited supply.'
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