Germany Fights Soaring Home Prices With Lending Curbs
As in the U.S. and other economies, pandemic financial support has sparked a surge in property investment.
As in the U.S. and other economies, pandemic financial support has sparked a surge in property investment.
Frankfurt—Germany’s financial regulator said it would clamp down on mortgage lending, signalling mounting concerns about the risks posed by the nation’s rapidly rising house prices.
Across Germany, house prices have boomed in recent years as some German families overcame their traditional reluctance to own property. The trend has been powered by ultralow borrowing costs from the European Central Bank and low returns on bank deposits, where most Germans stash the bulk of their savings.
Germany’s Federal Financial Supervisory Authority, or BaFin, warned lenders on Wednesday to be conservative in their mortgage lending given the quick rise in prices, and said borrowers should be able to make their monthly mortgage payments even if interest rates rise. It also ordered local banks to hold additional capital against residential mortgages.
“Vulnerabilities to negative economic developments and especially to the residential property market have built up” in Germany’s financial system, the regulator said.
Germany faces a similar predicament to economies around the world, including the U.S., where efforts to support the economy during the pandemic helped spark a surge in property investment. In China, a crackdown on housing speculation amid booming prices is weighing on the nation’s growth prospects.
Housing bubbles have been at the root of many financial crises, including the 2007-08 global financial crisis.
The move to curb access to mortgages amounts to a form of financial-system tightening that targets a specific segment of the economy. The European Central Bank has announced a scaling back of its giant pandemic-era bond-buying programs, but has been less aggressive than the Federal Reserve about raising benchmark interest rates. The Fed is expected to lift rates multiple times this year while the ECB has pledged to keep its deeply negative rates for an extended period.
There is concern that the ECB’s reluctance to raise interest rates is fueling a speculative frenzy among investors in property and other areas. While the ECB oversees monetary policy in the euro area, individual countries have the ability to impose so-called counter cyclical buffers to fine-tune local financial conditions.
German house prices have surged during the pandemic, rising almost 60% above their 2015 levels, according to the federal statistics agency Destatis. Prices jumped by 12% year-over-year in the three months through September, one of the fastest growth rates in Western Europe.
German household debt has also increased sharply, rising to around 58% of gross domestic product in the middle of last year from 53% of GDP in 2019, according to the Bank for International Settlements, a consortium of central banks. That is still lower than the U.S., where household debt was around 79% of GDP last year.
BaFin said it would ask German lenders to set aside a capital buffer worth 2% of the risk-weighted assets on loans secured by residential property, up from zero at present. Banks will also need to set aside 0.75% of the risk-weighted assets on domestic risk positions, also up from zero, it added. The buffers are intended to absorb possible future losses.
The banks will have time to adjust to the new requirements, which take effect early next year, and will preserve around €22 billion, equivalent to $25.02 billion, of core capital in the banking system, BaFin said. Banks will generally be able to meet the new requirements from existing excess capital, although a few institutions will need to raise fresh capital, it said.
The regulator warned that it might issue binding loan restrictions if it judged that lending standards had become too relaxed, including an upper limit for the proportion of debt in residential property financing.
“With these capital buffers, we not only take account of cyclical risks, but also precisely counter the specific financial stability risks on the residential property market, where price and credit growth are currently very strong,” said BaFin President Mark Branson.
German cities were at, or near, the top of an annual real-estate bubble index published by Swiss bank UBS last October, suggesting that property prices there will likely fall in future. Frankfurt topped the list of 25 global cities, while Munich was in fourth place. The most overvalued U.S. city, Miami, was in 12th place.
Reprinted by permission of The Wall Street Journal, Copyright 2021 Dow Jones & Company. Inc. All Rights Reserved Worldwide. Original date of publication January 12, 2022.
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Blending brutalist strength with warm, refined interiors, Rumah is a bold architectural statement in Brighton’s coastal enclave — a designer family home where luxury meets liveability.
Rumah means “home” in Indonesian and Malay, and it’s clear this designer property in Melbourne’s coveted beachside enclave of Brighton is a dream house in any language.
The uber-contemporary residence is a collaboration between builders Belot Property, Seidler Group architects, and the interiors team at Golden.
The result is a modern marvel that combines a brutalist concrete exterior ready to weather its coastal setting with inviting interiors using a mix of textures, from French oak to metal and brick finishes.
Just listed with Kay & Burton Bayside agents, Rae Mano, Matthew Pillios and Jamie Mi, the prestige property is on the market via a private treaty campaign with price expectations of between $10.5 million and $11.5 million.
Created to be a great entertainer while maintaining a level of discreet privacy, Rumah is, at its heart, a warm, family-friendly home that ticks all the boxes for detail-oriented design connoisseurs.
A palette of contradictions, Rumah blends angular and rounded forms, features hard steel and glass, and effortlessly incorporates the earthy finishes of brick and timber for a holistic sensory experience.
Beyond the oversized pivot door sits a large structural column wrapped in gold leaf, setting the tone for the rest of the residence. The three-storey layout offers a choice of multigenerational spaces, from the ground-floor everyday living level to the accommodation wing on the top floor and the large basement “clubhouse.”
At the heart of the home, a gourmet kitchen features a dramatic island bench, high-end appliances, and a full butler’s pantry. Multiple spaces feed off the kitchen, including a vast dining area and a large living room, which both spill out through full-height glazed doors to either a side barbecue terrace or the poolside deck to the rear.
Even the downstairs entertainer’s room – also known as the club – is effectively poolside thanks to an innovative glass viewing window framing swimmers and cleverly connecting the subterranean level to the rest of the home. This games room also houses a sophisticated bar, a wine cellar, integrated night club style lounge seating and a full bathroom.
Additionally, the lower floor features a hidden laundry room, two store rooms, direct access to a huge five-car garage with a convenient turning circle, and an extra bedroom or home office.
Via the private elevator, the top floor is dedicated to after-hours living. It has four spacious bedrooms, each with its own ensuite and walk-in wardrobes. In the luxurious primary suite, there is a hotel-inspired ensuite with a unique kidney-shaped freestanding bath and a dressing room.
Rumah’s added extras include warming indoor and outdoor fireplaces, automatic blinds, feature lighting, marble accents, bespoke wallpaper, built-in bedheads, an external spa and low-maintenance landscaped gardens.
Positioned on the corner of William and Halifax Sts, the 21st-century beach house is opposite William St Reserve, close to Brighton Primary School.
Rumah at 91 William St, Brighton is on the market via private sale with Kay & Burton Bayside and has a sales guide of $10.5 million and $11.5 million.
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