FRANKFURT, Dec 8 (Reuters) - German property prices are likely to rise strongly again in the coming year though margins for mortgage banks are being eroded by increased competition, the head of Germany’s covered bond bank association VDP said.
“The upward price trend continues unabated, there is a certain amount of hype at the moment,” VDP President Jan Bettink told reporters late on Monday.
Big German cities in particular are seeing unbroken demand for housing and commercial real estate but there were no signs of a real estate bubble because banks were not lending excessively, he said.
Rock bottom interest rates have driven investors to seek higher yields in German real estate and they are increasingly competing for a limited supply of properties in top locations, which is driving up prices.
The Bundesbank said in September that home buyers should face a cap on the amount they can borrow to avoid property crises that could rock the financial system.
Bettink said many investors wanted to invest money safely, which was leading to a significantly higher share of equity in financing and higher repayments, particularly in private housing and home purchases.
“The risk for the banks is now much smaller than in 2007-2008,” Bettink said, referring to start of the global financial crisis.
However, margins are under pressure because more and more banks are crowding into commercial real estate financing, making it difficult to find profitable new business, said Bettink, who is also chief executive of Berlin Hyp.
Many customers were taking advantage of lower interest rates to repay loans early, causing loan books to stagnate, or even fall slightly, something Bettink said he had not previously seen.
The situation is unlikely to ease in 2016, he said, echoing comments from Aareal Bank and Deutsche Pfandbriefbank , who also spoke of a difficult market environment. (Reporting by Kathrin Jones; writing by Jonathan Gould; editing by David Clarke)