German property prices up to 35 percent overvalued - Bundesbank

FILE PHOTO - A construction site at the river Spree is pictured in Berlin, Germany November 27, 2017. REUTERS/Hannibal Hanschke

FRANKFURT (Reuters) - Real estate prices in German cities may be 15 to 30 percent overvalued, the Bundesbank said on Monday, warning that the deviation may be as much as 35 percent in the biggest cities like Berlin, Frankfurt or Munich.

With the German economy booming and interest rates at record lows, the central bank has long warned that property bubbles may be developing, a potential risk for financial stability.

The European Central Bank has also acknowledged the issue but noted that property bubbles were not a general phenomenon in the 19-member euro zone and were limited to a few key cities and to prime commercial real estate, requiring local prudential measures, not a change in monetary policy.

Rent costs for new leases increased by 7.25 percent in Germany last year while in the seven biggest cities, the increase was 9.25 percent, the Bundesbank said in a monthly report.

Reporting by Balazs Koranyi; Editing by Maria Sheahan