Germany real estate tiptoes on a weak mortgage structure?Germany’s real estate sector is still considered as a safe haven of investments for 2013, but property market analysts are wary of the current mortgage borrowing rules that should be addressed by monetary authorities.


Germany’s central bank is urged to consider some property cooling measures to address an imminent property bubble triggered by price trends and a structural weakness in the German mortgage market.


Property analysts have pointed out the current mortgage structure in Germany, exposes the country’s consumers and the banking system to major setbacks if a property bubble suddenly burst.


The Economist said in a report that now there is a 10-year fixed rate on residential mortgage acquired after which the borrower can re-negotiate the terms. The lenders represented mostly by small banks, on the other hand, use short-term deposits to finance mortgage loans.


A sudden rise in interest rates could spell a disaster for borrowers and lenders alike. The fixed rate loans will in turn be unprofitable and could disrupt the businesses of small banks, which have up to 50% of mortgage loans, according to housing finance expert Hans-Joachim Dübel.


Mr. Dübel tells the Economist that he fears a “German version of America’s savings-and-loan crisis of the late 1980s.”


In a November 2012 credit stability report, Bundesbank brought up the issue of property cooling measures such as setting a limit on the loans to be acquired in relation to the value of the property.


Meantime, with interest rates at its lowest in Europe, foreign investors had taken advantage and seen German cities as top destinations for commercial and real estate investment.  


Property consultancy Empirica says in a separate report that Luxembourg funds and Russians see German property investment as lucrative and safe investments.


The Urban Land Institute (ULI) and PricewaterhouseCoopers (PwC) said in a recent survey that the cities of Munich, Berlin and Hamburg are still considered as top destinations for real estate market investments.