Real Estate

Is Munich’s property the biggest bubble risk in Europe?


The well-heeled inhabitants of Munich are sometimes disparaged by other Germans as schickimicki — something like “fancy-schmancy”, an insult meaning snobbish or superior.

Münchner have plenty to feel smug about. Top companies such as BMW, Siemens and Allianz are based there, helping to make the city one of the most affluent in Germany. Economic success has had an effect on house prices, causing them to rocket in recent years.

Today, Munich is Germany’s most expensive city in which to buy property, with asking prices reaching €35,000 per square metre in some exclusive developments, according to Engel & Völkers. The average price per square metre in the city is €7,630, dwarfing the €2,993 in Germany as a whole.

Prices have risen so steeply, in fact, that a report by UBS considers Munich to be the biggest bubble risk in Europe. Only Hong Kong is more at risk in the 20 cities analysed in its Real Estate Bubble Index.

Furthermore, signs that unresolved trade disputes are contributing to a slowdown in Europe’s biggest economy may make investors more cautious, especially if house prices are considered to be inflated. Germany narrowly avoided a recession in the fourth quarter of 2019. In March, manufacturing in Germany contracted to the lowest level of activity since 2012. Economist Torsten Slok put what he called “the continued inflation of housing bubble in Germany” among the top 20 hazards threatening global markets in 2019 for a list collated by Deutsche Bank.

Germany’s property market was hardly affected by the global financial crisis of 2008 and for the following decade was propelled by high immigration, low interest rates and low unemployment. Well positioned in the centre of Europe and the capital of Bavaria, Munich has attracted professionals both from Germany and abroad, driving population growth of 6 per cent each year since 2012 and causing house prices to rise for the past 15 years.

Thanks to its beer gardens, its proximity to the Alps and the world-class parks, Munich consistently features on lists of cities with the best quality of life. “People in Munich like to be outdoors all the time,” says Laurel Robbins, who arrived from Canada seven years ago and who now runs Monkeys and Mountains, a travel business. “It’s normal to go rafting on the Isar [river] at the weekend, hiking in the Alps or picnicking on one of the lakes.”

Herzogstrasse in Munich © Alamy

A studio apartment in a central development close to the historic centre costs about €500,000 while detached family homes sell for up to €20m. Among the most schickimicki areas is the Herzogpark in Bogenhausen with other desirable neighbourhoods based around the sprawling Englisher Garten, which is even bigger than New York’s Central Park or London’s Hyde Park. Lehel, one of the oldest quarters, is on the banks of the river and Schwabing, around the Ludwig Maximilian University, is popular with younger, well-off buyers. A four-bedroom apartment in Lehel is on the market for €3.95m with local agent ImmoGrund Tegernsee. In Maxvorstadt, popular with expatriates, a five-bedroom penthouse in is on the market with Sotheby’s International Realty for €4.78m.

The brakes have been put on developers’ profits only by a lack of building space thanks to the city’s planning laws. British architect David Chipperfield has designed a five-storey eight-apartment development in a modern interpretation of Munich’s 19th-century stadtpalais, or “city palaces”, to be finished in 2021. Prices start at €2.05m.

Families may prefer detached houses. A six-bedroom house in Haidhausen is on the market with Von Poll Immobilien for €1.715m. E&V is marketing something a little grander, a five-bedroom mansion in Herzogpark, for €13.9m.

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Despite the high prices, agents claim that the perpetual requirement for new homes will keep prices from collapsing. “Living space continues to be scarce and demand high,” says Florian Freytag-Gross of E&V Munich.

“It’s based on real demand from people coming here to work and live, rather than speculation”, says Michel Reiss of Sotheby’s International Realty.

Demand for new homes has created a new market for micro-apartments over the past five years especially in the north of the city, near universities and tech employers such as Microsoft, adds Reiss. Buyers have also turned to formerly unfashionable neighbourhoods such as Milbertshofen, near the Englischer Garten.

Those priced out of such an extortionate market will not be sorry if there is a fall in prices, says Robbins. Even the so-called schickimicki may be relieved.

Five-bedroom penthouse, €4.78m

Buying guide

  • Buyers and sellers share estate agents’ fees equally, typically amounting to 3.57 per cent of the purchase price. Property transfer tax is 3.5 per cent. (Total closing costs are around 10-12 per cent)
  • Munich airport is the second-busiest passenger airport in Germany
  • Munich is only an hour by car from Austria and just over two hours from Italy

What you can buy for . . .

€1m A one-bedroom apartment in Schwabing
€5m A four-bedroom penthouse in Lehel
€10m A villa in Herzogpark

More homes at propertylistings.ft.com

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