In recent years Germany has proved an exceptional case in respect of residential property, with house prices mired in stagnation while in other countries they have skyrocketed. This article examines the reasons behind the trend, which is closely related to the surplus capacity built up in the stock of property and the building industry in the course of German reunification. A consideration of national price aggregates all too easily clouds the view for the fact that Germany is actually comprised of two entirely different property markets – one in west Germany where prices are rising slightly and the other in east Germany where they are falling sharply. The differences between the two stem mainly from the specific “locational premium” on the respective property markets. In the special case of east Germany this is determined in particular by high vacancy rates and an adverse demographic trend. However, the period of stagnation could be coming to an end: we expect prices to start heading north.

The long period of low interest rates fueled steep increases in property prices in several industrial countries. In fundamental terms, residential property in Spain, the UK and the USA is in part substantially overvalued. The UK tops the table, while overvaluation in Spain is less pronounced.