BERLIN (AP) -- Buying a home in Berlin is widely viewed as one of the safest investments a German, or any European, can make.
That is why some real-estate experts are worried the market could get overheated.
Home prices in Germany's largest cities are booming. Building permits and home ownership rates are climbing fast. And the percentage of foreigners snapping up second homes in Germany is on the rise.
In Berlin, Frankfurt, Munich and four other red-hot markets, prices surged an average of 10 percent during the first half of 2012, according to Deutsche Bank. German central Bundesbank data show increases of 9 percent in 2011 in the country's urban centers and 5 percent the year before. Things may not be as frothy as Las Vegas, Phoenix or Miami during the peak of the U.S. boom, but it is bordering on breathtaking in a country where home prices declined or stagnated from 2000 through 2009.
The rate at which home prices are rising in Germany is not sustainable in the long term, says Steffen Sebastian, the chairman of the University of Regensburg's Institute for Real Estate Finance. However, Sebastian adds, there won't be a repeat in Germany of the Spanish and Irish financial crises, where real estate markets disintegrated and economies were brought close to collapse after overextended homebuyers and banks were hit by the Great Recession of 2008.
"When we talk about bubbles of course the market in Germany cannot be compared with the U.S. market," he said. "Usually the other bubbles are driven by excessive use of leverage by borrowing money but in Germany borrowing was always quite heavily regulated and this is not going to change."
The recent fervor for German real estate is a consequence of the European debt crisis.
To stimulate economic growth, the European Central Bank has driven its benchmark rate to a record low of 0.75 percent and that is helping to drive down consumer borrowing costs across Europe. As mortgage rates fall in Germany, many are jumping at the opportunity to finance home purchases, pushing Germany's home ownership rate to 53 percent. That's up 10 percentage points from a decade ago, according to figures from LBS, Germany's largest mortgage lender.
Because of the ECB's interest rate policies, some Germans are fearful that borrowing and spending could rise too quickly, pushing up the prices of everyday goods to unhealthy levels. While inflation remains low in Germany -- it's 2 percent compared to 2.2 percent across Europe -- Germans have long feared the threat of rising prices ever since the hyper-inflation the country experienced in the 1920s.
As a result, Germans are still looking to protect the value of their savings from inflation. And they are turning to real estate as an investment. If inflation heats up, they can always raise the rent or sell their home at a higher price than they paid for it.
"Here in Germany that's a very emotional issue," said economist Michael Voigtlaender, head of the Real Estate Economics department of the Cologne Institute for Economic Research.
Even if the market does bubble, Germans are still paying large parts of the sale prices with their savings -- rather than high-interest loans -- so they stand to lose money they have, rather than money they don't have, which would cushion the blow of a bubble burst.
People across Europe are also snapping up German real estate. With their economies shrinking and banks paying very little interest on savings, Italians, Spaniards, French and others view Germany as a haven, and its housing market as an undervalued asset class.
Italians Andrea Bricconi and Claudia Mosca recently traveled to Berlin with one goal in mind: to buy a second home.
"It's our favorite city in Europe and we have some money to invest, so we decided to try it here," said Bricconi, 42, who lives in Austria and works as a marketing manager at a technology company. "It's much cheaper than fancy places like Paris or London."
"We like to think outside the box," said Mosca, 38. "And we like the idea that it's a vibrant city, especially with the interests that we have -- music, cinema, dance -- it's really the place to be in Europe now."
The couple couldn't find as good an investment opportunity in Italy and they say Germany's rising rents and home prices make it a safer place to get a return on their money.
Within a day, the married couple with two kids fell in love with an apartment in their EUR150,000 price range in Berlin's trendiest neighborhood, Prenzlauer Berg.
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