The German property market is still sluggish and, reportedly, the country is unlikely to attract the external investment needed in that market until the economy in general starts to perform better.
German house prices only rose by 2 per cent in 2001 and this was following a prolonged period of price stagnation in the latter 1990s. However, the price rises are now more evenly spread between the East and the West.
The price rises are thought to be quite brittle due to the fragile state of the labour market. The rented sector has shown a similar trend to the owner-occupier market. Rents have been rising, although not high enough to take an increased share of income.
Economic activity rose 0.7 per cent in 2001, which was the slowest rate of growth since a 1.1 contraction in 1993, although there are now some positive signs from the manufacturing and exports sectors.
Milan Khatri, chief economist at RICS, said: "The German economy has been through a difficult period in recent years, but is now showing initial signs of recovery. This recovery is being driven by the export and manufacturing sectors and unemployment may have peaked. Companies will want to see proof of a sustained export demand before expanding the workforce significantly, with a turnaround in the labour market essential to lift property market activity and prices.
"The housing and commercial markets have mirrored the economy, both struggling to overcome a prolonged period of stagnation. But without those traditional economic tools of control available to policy makers, such as interest rates, any economic adjustment will require continued wage moderation."
