Looking for the ideal shelter from the euro zone crisis? Germans think they know where to find it: a thatched beachfront house on the North Sea island of Sylt.
The most coveted streets on the 100 square kilometre island have emerged as Germany's most expensive addresses, in a survey of luxury property that reveals how the frantic search for safe investments by the country's wealthiest people has fuelled dramatic price rises at the top end of the housing market.
Dismal returns from many assets during the financial crisis, and growing doubts over promises by politicians and central bankers to maintain the euro as a cast-iron store of value, are pushing many more of Germany's 800,000-odd millionaires to protect their wealth by buying property, according to a report by Engel & Völkers, a German property agency.
"People have had terrible experiences with other investments - mutual funds or shares. They want something tangible," said Kai Enders, Engel & Völkers' board member for residential property. "Prices are rising faster at the luxury end than in the rest of the market. People perceive that the better the location is, the safer the investment is."
Prices for waterfront properties in Hamburg, the Bavarian Alps and other beach resorts have risen up to 60 per cent in the past three years. Prices in big cities such as Berlin and Munich are also rising quickly: Berlin, where top properties rarely fetched more than €5,000 per square metre before the financial crisis, now has property developments selling for up to €15,000 per sq m, according to the report.
The incipient boom contrasts with the situation in Germany before the financial crisis, when property prices barely budged even as bubbles developed in many other countries including the U.S., U.K. and Spain.
Apart from Berlin, where Mr. Enders says a few Spanish and Greek residents are buying property to try to protect their wealth amid fears of a possible euro zone exit, the German housing market is largely driven by domestic money. Sylt, where prices have reached €35,000 per sq m, has long been a playground for the German elite but is barely known outside the country.
With the Germany economy outperforming the rest of the euro zone, interest in buying property is unlikely to abate. The Bundesbank on Tuesday raised its forecast for economic growth this year and said the upturn should continue in 2013, with another decline in an unemployment rate that is already at a post-reunification low.
German property prices have a long way to go before they reach levels seen in the spots most favoured by the world's wealthiest. Prices in Sylt, for example, are less than half those at the top of the London market.
"There is still a great deal of upward scope if one considers top locations abroad - be it in New York, London or Paris, the Côte d'Azur, on the upmarket ski resorts of the Alps," Mr. Enders said.