High demand and a low supply of property is making property markets in German cities more attractive to foreign investors, particularly among buyers from southern Europe, new research suggests.

The Germany 2017 report from Knight Frank points out that in Berlin, for example, the city’s population grew by 40,000 in 2015 and household numbers are forecast to increase by another 74,000 between 2015 and 2020 but new home building is not keeping pace.

The report estimates that the city needs to build 20,000 new homes each year to satisfy new and pent-up demand and although building rates almost doubled between 2012 and 2015, only 10,722 new homes were brought to the market in 2015.

Knight Frank also explains that German cities still have some of the lowest home ownership rates in the world and while numbers are rising, this is in part due to the European Central Bank’s historically low interest rates, but with only 15% of homes classified as owner occupied (21% in Munich) the Berlin market is attracting overseas landlords.

Properties in Berlin rarely have lengthy void periods and the technology/start-up industry in the city is attracting young entrepreneurs (more on that later). All of this is resulting in strong demand for rental properties and a stable property market where numerous safeguards have been put in place to stop a price bubble forming.

Kate Everett-Allen, head of international residential research at Knight Frank, says: “Mortgage lending is now highly regulated. Capital gains tax is charged on all properties sold within two years of purchase, or in the case of buy to let homes, 10 years, to discourage speculation.”