German residential property prices posted their strongest growth in at least three decades in 2017, according to Fitch Ratings.

The firm reported: “We believe that prices will continue to rise, but the rate of growth will drop as mortgage rates slowly increase. This would be consistent with our view that the risk of a residential housing bubble developing is still limited. Using data from research and consulting firm BulwienGesa, we calculate that residential property prices rose by 8.6% last year.

“Prices have now risen by 60% since 2010 - an unprecedented rate of increase in Germany. Several factors that have supported price growth - low interest rates, robust economic growth and unemployment at a post-unification low - will remain in place in the near term.

“We think the rate of price increases will slow, and forecast 5% growth this year and 3% next year (the same as our forecasts for the Netherlands). This is partly because of rising supply, although this will not fully meet demand, especially in metropolitan areas. More building permits are being issued, but the number is still well below that seen in the mid-1990s, and constraints on available land and labour limit construction growth. Mortgage rates will also rise gradually as the ECB starts to tighten monetary policy. We forecast Eurozone policy rates to rise by 50bp in 2019.”