Ariane Jauss knew the Berlin property boom was getting serious when, a few months ago, she went to the courtroom auction of a repossessed flat.

More than 60 prospective buyers for the 102-square-meter apartment, valued at 86,000 euros, crowded the room. By the time the sale had ended, the flat — in the formerly marginal suburb of Wedding — had been sold for more than double the estimate.

“It was unbelievable,” says Jauss, a property agent in the once-divided German capital for 20 years. “Even two years ago, you would never have seen that.”

Berlin is at the forefront of one of the surprising consequences of the euro-zone crisis: Germany’s property price boom. Long an outlier in Europe for its relatively low levels of home ownership and its sleepy housing market, Germany has caught the property bug to the extent that rises in price in some locations point to a potential bubble, according to some property professionals.

Tracking price rises is difficult, but F+B, a research company, says average sale prices in Berlin are up 23 percent in the past five years.

Jones Lang LaSalle, a property consulting company, estimates that median prices in Berlin have risen even more sharply: 20 percent in the 12 months to June, and 37.5 percent since 2009.

The long-running economic crisis is linked to the property boom in several ways.

Low interest rates to aid recovery have tempted some Germans — who often prefer to rent until relatively settled — to take the step into home ownership. Perhaps just as importantly, the crisis has encouraged many wealthier savers to switch their assets into property from other investments, hoping for a better return or simply more security than with shares or bonds.

Markus Schmidt, of Aengevelt, a property consultancy, says German property is in strong demand from wealthy individuals and family offices. “Security of investment is more important to them at the moment than the amount of return, so they are prepared to pay above-average prices for properties in established top locations,” he says.

Property is also viewed as a better inflation hedge. “The flight into supposedly safer assets such as property is being reinforced by the lack of investment alternatives,” says Stefan Mitropoulos, an analyst at Helaba, a German bank. “Since mortgage rates have also fallen drastically, buying residential property has become affordable for many households.”

Buyers from outside Germany have fueled the market, often seeking a haven from the euro-zone crisis and seeing Germany as a safe bet if the currency union should break apart.

“There are lots of cash buyers coming from other places in Europe,” says Anne Riney, director of the Berlin-Mitte office of Engel & Volkers, the estate agency, citing interest from Italy, Spain and Nordic countries. “People are afraid to have their money in the bank, and Germany is the most stable economy in Europe.”

While the pace of Germany’s overall property price increases has accelerated, it remains moderate in comparison with the booms in countries around the world before the financial crisis. Bank lending for mortgages has risen only moderately. Most professionals reject the idea that Germany is heading into a general property bubble, pointing to several factors that sustain higher prices, including lower interest rates, a robust jobs market and the catch-up from a long period of stagnant prices.

The situation is more ambiguous in Berlin and Germany’s other largest cities such as Hamburg and Munich, where price rises have been much more pronounced. Particularly in Berlin — where the majority of people rent homes — and Munich, prices have risen to a degree “which can only partly be explained by economic fundamentals,” the rating agency Fitch said this year.

Berlin — described by its mayor as “poor but sexy” — and other big cities are probably also benefiting from demographic shifts. An aging and wealthy population is more interested in city living, with services easy to reach, while young people from around the world are attracted by Berlin’s cultural scene, cheap living and burgeoning reputation as a hub for tech start-ups.

Riney says: “Berlin is becoming a lot more multicultural, you hear it on the streets. People believe anything is possible here — like in London 40 years ago. There is lots of room for creativity.”

Some analysts are cautious. Helaba’s Mitropoulos recalls a “remarkable rise” in property prices at the time of German reunification, which he says “paralyzed the German housing market for more than a decade.” It contradicts the “stability thesis” about German property, he says.

Mitropolous also says that, notwithstanding Germany’s prudent mortgage lending practices, refinancing risk is bound to increase. Germany’s average 10-year mortgage rate in the decade up to 2000 was 7.7 per cent.

“Many households that are currently buying housing property with large loans at around 3 per cent could have trouble refinancing in 10 or 15 years, once the interest rate level has normalized,” he points out. “There has been no price increase for years, and now suddenly the music is playing. It is a remarkable development, and we are just at the beginning.”

— Financial Times