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Munich property boom prompts sale of 'social bonds' to protect renters

Munich

THE German city of Munich, hit hard by soaring property prices over the past decade, is selling a bond to help it offer affordable housing for renters.

The "social bond" is the first of its kind to be issued by a European city, say its arrangers, who expect other municipalities to follow suit.

Proceeds of the sale will be used to buy apartments and rent them out at affordable prices, city officials say. The 120 million euro (S$181 million) security, which matures in 2023 and offers a 0.25 per cent coupon, began trading on Munich's stock exchange on Tuesday.

Munich's Social Democratic mayor lined up the sale ahead of next month's city election in an effort to help end the housing crunch, one of the country's top political issues.

Munich - home to companies like Siemens, Allianz, and BMW - is most at risk of a property bubble among 24 major cities around the world, displacing Chinese-ruled Hong Kong, according to a survey by UBS.

Prices of existing apartments in Munich have risen 189 per cent from the depths of the financial crisis through last year, compared with a 106 per cent rise across Germany, according to Bulwiengesa, which compiles real estate data.

Rents in Munich have also outpaced those across Germany, though less dramatically.

Ultra-low interest rates set by the European Central Bank to prop up weaker European economies have meant that it has never been cheaper to borrow money.

But that has also caused massive investments in property, squeezing out lower- and middle-income renters and prompting a nationwide debate about housing costs.

Activists in Munich are planning a demonstration in March to protest against rising rents, displacement by speculators and real estate companies and forced evictions. A similar event in 2018 drew 11,000 people to the streets.

"We want to stay in our flats, we won't allow ourselves to be driven out," residents sing in a YouTube video promote the event, holding signs like "Why so evil?"

The social bond is on sale at banks in 1,000-euro denominations to retail investors, and city authorities are encouraging them to buy.

"We are giving Munich's citizens the opportunity to make a socially and sustainably responsible commitment to their home city," mayor Dieter Reiter said.

HypoVereinsbank, the German unit of UniCredit and also based in Munich, organised the bond sale along with BayernLB. Antonio Keglevich, head of sustainable finance advisory at UniCredit, expects copycats.

"Other cities and municipalities are currently looking into the topic," he said. REUTERS