June 5, 2018 / 1:36 PM / 16 days ago

Germany to toughen laws to stem steep rent hikes

BERLIN, June 5 (Reuters) - Germany plans to strengthen rules to curb steep rent increases in some big cities, justice ministry documents seen by Reuters showed on Tuesday.

Landlords will have to explain to new tenants why they are raising rents more than the agreed limits and tenants will be able to more easily get excessive rent hikes reimbursed. At the same time, a cap on rent increases due to renovations will be introduced.

To tackle concern about soaring property prices and rents, the law was changed in 2015 to limit rent hikes for new tenants in some densely populated areas.

Since then, increases are not allowed to make rents more than 10 percent higher than the local average unless previous tenants had paid more. In other words, landlords were not forced to reduce rents.

However, the rules have proved less effective than desired and political pressure to improve them has mounted.

Justice Minister Katarina Barley, a Social Democrat in conservative Chancellor Angela Merkel’s right-left coalition, is hoping to reassure SPD members who feel strongly about the issue.

One problem is that new tenants often do not know what previous tenants paid or whether renovation work justified big increases.

However, the residential housing association brushed off the plans seen by Reuters as “window dressing” which would not help tenants.

An influx of people to German cities and a shortage of available housing has pushed up rents. Cities with the highest average rents include Munich, Cologne, Stuttgart, Hamburg, Frankfurt and Berlin.

The Bundesbank has warned that real estate prices in German cities may be 15 to 30 percent overvalued, hinting that a property bubble may be developing, a potential reisk for financial stability.

Property consultancy Knight Frank says property prices in Berlin rose 20.5 percent last year in the capital. (Reporting by Hans-Edzard Busemann Writing by Madeline Chambers Editing by Matthew Mpoke Bigg)

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