House prices in Germany’s capital city, Berlin, rocketed last year, increasing by 20.5% in comparison to 2016.

Berlin’s stable economy, strong population growth, record levels of employment and robust interest from international investors drove the increase, according to the Knight Frank Global Residential Cities Index.

The world’s top 10 hottest property markets.
Image: Statista

The Index, which assesses house price performance of 150 cities across the world, reveals global growth averaged 4.5% in 2017, down from roughly 7% the year before.

This is the first time the report has included German cities. A number of these also bucked the downward global trend, including Hamburg, where house prices grew by 14.1%, Munich, which witnessed a 13.8% rise and Frankfurt, where property prices increased by 13.4%.

Berlin was voted the best city for millennials by Nestpick.
Image: REUTERS/Thomas Peter

Also among the top 10 were the Turkish city of Izmir, where property prices shot up by 18.5% and Reykjavik, Iceland, where prices increased by 16.6%.

Global growth is slowing

Elsewhere, major global cities recorded modest growth, including Chicago (2.5%) and London (2%).

While London house prices, which average over £481,000, are stalling, prices in other parts of the UK are booming. In Edinburgh, for example, house prices increased by 9.5% last year, while Glasgow saw a 7.1% rise.

House prices in Berlin (marked red) have increased by 20.5%.
Image: Knight Frank

While property price increases in many of the world’s major cities will be welcomed by developers and homeowners, the growth could present a major hurdle for those looking to get on the property ladder or looking to live in the city.

Globally, house prices increased by 4.5% in 2017, a slow down from 2016.
Image: REUTERS/Phil Noble

Will high prices put off millennials?

For Berlin this might present a particular problem. The German capital was recently voted as the best city in the world for millennials, beating off competition from 110 cities - including London, New York and Amsterdam.

The rankings, compiled by Berlin-based apartment search engine Nestpick, reveal that Berlin is a hotspot for young entrepreneurs and the top-ranked city in the world for nightlife.

However, if house prices in Berlin continue to increase, young people may be deterred from living in the city. This might also ring true for other German cities, including Munich, where according to the UBS Global Real Estate Bubble Index, house prices have risen 85% in the last 10 years.

According to UBS, a skilled service employee would have to work for eight years to buy a 60 square metre apartment. In Frankfurt, meanwhile, the increase in house prices accelerated during 2016, outperforming what UBS describes as “the countrywide housing boom.”

And in stark contrast to many of the areas surveyed by Knight Frank, other cities have experienced decreases in average house prices. These include: Perth, Australia (-1.7%), Rome, Italy (-2.7%) and Abu Dhabi, UAE (-9.7%).