When Angela Merkel became Germany's first woman chancellor last year, her first task was to persuade people that the economy could again return to good health.

Improvements have been significant already and there is a great deal of optimism surrounding the property market in particular. Stuart Law, managing director of Assetz, notes that Germany is set to become one of Europe's primary property hotspots in the coming years.

Admittedly, after ten years of negligible house price increases, the property market will not be transformed overnight, but there is a strong feeling in Europe that the potential is there to be unleashed.

Only 40 per cent of Germans actually own their own home, which compares to approximately 80 per cent in the UK and Ireland. As the German economy begins to grow again, many are expecting this figure to rise considerably, providing a new market for property investors in the country.

In Berlin, only 14 per cent own their own home and so property investment in the capital has been tipped as one of the most obvious hotspots.

It must be noted that growth in the German economy actually accelerated at a slightly slower rate than had been anticipated in the first quarter of 2006 and so there is still some way to go.

Gross domestic product (GDP) increased by 0.4 per cent from the fourth quarter of 2005, according to the Federal Statistics Office, while many analysts had been expecting it to be in the region of 0.6 per cent.

Nonetheless, the improvement is still marked and there are high hopes that the gradual improvement will pick up speed in the remainder of the year.

Recent figures from Knight Frank estate agents showed that Germany was at the wrong end of a table for annualised house price growth in the first quarter of this year.

Despite this, Liam Bailey, Knight Frank's head of residential research, said that he fully expected Germany to be one of the countries to watch in the next couple of years, with house price growth set to improve dramatically.

"We believe that stronger than anticipated economic performance will lead to above average performance in Germany in 2007," he said.

In addition to the excitement surrounding the German property market, Knight Frank has predicted huge growth in Eastern Europe. Bulgaria in particular has attracted a significant amount of interest in recent years but Mr Bailey anticipates that the entire region will enjoy strong house price growth next year.

"The process of 'levelling up' in Eastern Europe will carry on apace over the next five years with average prices in most of these states coming close to the EU average," he commented.

With property prices still low in Germany and in Eastern Europe, both are likely to see an influx of investors in the coming months, as people look out for the most impressive capital appreciation.