BERLIN - The German construction sector reported a sharp increase in sales last year and may actually benefit in some areas from the current financial market crisis, the industry federation said on Tuesday.

German builders saw a nominal 9.5-% increase in sales in 2011, equivalent to a rise of 6.5% when taking inflation into account, the federation said in a statement.

And while there was still some uncertainty in commercial and public-sector construction, "residential construction will benefit from the capital market crisis," said federation president Thomas Bauer.

"Persistent uncertainty on the financial markets will divert investment into residential property."

"People are scared of inflation and that's pushing them into property," Bauer told a news conference.

Building permits in major cities such as Berlin, Frankfurt, Hamburg and Munich for example, had jumped by 40% year-on-year over the first 10 months of last year, he said.

Interest was not restricted to German investors, the federation continued. There was every indication that investors in southern Europe, fearful of a break-up of the eurozone, had "rediscovered the German real estate sector," it said.

Although the increase in sector-wide sales last year was the biggest since 1994, "the construction industry cannot ignore that the economic risks for 2012 have greatly increased," the federation cautioned.

"Last month, around one firm out of every three was predicting a deterioration in business in the first half of 2012," it said.

Nevertheless, the slowdown would not be dramatic and the industry was projecting a nominal sales increase of 2.5% this year, which would be equivalent to a real or price-adjusted rise of 1.0%.

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