Transcript eres2009_179.content

Estonian real estate market – the
day after housing boom
Angelika Kallakmaa
Ene Kolbre
Tallinn University of Technology
According to the data of Global Property Guide
Estonia was 2006 the leader of the
global house price boom
Estonia was followed by Denmark,
Norway and Ireland
Tallinn University of Technology
Housing price bust
Equity price busts occurred on average every 13 years,
lasted for 2 1/2 years, and were associated with GDP
losses of about 4 percent of GDP
Housing price busts were less frequent, but lasted nearly
twice as long and were associated with output losses
that were twice as large, reflecting greater effects on
consumption and banking systems, which are
typically heavily exposed to real estate
(IMF World Economic Outlook, April 2003, When Bubbles burst)
Tallinn University of Technology
Economic indicators and forecast
2006 2007
2008 2009 2010
2011
Real GDP
growth (%)
10,4
6,3
-3,6
-12,3 0,2
4,7
Real private
consumption
growth (%)
12,8
7,8
-4,0
-9,5
-1,7
4,7
Unemployment
rate (%)
5,9
4,7
5,5
12,8
13,7
12,5
Real wage
growth (%)
11,6
11,6
3,3
-4,7
-3,2
3,7
Nominal credit
growth (%)
51,6
30,2
7,3
-7,5
-0,5
4,9
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Average Monthly Gross Wages and
Salaries, EUR
2002
2003
2004
2005
2006
2007
2008
2009
year
393
430
466
519
604
725
819
1Q
366
405
431
475
550
660
788
776
2Q
406
442
474
530
609
738
850
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3Q
374
411
449
498
580
697
800
4Q
416
455
492
555
653
784
838
Problem for households
House or flat is mostly the largest
investment of Estonian households
Increasing house prices result in greater
housing wealth and also made it
possible to borrow more using housing
wealth as collateral
Tallinn University of Technology
Stock of household loans and housing
loans (1997- 2008, EEK mln)
140000
120000
80000
household loans
60000
housing loans
40000
20000
0
31
.1
2.
9
31 7
.1
2.
9
31 8
.1
2.
9
31 9
.1
2.
0
31 0
.1
2.
0
31 1
.1
2.
0
31 2
.1
2.
0
31 3
.1
2.
0
31 4
.1
2.
0
31 5
.1
2.
0
31 6
.1
2.
0
31 7
.1
2.
08
mln EEK
100000
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Interest rate on households housing loans
1997-2008
Interest rate on households housing loans
14,00%
12,00%
10,00%
8,00%
EEK
6,00%
DEM
EUR
4,00%
2,00%
0,00%
31.12.97
31.12.99
31.12.01
31.12.03
31.12.05
Tallinn University of Technology
31.12.07
• Total volume of housing loans has increased as a
•
result of low interest rate and tight competition in
banking sector
Econometric model what was constructed 2007 by
using 8 different economic indicators for describing
their influence to price of 2-room apartment in
Tallinn shows that only 2 of them – money supply
and interests rate were significant indicators to price
changes of housing market in Estonia (Kolbre,
Kallakmaa 2007)
Tallinn University of Technology
Credit Growth in Central and Eastern Europe:
Trend, Cycle or Boom? 2006
Gergely Kiss, Márton Nagy, Balázs Vonnák
• “The estimations show that large part of the credit
•
•
growth in new member states can be explained by the
catching-up process, and, in general, credit/GDP
ratios are below the levels consistent with
macroeconomic fundamentals
However, in some countries credit growth is
significantly faster than what would be justified along
the equilibrium path
The study finds that credit growth in Latvia and
Estonia can be considered as potentially the most
risky, beyond any plausible adjustment”
Tallinn University of Technology
Loans granted by groups of customers
(1997-2008, EEK m)
140 000
120 000
mlnEEK
100 000
80 000
commercial
households
60 000
40 000
20 000
0
1997
1998
1999
2000
2001
2002
2003
2004
2005
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2006
2007
2008
Overdue loans and overdue housing loans
(1997-2008 annual basis, 2009 monthly basis)
8 000,0
7 000,0
5 000,0
Overdue amount of
loans
4 000,0
3 000,0
Overdue amount of
housing loans
2 000,0
1 000,0
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30.04.09
31.03.09
28.02.09
31.01.09
31.12.08
31.12.07
31.12.06
31.12.05
31.12.04
31.12.03
31.12.02
31.12.01
31.12.00
31.12.99
31.12.98
0,0
31.12.97
Mln EEK
6 000,0
Don't worry – left and right scales are
different! (1997-2008 annual basis, 2009 monthly basis)
Housing loans and amount of the housing loans that are overdue
700
600
80 000
500
60 000
400
300
40 000
200
20 000
100
0
0
31
.12
31 .97
.12
31 .98
.12
31 .99
.12
31 .00
.12
31 .01
.12
31 .02
.12
31 .03
.12
31 .04
.12
31 .05
.12
31 .06
.12
31 .07
.12
31 .08
.01
28 .09
.02
31 .09
.03
30 .09
.04
.0
9
Housing loans (mln EEK)
800
100 000
Amount of housing loans
Amount of the housing loans that are overdue
Tallinn University of Technology
Overdue housing loans (mln
EEK)
900
120 000
Resent developments
• The volume of loans overdue by more than 60 days
•
•
increased in April (making up 5.2% of the portfolio.
In March the respective indicator was 4.5%)
Nearly 75% of the loan portfolio quality deterioration
in April derived from the corporate credit sector;
households have so far been more successful in loan
servicing
Thus, loans overdue by more than 60 days accounted
for 6.4% of the credit issued to enterprises and 3.9%
of the credit to households
Tallinn University of Technology
Access to credit and credit constraints (1)
•
•
•
•
Unemployment rate is growing
Wage increase has stopped
No more unrealistic expectations
Housing living cost are growing (thermal
energy etc)
Tallinn University of Technology
Access to credit and credit constraints (2)
• No more “customer-friendly” credit conditions
• Parent banks might have difficulties in raising
external funds because of situation in global
financial markets
This is supply-side constraints - less loan money
for the Estonian market
Tallinn University of Technology
Despite of global finance crisis
Estonian Banking system is still stable
• The average capital adequacy of the banking
sector stayed at the level of 22% in April 2009
• Banks have made remarkable provisions
during this year to avoiding possible loan
losses
• The capitalisation of banks continues to be
sufficient to cope with the forecasted loan
losses
Tallinn University of Technology
The accelerated price increase in housing sector
and high demand was mostly driven by:
• High economic growth leading to an increase
in disposable income
• The rapid expansion of credit to the private
sector
• A low ratio of living-space per capita and
deteriorating housing stock
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Real estate purchase and sales
transactions 1997-2008
Notarial real estate purcahse and sale transactions in Estonia
during 1997-2008
80000
70000
60000
value
50000
number of transactions
40000
value of transactions (EEK m)
30000
20000
10000
0
1997
1999
2001
2003
2005
2007
ye ar
Tallinn University of Technology
Housing market
• Prices of apartments started to rise rapidly in 2005
•
•
•
•
when the annual price rise was over 50%.
The growth rate of transactions started to slow down
in the middle of 2006.
The price rise turned to decline in 2007 when the
housing prices reached the maximum
Average price fall since spring 2007 has been 40-45%
During 2008 prices of apartments in Tallinn dropped
30%
Tallinn University of Technology
Average Purchase-Sale Prices per Square Metre
of a 2-room Apartment and number of
transactions in Tallinn, EEK
EEK/
sqm
Average
price
Number of
transactions
Tallinn University of Technology
Housing market today
• In 2004−2006 demand for housing was greater
than supply
• Since the beginning of 2007 supply started to
grow rapidly
• 2008 supply has been greater than demand
• Approximately 1700 vacant apartments are in
Tallinn on the market today as a result of the
rapid growth of the volume of new
developments
Tallinn University of Technology
Tobin’s q of the Estonian and Tallinn
apartment market
2,50
2,00
1,50
1,00
0,50
0,00
2000
2001
2002
2003
2004
Estonian apartment market
2005
2006
Tallinn apartment market
Tallinn University of Technology
2007
2008
Average gross monthly wages and average
price for a square metre of a two-room
apartment in Tallinn (EEK)
Average gross monthly wages and average price for a square metre of a tworoom apartement in Tallinn (EEK)
30000
Gross
Wages and
Salaries
Price per
1m2
25000
EEK
20000
15000
10000
5000
0
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
Ikv
Tallinn University of Technology
Number of square meters of a two-room apartment in
Tallinn obtainable for average gross monthly wages
Number of square meters of a two-room apartment in Tallinn obtainable for
average gross monthly wages
1,2
1,0
0,8
0,6
0,4
0,2
0,0
2000
2001
2002
2003
2004
2005
2006
Tallinn University of Technology
2007
2008
2009
Ikv
Housing affordability
• Households budgets are tighten
• Households living costs are raised (especially
thermal energy)
• There is one group of households who can't
afford to buy a new house or flat
• And other group who might be have
difficulties to repay their home loans
Tallinn University of Technology
Conclusions (1)
• In Tallinn or in its close vicinity no new major
projects are expected to be launched within the
next year or two
• The bottom of the Estonian real estate market
is approaching, although the shape of this
bottom is expected to be flat, which means a
long vegetating in all economy
Tallinn University of Technology
Conclusions (2)
• Despite of global finance crisis Estonian Banking
•
•
•
•
system is still stable
Most of housing loans was taken in economic growth
conditions and full employment expectations
Households with repayment difficulties should sell
their property or change it for affordable variant
To build up the “building society” system
The government should disclaim for the possibility to
deduct the housing loan interest from taxable income
Tallinn University of Technology
Thank you!
Tallinn University of Technology
Authors
• Angelika Kallakmaa
• School of Economics and Business Administration,
•
•
•
•
Tallinn University of Technology
e-mail: [email protected]
Ene Kolbre
School of Economics and Business Administration,
Tallinn University of Technology
e-mail: [email protected]
Tallinn University of Technology