Stocktaking of the Real Estate Market - Snapshot of the available data - Vice Governor Anita Angelovska-Bezoska

Transcription

1 Stocktaking of the Real Estate Market - Snapshot of the available data - Vice Governor Anita Angelovska-Bezoska October, 216

2 Contents Why is the real estate market important for central bankers? Some structural features of the real estate market in Macedonia Dynamics of housing prices Assessing housing supply through the available data Housing demand focus on financing through housing credits

3 Why is the Real Estate Market Important for the Central Banks? Contrasting views in the science of economics and central banking on the relation between asset prices (the real estate prices in particular) and the monetary policy. Different views: MP should ignore the asset prices and focus solely on price stability; MP should take into consideration the asset prices only to the extent that they affect the price stability (orthodox view); MP should be leaning against the wind"; MP should explicitly react to potential asset bubbles (asset prices should be incorporated in the index of inflation) - an extreme view. After the global crisis - reassessment of the orthodox view the financial crisis showed that price stability is not sufficient for financial and macroeconomic stability.

4 Real Estate Market and the Economy MP can affect the real estate prices through the credit channel and the interest rates channel The changes in the real estate prices affect the wealth of economic agents and their ability to consume and borrow - an effect on the economic growth, as well as on indebtedness. If loans are the key driver of the price growth, and are not aligned with the fundamental factors (disposable income) a risk of real estate price bubble and heavy indebtedness of households. The burst of the bubble can have a long-term effects on the financial stability (banks balance sheets) and financial intermediation, especially if the increase is associated with high borrowing hence it can impact aggregate demand, prices and growth. The real estate prices affect the value of the collateral value, the creditworthiness for using housing and other credits and the willingness of banks to provide credit

5 Eased Monetary Conditions in the Pre-Crisis Period Contributed to the Rapid Growth of Real Estate Prices in CESEE In the pre-crisis period, the extremely rapid credit growth funded by high capital inflows contributed to rapid growth of real estate prices - while in some countries, it created bubbles. Downward correction of the real estate prices in the post-crisis period leading to a deterioration of the quality of the credit portfolio and decline in credits 12. Household loans (annual change, %) 15 Real estate prices (index, 21=1) Albania Bosnia Bulgaria Croatia Macedonia Serbia Czech Republic Poland Hungary Q1 25Q3 26Q1 Bulgaria Czech Republic Croatia Hungary Poland Romania Macedonia 26Q3 27Q1 27Q3 28Q1 28Q3 29Q1 29Q3 Serbia 21Q1 21Q3 211Q1 211Q3 212Q1 212Q3 213Q1 213Q3 214Q1 214Q3 215Q1 215Q3 216Q1 Source: Eurostat, the NBRM, central banks of individual countries, National Mortgage Insurance Corporation

6 High owner occupancy ratio in the total housing fund on average 8% for CESEE countries compared to 67% in the euro area as a result of the transition process (privatization and restitution process), of the undeveloped rental housing market, as well as a common way of providing a home and may indicate reduced household mobility and inflexibility of the labor market Homeowners (% of respondents) BG HR CZ HU PL RO AL BA MK RS Inherited Purchased Privatized Other Source: OeNB Euro Survey, fall 214

7 Demand elasticity of homeowners, mortgagers and non-owners Demand elasticity of homeowners, mortgagers and non-owners Question: I strongly prefer to stay in the area of the town/village where I currently live and would cut back on other expenses rather than consider a move. Homeowners Mortgagers Non-owners % % % Bulgaria Croatia Czech Republic Hungary Poland Romania Albania Bosnia and Herzegovina Macedonia Serbia Source: OeNB Euro Survey, fall 214. Macedonia with the highest percentage of residents who have never moved in the group of CESEE countries (29%) Rigidities on the housing market, which can have a negative influence on the adjustments of this segment.

8 The most common type of dwelling a house Perceptions on the quality of the dwelling - positive and in line with the overall perception present in other countries of the region 1 9 Type of housing stock 1 9 Quality of housing stock BG HR CZ HU PL RO AL BA MK RS Apartment Detached house Semi-detached house Farm Source: OeNB Euro BG HR CZ HU PL RO AL BA MK RS Interviewer assessment: Condition of respondentsresidence is excellent and well maintained/ goods, needs minor work Very satisfied with current residence

9 Relatively rapid growth of dwelling prices until the burst of the global crisis mirroring the solid economic growth, positive expectations of the economic agents and easier access to financing. Since 28, the prices are more or less stable partial downward adjustment. Rigidities on the market, or its balance the recent estimations for the period do not indicate misalignment of the price dynamics and the fundamental factors* * Recent developments in house prices in Macedonia, Branimir Jovanovic, NBP Working Paper No Average price of dwellings, per m2 (euros) average price of new dwellings in R.Macedonia (SSO) average price of dwellings in Skopje (NBRM) average price of new dwellings in R.Macedonia (SSO) House price index, cumulative change in % /2 215/28 average price of dwellings in Skopje (NBRM) Source: National Bank of the Republic of Macedonia and State Statistical Office

10 The adjustment of the rent level, more or less mirrors the change in housing prices Housing and rents prices (annual change, in %) Indication for synchronized movements of the different price indicators on the real estate market. Faster growth of domestic prices in comparison to the EU average prices prior to the crisis. Similar downward adjustment in the post-crisis period however, the convergence of prices slows down prices of dwelings in Skopje - calculations of NBRM (y/y changes, in %) rents index y/y change in % Relative prices -domestic house index to EU average Source: National Bank of the Republic of Macedonia, State Statistical Office and Eurostat

11 Housing supply Solid growth of housing supply over the last 13 years Housing supply 7 6 Total housing stock increased by 1% in 215 as compared to Average growth rate of completed new dwellings in the period of 3% 7 68 Estimated number of dwellings* Number of completed dwellings (right scale) Number of issued building permits - buildings (right scale) * The assessment has been made by using the total number of dwellings in R. Macedonia according to the Census in 22 and the data on the number of completed dwellings.

12 Housing Supply Yet the growth slowed down Estimated number of dwellings 74.6 Source: SSO and NBRM calculations Estimated number of dwellings (right scale) rate of change, % Completed and uncompleted dwellings Number of completed dwellings Number of uncompleted dwellings indicating potential saturation on the market?

13 Housing Supply Housing supply grew at a different pace in various regions the highest growth is in Skopje and in the Polog Regions (cumulative growth of 1% and 11%, respectively over the period). 112 Housing stock in different regions (index, 26=1) 1.15 Housing stock to population ratio in different regions Republic of Macedonia Vardar East Southwest Southeast 1.1 Republic of Macedonia Vardar East Southwest Southeast Pelagonia Polog Northeast Skopje 1.5 Pelagonia Polog Northeast Skopje Source: SSO and NBRM calculations. In all regions the growth of housing supply is higher than the growth of the population (housing supply to population ratio higher than 1) over-supply of dwellings or significant wealth effect further research needed

14 Demand factors The households income and the affordability of purchasing real estate on a rising path. The price of substitutes rent to price ratio bellow, but gravitating around 1 - suggesting not much of a difference in renting or owning a dwelling. The credit availability - increased. The expectations of households are positive Average housing price for square meter in Republic of Macedonia (share of disposable income) and disposible income (per capita, in denars) disposible income per capita (right scale) average price per m2 in Macedonia/disposible income per capita (%) Rents Index/House Price Index 2, 18, 16, 14, Source: SSO, the NBRM and NBRM calculations.

15 Constant Rise in Financial Intermediation The intermediation was growing rapidly until the crisis, at low initial conditions, and amid solid economic growth, capital inflows into the economy, growth of savings in the banking system and positive expectations of the agents. The extremely rapid growth of household lending, as a propulsive segment - a natural process of convergence yet, assessing risks to financial stability, in 28 NBRM undertook macro prudential measures to slowdown the lending to households. The emergence of the crisis - a natural constraint on lending, which still continues to grow, but at a more moderate pace. 6. Share of total loans in GDP, in % household loans total loans VIII.216 Source: the NBRM.

16 Constant Rise in Financial Intermediation Financing of households through loans - with high and growing contribution to the growth of total loans in the last period. However, a comparative analysis of households' indebtedness indicates room for further growth in the financing of the households. Total loans of households and enterprices Indebtedness of households, in % of GDP contribution in the annual change of total loans, in p.p households households (right scale) enterprices VIII.216 enterprices (right scale) annual change, in % Romania Armenia Turkey Macedonia Austria Malta Italy Luxemburg Belgium Greece Spain USA Sweden Portugal Canada Australia Norway Denmark United Kingdom

17 Monetary Policy Underpinning the Lending Activity Monetary reactions conditioned by the exchange rate regime. Monetary tightening during the global crisis in response to pressures on the exchange rate, given decline in inflows from exports and growing demand for foreign currency in times of uncertainty - also during this year due to pressures caused by the political crisis. Apart from these "episodes", monetary policy is mostly accommodative and together with some of macro-prudential measures, provides support to lending activity. 14. Interest rates, in % VIII.216 interest rate on denar credits interest rate on CB bills

18 Increase in housing lending which until 29, is slower than the growth of total household loans. After 29, the housing loans increased at a faster pace than the total household loans Total households credit and housing credits (cumulative change, times) 28/ /29 Total households credits Housing credits Since 29 there is a slight increase in the share of housing credits in the total household loans. Steady increase in the number of received and approved credit applications the ratio of which is on a rising path. millions of denars Approved and received loan applications of households Received Approved Share in % Source: the NBRM, based on data submitted by banks

19 Constant relaxation of the housing credit terms, except for the acute phase of the crisis Supply of Housing Credits (net-percentages) driven by the strong competition among banks, the relatively low share of bad placements and banks positive expectations while the risks for foreclosure are perceived by banks as a constraining factor Determinants of Housing Credit Supply Competiiton Banks' expectations Risk of colateral execution Source: National Bank of the Republic of Macedonia, Lending Survey.

20 Foreclosed Residential Properties Foreclosed residential properties have an average share of around 1% in the total foreclosed assets... while the foreclosed residential properties sold in the last three years remained in the banks balance sheet around 4 years, on average 9 Foreclosed assets (total) and foreclosed residential properties 14 Average period of sale of foreclosed residential properties millions od denars in % Foreclosed residential properties Foreclosed assets Share of foreclosed residential properties in total foreclosed assets (right scale) Source: National Bank of the Republic of Macedonia, based on the data submitted by banks.

21 Method of Sale of Foreclosed Assets and Foreclosed Residential Properties Most of foreclosed assets is sold on credit, less in cash - while the largest part of foreclosed residential properties is sold in cash. in % Method of sale of foreclosed assets Cash Credit Leasing Other in % Method of sale of foreclosed residential properties Cash Credit Leasing Other Source: NBRM, based on the data submitted by banks.

22 Relaxation of interest and non-interest credit terms Downward adjustment of the interest rates on the newly approved housing credits (the average weighted interest rate in 215 equals 3.9%). No major changes in the loan to value ratio, nor in the collateral requirements, except at the beginning of the crisis. 11 Interest rates of newly approved housing credits, by type of interest rate 6. Credit Terms for Housing Credits variable interest rate adjustable interest rate fixed interest rate weighted average interest rate Interest Rate Colateral Requirements Loan to Value Ratio Maturity Commissions Source: NBRM, based on the data submitted by banks and the Lending Survey.

23 However, the average weighted contractual maturity of the newly approved housing credits is increasing (in 215 reaches 19.2 years), due to the growth in credits with contractual maturities of over 2 years Amount of newly approved housing credits, by contractual maturity > 25 years years 16-2 years years 6-1 years - 5 years weighted average contractual maturity (right scale) 1 Source: NBRM, based on the data submitted by banks.

24 Upward trend of housing credit demand, interrupted only at the beginning of the global crisis. Demand for housing credits is supported by borrowers positive expectations for the real estate market, their general confidence and the savings effect Housing credit demand (net-percentages) Determinants of Demand for Housing Credits Perspectives on the real estate market Confidence Savings Source: the NBRM, Lending Survey.

25 Conclusion As other CESEE countries, Macedonia faced a rapid growth in property prices in the pre-crisis period, which is largely in line with fundamentals; Moderate downward correction in the post-crisis period; Loosened monetary conditions contribute to eased credit terms, for housing loans inclusive; Favorable credit terms together with the growth of disposable income contribute to solid growth in demand for housing credits; Supply of residential properties increased, although the growth gradually decelerates, indicating possible saturation on the market; However, the real estate market in RM is an important, but relatively less explored area, which impedes us to derive more firm conclusions.