2023-10-05 01:44:03
Europe’s real estate dilemma… House prices fall in line with commercial units
House prices in the European Union recorded their first annual decline in nearly a decade, prompting monetary policy officials to warn of the spread of the decline to the housing sector, after the decline was previously limited to commercial real estate affected by the economic slowdown in many countries.
House prices in the 27-country bloc fell in the second quarter by 1.1% on an annual basis, while the decline was greater in the euro area (which includes 20 countries), amounting to 1.7% compared to the second quarter of last year, according to data published by the European Union Statistics Office. Eurostat” on its website, Tuesday evening. The recorded decline in prices is the first since 2014.
The repercussions of raising interest rates extend to the housing sector. After the European Central Bank raised basic interest rates by an unprecedented rate 10 times since last year, to reach 4.5%, banks increased interest rates on mortgages and tightened lending standards to put an end to nearly A decade of rising housing prices in the area.
House prices in the European Union have risen by 50% on average since 2015, driven by years of cheap money and negative interest rates, which saw mortgage rates fall to near zero in many countries, before they began to decline since… last year.
The decline in housing prices was also accompanied by a sharp increase in the costs of construction materials and labor, which led to a freeze in the construction sector in some countries, such as Germany, which was affected by the cancellation of projects and the bankruptcy of real estate development companies.
The largest annual declines in house prices on an annual basis were in the second quarter of the year, according to Eurostat data, by 9.9% in Germany, 7.6% in Denmark, and 6.8% in Sweden, while the largest increases came by 13.7% in Croatia. 10.7% in Bulgaria, and 9.4% in Lithuania.
The decline recorded in Germany is the largest since the beginning of recording price data in 2000, according to the German Statistical Office. The decline was particularly evident in the country’s major cities. In cities such as Berlin, Hamburg and Munich, apartment prices fell by 9.8%, while single and family house prices fell by a further 12.6% year-on-year.
The Vice President of the European Central Bank, Luis de Guindos, said in an interview with the British newspaper, the Financial Times, that it is “not completely surprising” to see German house prices falling by 10%. This is a clear indication that there is some overvaluation of assets, which will be corrected. Goindos added that commercial real estate remained “the ECB’s main concern regarding financial stability, but we also need to pay attention to residential real estate” even though it appears “more resilient.”
The high cost of living also leads many Europeans to refrain from buying housing, which leads to a sharp decline in demand for real estate loans, which imposes pressures that push real estate prices to decline at greater rates during the coming period. Despite the slowdown in inflation rates in Europe in recent months, almost half of Europeans see the cost of living as the most prominent issue facing their country, according to a recent poll conducted by the European Commission.
The survey showed that 45% of participants placed the issues of inflation, high prices, and the cost of living at the top of the main issues, superior to the issues of the general economic situation, environment, climate, immigration, health, and even concerns related to energy supplies, which were placed by only 12% of citizens of participating European Union countries. Being a major issue, it comes in sixth place.
According to Eurostat data, the deterioration in family living standards occurs in about half of the European Union countries, pointing out that the average disposable income in real terms decreased by two percentage points between 2021 and 2022.
In light of the financial pressures that families are exposed to, buying a house is declining in the order of priorities for many of them under these circumstances, which is no longer only reflected in the prices of residential units, but also extends to repercussions on the activities of real estate companies and construction work, which reflects fears of… The widening effects of the global economy. The European Union represents about 18% of total global consumer spending.
According to a report by Bloomberg, the largest real estate owners in Europe that are seeking to sell part of their real estate holdings to reduce their debts have been unable to obtain buyers, due to high interest rates and fears about the future of the market.
The report indicates that a group of major companies in Europe, including the German “Fonvia”, the British “Land Security Group PLC”, the French “Unibil Rodamco” holding company, and the British “Westfield”, have presented plans to sell a group of their assets with the aim of improving their balance sheets. Finance, but high inflation and interest rates hindered selling deals.
Buyers are currently concerned about entering into new financial obligations, especially when real estate values are on the cusp of a significant decline. In Germany, the largest economy in Europe, the year 2023 is marked by remarkable turmoil for many real estate developers, as the sharp rise in interest rates and rising energy and construction costs have pushed a series of developers into bankruptcy, freezing deals and pushing prices down, which recently prompted the industry to appeal Chancellor Olaf Schulz asked for help.
Real estate specialists fear that the contraction in Germany will be deeper than the collapse that occurred in the 1990s, following the rush into real estate in eastern Germany after the fall of the Berlin Wall.
Also in Britain, which left the European Union, house prices fell last September. According to data issued by Nationwide Mortgage Corporation, prices fell by 5.3% on an annual basis, the same percentage recorded in August, which represents the largest annual decline since 2009.
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