The role of the land The role of the land market to provide market to provide financial stability in financial stability in the EU markets the EU markets Professor Elias Dinenis Professor Elias Dinenis Neapolis University Pafos Neapolis University Pafos
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The r ole of the land m arket to p rovide financial stability in the EU m arkets
The r ole of the land m arket to p rovide financial stability in the EU m arkets. Professor Elias Dinenis Neapolis University Pafos. The place of the Land Market in the Economy. The European Property Market. Can we talk about a European Property Market?. House Price Indices 2005 =100. - PowerPoint PPT Presentation
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The role of the land market to The role of the land market to provide financial stability in the EU provide financial stability in the EU
marketsmarkets
Professor Elias DinenisProfessor Elias DinenisNeapolis University PafosNeapolis University Pafos
The place of the Land Market in the EconomyThe place of the Land Market in the EconomyThe European Property MarketThe European Property MarketCan we talk about a Can we talk about a European Property European Property Market?Market?
2
House Price Indices 2005 =100House Price Indices 2005 =100
Source : Eurostat33
The real estate markets are closely linked like the equity markets
The place of the Property Market in the The place of the Property Market in the EconomyEconomy
There are other players of course which are not included here mainly the
governmentgovernment, other institutional investors such as pension funds and
insurance companies and of course the capital markets which interact with
Trading of services, land, space and property based securities
As any other market it is the resource allocation mechanism
It determines the price of property
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The property market and the real economyThe property market and the real economy
Supply Inelastic in the short run
Construction activity a very important component of the economy (percentage of GDP, percentage of fixed investment
Links to other profession
Innovation and new knowledge creation
Infrastructure and productivity
Strong Multiplier effects
6
High property prices create wealth effects
Wealth effects lead to higher consumption
High wages Probably balance of
payments problems Monetary policy
reaction
Number of Units
Price
Spread on Greek BondsSpread on Greek Bonds
Cheap Credit etcCheap Credit etc
Cheap credit created asset bubbles
especially in housing
Increased public sector debt
Wealth effects increased wages
consumption and imports
Spain: Exposure of Credit Institutions to the Property Sector Spain: Exposure of Credit Institutions to the Property Sector (In percent of total loans to the private sector) Property and Banks(In percent of total loans to the private sector) Property and Banks
9
Deficit as % of GDPDeficit as % of GDP
Composition of DebtComposition of Debt
Total Debt as % of GDPTotal Debt as % of GDP
Unit Labour CostsUnit Labour Costs
Trade Deficit as % of GDPTrade Deficit as % of GDP
Construction and current account deficitConstruction and current account deficit
15
GDP growth GDP growth
Unemployment RateUnemployment Rate
Can the property sector kick start a Can the property sector kick start a recovery?recovery?
18
1. Excess Supply of Residential and Commercial Units as a result of overexpansion during the boom years
Spending in construction as a share of GDPSpending in construction as a share of GDP
19
Can the property sector kick start a Can the property sector kick start a recovery?recovery?
20
1. Excess Supply of Residential and Commercial Units as a result of overexpansion during the boom years
2. Recession increases inability to service debt
Commercial PropertyCommercial Property
21
Can the property sector kick start a Can the property sector kick start a recoveryrecovery
22
1. Excess Supply of Residential and Commercial Units as a result of overexpansion during the boom years
2. Recession increases inability to service debt3. New regulations are forcing banks to sell property assets in order
to improve their balance sheets
Real Estate sales Real Estate sales
Sourse: JP Morgan Cazenove European Property Handbook Time for Heavy Lifting – Remain constructive
Banks 231 55.99%
Government disposals 117 28.36%
German 29 7.03%
CMBS 27 6.54%
Asset Trading by listed companies 8.6 2.08%
412.6 100.00%
23
Can the property sector kick start a Can the property sector kick start a recoveryrecovery
24
1. Excess Supply of Residential and Commercial Units as a result of overexpansion during the boom years
2. Recession increases inability to service debt3. New regulations are forcing banks to sell property assets in order
to improve their balance sheets4. Forced sale depress prices
Sales and Depressing EffectSales and Depressing Effect
25
Can the property sector kick start a Can the property sector kick start a recovery?recovery?
26
1. Excess Supply of Residential and Commercial Units as a result of overexpansion during the boom years
2. Recession increases inability to service debt3. New regulations are forcing banks to sell property assets in order
to improve their balance sheets4. Forced sale depress prices5. There is a funding gap
Commercial Property FundingCommercial Property Fundingyear – end 2010year – end 2010
27Source: DTZ Research
Can the property sector kick start a Can the property sector kick start a recovery?recovery?
28
1. Excess Supply of Residential and Commercial Units as a result of overexpansion during the boom years
2. Recession increases inability to service debt3. New regulations are forcing banks to sell property assets in order
to improve their balance sheets4. There is a funding gap 5. Uncertain macroeconomic environment
Macroeconomic OutlookMacroeconomic Outlook
29
Can the property sector kick start a Can the property sector kick start a recovery?recovery?
30
1. Excess Supply of Residential and Commercial Units as a result of overexpansion during the boom years
2. Recession increases inability to service debt3. New regulations are forcing banks to sell property assets in order
to improve their balance sheets4. There is a funding gap 5. Uncertain macroeconomic environment6. Prices do not clear quickly enough to restore equilibrium
Demand Driven DownturnDemand Driven Downturn
31
Can the property sector kick start a Can the property sector kick start a recovery?recovery?
32
1. Excess Supply of Residential and Commercial Units as a result of overexpansion during the boom years
2. Recession increases inability to service debt3. New regulations are forcing banks to sell property assets in order
to improve their balance sheets4. There is a funding gap 5. Uncertain macroeconomic environment6. Prices do not clear quickly enough to restore equilibrium7. Anaemic prices to generate wealth effects
Quarterly House PricesQuarterly House PricesAverage Indices for euro area and EU 27 (2005=100)Average Indices for euro area and EU 27 (2005=100)
33
Quarterly House Prices in Euro Area and EU 27Quarterly House Prices in Euro Area and EU 27% change compared to same quarter of previous year% change compared to same quarter of previous year
34
Can the property sector kick start a Can the property sector kick start a recovery?recovery?
35
1. Excess Supply of Residential and Commercial Units as a result of overexpansion during the boom years
2. Recession increases inability to service debt3. New regulations are forcing banks to sell property assets in order
to improve their balance sheets4. There is a funding gap 5. Uncertain macroeconomic environment6. Prices do not clear quickly enough to restore equilibrium7. Anaemic prices to generate wealth effects