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European mortgage markets continue to boom in 2004 European Mortgage Federation October 12th 2005
In the latest release of its annual publication on mortgage markets due out later this month, the European Mortgage Federation will confirm the remarkable progress of Europe’s housing and mortgage markets over the past few years. Speaking yesterday at the annual meeting between the European Central Bank and the European Mortgage Federation, Annik Lambert, Secretary General Designate of the European Mortgage Federation commented:
“The prolonged upsurge in mortgage lending throughout Europe continues to show the importance of mortgage credit as a means to achieving home ownership. Especially in the EU’s new member States borrowers are discovering the benefits that secured lending can bring in terms of lower rates, longer maturities and the ability to release capital from their homes.”
Key points to note:
Retail deposits are still the main funding source in the EU. However, housing loans as a percentage of deposits by households in the Euro zone grew from 43% in 1997 to 64% in 2004. Other funding sources such as MBS or covered bonds are therefore growing in importance.
Largest EU wage increases in Latvia, Lithuania and Estonia Total hourly labour costs1 in the whole economy2 of the euro-zone3 grew by 2.3% in nominal terms in the second quarter of 2005 compared to the second quarter of 2004. In the first quarter of 2005 the increase was 3.0%4. In the EU255 the annual rise was 2.6% in the second quarter of 2005, compared to +3.4% in the previous quarter. Among the Member States for which data are available in the second quarter of 2005, the smallest annual rises were recorded in Germany (0.8%), Malta (1.1%), Poland (1.8%), Portugal (2.5%), France and Sweden (both 2.7%). The largest increases were observed in Latvia (14.2%), Estonia (10.4%), Slovakia (7.6%), Slovenia (7.2%) and Lithuania (7.0%). In industry, hourly labour costs rose by 2.3% in the euro-zone and by 2.2% in the EU25. Among the Member States for which data are available, annual changes ranged between +0.8% in Germany and +15.3% in Latvia. These figures come from Eurostat, the Statistical Office of the European Communities.
Property loans soaring in new, future EU member states Property loans are on a runaway course in new EU member states in former communist east and central Europe, and in EU aspirant countries, a report published at an economic forum in Poland by Italy's UniCredit bank showed. "The annual increase of property loans was in the region of 43 percent in 'new Europe' between 2000 and 2004, versus eight percent in countries in the eurozone," said Andrea Moneta, head of UniCredit's New Europe division. He was presenting a report at the 15th Economic Forum, which focuses on the economies of eastern and central Europe and the former Soviet Union. The study was compiled with information gathered in eight new European Union members in central and eastern Europe -- the Czech Republic, Estonia, Hungary, Latvia, Lithuania, Poland, Slovakia and Slovenia -- as well as future members Romania and Bulgaria, and hopefuls Croatia and Turkey. "Consumer loans in these countries rose 12 percent (between 2000 and 2004), against two percent in the eurozone," Moneta said. The increase in lending volume was expected to continue, especially in the light of the low levels of indebtedness of households in the 12 countries studied. According to UniCredit's report, debts carried by households in 'New Europe' rose from seven percent of GDP in 2000 to 12 percent in 2004. In the eurozone, household indebtedness rose from 46 percent to 50 percent during the same period. Higher disposable incomes in New Europe will also help to fuel the credit boom, which was unlikely to result in "a threat from a macroeconomic point of view," Moneta said. He also ruled out the prospect of the property market peaking in the near future.
Britons look abroad to make a profit on property Britons are buying second homes abroad in growing numbers, with almost 250,000 households having invested overseas, according to the Office for National Statistics. The total jumped by 20 per cent last year, the largest surge in purchases for a decade, as buyers rushed to snap up bargains in warmer climes. Martin Ellis, chief economist at Halifax bank, the UK's largest mortgage lender, said it meant people had become more aware of the global property market. "We've had this explosion in buy-to-let in the UK and it was getting harder and harder to find places where you find big returns in the UK, which has meant that people have looked elsewhere," he said. "[And] the increase in housing equity has given people the ability to buy abroad and made them realise they can have their dream home." He said the surge was also probably related to the poor performances of other investments such as shares and bank accounts in recent years. Nick Clark, managing director of the Property Investor and Homebuyer Show North, being held this month, said Spain, France and Florida were firm favourites, but more were looking further a field to long-haul destinations such as South Africa, New Zealand and even Brazil. "In fact people will look at any country where prices are generally cheap and rising," he said. "This is in part a reaction to the consensus that areas like the 'costas' have seen the top of their market, and the trend among investors is to be the first to call the next hot spot, however distant its shores or its potential may be." He said half of the overseas property specialists at his exhibition in Manchester are selling in countries from Spain to South Africa and Bulgaria to Brazil. "The dream of owning a holiday home in the sun is increasingly achievable for many homeowners who have seen their own property rise steeply in value," he said. "As the UK property market has slowed to a steadier pace, investors are looking for alternatives overseas where younger markets can still provide impressive capital gains and rental yields." A survey of property investors by analysts at the Wriglesworth Consultancy last month showed three-quarters were planning to buy property overseas this year, compared with just 46.2 per cent planning to buy a UK property. The value of second homes abroad has more than doubled in the past four years from £11.1bn in 1999-2000 to £23bn in the latest year, the ONS said. Spain is the most popular place for Britons to buy a second home, with 69,284 properties owned there, accounting for more than a quarter of the total in number and nearly a third in value. A separate report from Datamonitor says more than a third of the tourist housing stock in Spain is owned by Britons. Celebrities who own second homes in Spain include Sir Richard Branson, Lord Lloyd-Webber and Michael Douglas and Catherine Zeta Jones. France was also popular, with 51,322 properties owned by people from the UK collectively worth £5.6bn, followed by Portugal and Italy where 5,132 and 2,566 homes are owned respectively. Overall, nearly two-thirds of second homes abroad are in Europe, with 6 per cent in the US and the rest in countries such as Australia, New Zealand, Canada, India, Pakistan, South Africa, Sri Lanka and the Caribbean. The ONS estimates that during 2003-04 people in the UK received rental income totaling nearly £190m from foreign property.
Newest EU members underpin growth The European Union's newest members will bolster Europe's economic growth in 2005, according to a new report. The eight central European states which joined the EU last year will see 4.6% growth, the United Nations Economic Commission for Europe (UNECE) said. In contrast, the 12 Euro zone countries will put in a "lacklustre" performance, generating growth of only 1.8%. The global economy will slow in 2005, the UNECE forecasts, due to widespread weakness in consumer demand. Mixed picture It warned that growth could also be threatened by attempts to reduce the United States' huge current account deficit which, in turn, might lead to significant volatility in exchange rates. UNECE is forecasting average economic growth of 2.2% across the European Union in 2005. However, total output across the Euro zone is forecast to fall in 2004 from 1.9% to 1.8%. This is due largely to the faltering German economy, which shrank 0.2% in the last quarter of 2004. On Monday, Germany's BdB private banks association said the German economy would struggle to meet its 1.4% growth target in 2005. Separately, the Bundesbank warned that Germany's efforts to reduce its budget deficit below 3% of GDP presented "huge risks" given that headline economic growth was set to fall below 1% this year. Publishing its 2005 economic survey, the UNECE said central European countries such as the Czech Republic and Slovenia would provide the backbone of the continent's growth. Smaller nations such as Cyprus, Ireland and Malta would also be among the continent's best performing economies this year, it said. The UK economy, on the other hand, is expected to slow in 2005, with growth falling from 3.2% last year to 2.5%.
Going for a song in the Eastern block If you have always wanted a pied-à-terre in Provence, but never quite had the budget to achieve it, help may be at hand. With derelict farmhouses and villas at rock bottom prices increasingly difficult to find in more traditional locations, a new breed of second home destination is taking their place. On 1 May next year, Hungary, Poland, the Czech Republic, the Slovak Republic, Slovenia, Latvia, Estonia, Lithuania, Malta and Cyprus will all become part of the European Union. In theory, this means any EU national will be able to buy property in these countries, as well as live and work in them. Research by the Royal Bank of Scotland has revealed that buying a second home abroad was the main wish-list achievement for British people in 2003. And with greater wealth created by house equity encouraging thousands of us to spend more time in sunnier climes, buying overseas has never seemed so attractive. Providing you are willing to sacrifice the luxury of more tried and tested locations, these incoming EU countries should offer excellent value for money. On the whole, membership is expected to spur growth in the joining countries, which should ultimately mean rising property prices. Along with the increasing availability of cheaper flights, this should encourage the British to look at these markets in search of a bargain home overseas. Hilary McDowell, managing partner of the Prague branch of law firm CMS Cameron McKenna, says prices are already beginning to rise in the Czech Republic: 'Residential prices are increasing as the Czech people become more affluent. And most overseas investors think prices will continue to rise, as there is bound to be input from the EU into Prague.' Poland is also starting to attract interest. Large detached houses can be bought there for as little as £99,350 through www.immobel.com. However, Samantha Beams of CMS Cameron McKenna says: 'In Warsaw, there is no real indication yet that residential property prices will be going up, because there have been a huge number of new houses and apartments built in the past couple of years.' Overseas investors remain a niche sector of the market in Hungary, where property prices have soared due to a recent government subsidy on mortgage interest rates. The housing boom which resulted is now beginning to settle and, as the market is still driven primarily by internal demand, a further price boom is not expected immediately upon accession. A top-floor apartment with two terraces and views to the river and parliament in Budapest is available through www.casaro-hungary.com for £206,500. But so far the southerly states of Cyprus and Malta have aroused most interest in the British. Foreign property ownership is already well established in both countries, but their joining the EU is expected to make them even more attractive. Phil McHugh, senior executive dealer at commercial foreign exchange company Currencies Direct, deals with home buyers in Cyprus. He says there has been a surge of interest there and in some areas property prices have already more than doubled. 'We have noticed more people buying there over the past six months,' he says. 'They see it as a good investment. And as the European Bank invests in the development and infrastructure, property prices will increase.' Tony Gane, of property sales company Headlands, agrees: 'Property prices in Cyprus are lower than in other European countries, but the prospect of EU membership in 2004 has already triggered a property boom. Prices have jumped by as much as 80 per cent in areas of eastern Cyprus such as Protoras.' In Protoras a two-bedroom apartment can be bought from £55,000 and a two-bedroom detached villa from £112,000 through www. headlands.co.uk. And a one-bedroom town house with sea views in the city of Senglea, Malta, is on the market for £45,000 through www.homesofquality.com.mt. Yet, although the incoming EU countries have had to make legal changes so that EU laws can be integrated into their systems, many details of foreign property law and customs are unlike British laws and the issues of tax, inheritance and ownership can still vary between countries. In the Czech Republic, for example, any foreigner buying a property must establish a Czech company to buy it and become a director of that company. And although the property buying process in Cyprus is very similar to that in the UK, there is currently a restriction of 4,000 sq m on the size of freehold ownership a non-Cypriot purchaser can buy. The best way to proceed is to take a holiday there and decide if there are the amenities you are looking for. Talk to the locals and people who have bought second homes already. Know your financial situation inside out and make the usual inquiries to financial advisors, banks and building societies. Use an independent local lawyer with a good command of English whom you can trust to deal with foreign regulations and use an established local estate agent who is a member of the Federation of Overseas Property Developers, Agents and Consultants. Then, providing you are willing to sacrifice Provence for Poland, you could well disprove the theory that buying abroad is the province of the very rich.
Next stop for the property boom
The insatiable British property boom is spreading along the Danube to the shores of the Black Sea with thousands of bargain hunters from the UK snapping up cheap flats, houses and country estates. Investors made rich from buy-to-let schemes in Britain are now heading to eastern Europe in the hope that the accession into the EU of countries such as Hungary, Poland, Slovakia and Slovenia will spark rapid property price rises.
Europe: Reaping the European Union harvest AFTER grumbling furiously about dangers to their sovereignty and their social values when they joined the European Union in May, Poles are discovering themselves now to be among the Union's most loyal citizens. Some three-quarters say they are happy with EU membership--and no wonder. In its first eight months of membership Poland got some euro2.5 billion ($3.4 billion) from the EU budget, or roughly twice what it paid in, according to the newspaper Rzeczpospolita. Rural incomes have risen by one-third for small farmers and two-thirds for big ones, reversing eight years of stagnation and decline, thanks to munificent EU subsidies and an influx of foreign buyers offering high prices for Polish meat and fruit. Poland's total exports rose by more than 30% in the first nine months of 2004, helped by the abolition of customs formalities. EU rules have opened the skies to budget airlines, boosting tourist numbers by 20% last year. Higher-than-expected tax revenues have meant lower-than-expected budget deficits, not only in Poland but also in the Czech Republic and Hungary--although the EU says that Hungary is still doing too little to balance its books. The Polish economy was particularly strong in 2004, because it was recovering from a recession exacerbated by bad government policies. But almost everywhere in central Europe, the first eight months of EU membership have been good for business. In Poland, the Czech Republic, Hungary, Slovakia and Slovenia, growth averaged 4.6% in 2004, up from 3.5% in 2003, according to the Economist Intelligence Unit, a sister company of The Economist (see chart). The three Baltic countries, Estonia, Latvia and Lithuania, with their less regulated economies, grew even faster, at 6.7% in 2004, though this was still slower than in 2003. Nor is it economic gains alone that have made the new members of the EU feel happier. Poland's president, Aleksander Kwasniewski, and his Lithuanian counterpart, Valdas Adamkus, wielded far more clout as leaders of full EU member countries when they waded into the chaos of Ukraine's disputed presidential election between October and December, urging the government to overturn a first rigged result in favour of a pro-Russian candidate, Victor Yanukovich, and to allow the re-run that was won by a pro-western candidate, Victor Yushchenko. After the Ukraine showdown, the central Europeans may also find it easier to push the EU's foreign policy in two directions which have long preoccupied them. They want to raise the possibility of future EU membership for Ukraine, Moldova and--if it can somehow ditch its dictator, Alexander Lukashenka--even for Belarus. And they want to see the EU treat Russia with maximum caution. Now that they have tasted the EU's attractions, central Europeans are much less likely than once seemed possible to revolt against the draft EU constitution. Their earlier worry, that the EU was moving the goalposts before they had even got on to the playing-field, is dissipating. Lithuania and Hungary have already ratified the constitution, becoming the first EU countries to do so, by parliamentary votes. Poland still has a referendum penciled in for this autumn, or even next year, but a yes vote looks increasingly likely. The trickiest case may be that of the Czech Republic, where the two main opposition parties, the Civic Democrats and the Communists, both have strong Eurosceptic factions. Vaclav Havel, the Czech Republic's first post-communist president, argued this week for ratifying the constitution by parliamentary vote, on the grounds that the public had already made an open-ended commitment in 2003 when they voted to join. But the Czech prime minister, Stanislav Gross, is said to prefer a referendum at the same time as the general election, which is due to take place in June 2006, although his fragile coalition government may fall sooner. All that said, the increasing EU-friendliness of the new members does not necessarily mean that their relations with the more defensive older members, such as France and Germany, will improve greatly. Indeed, they may get worse, especially if the new members go further in cutting their taxes to stimulate growth. France and Germany were already complaining loudly last year that excessively low taxes in central Europe were sucking investment and jobs out of western Europe. They, and Belgium, have questioned why the EU should give regional assistance to countries that seemingly choose to collect very little in taxes. That last argument will now be easier to puncture. Slovakia set the regional benchmark last year with a 19% flat rate for income tax, corporate tax and VAT. But it has turned out to be a good way of raising money, as well as a brilliant advertisement for Slovakia's business climate. The government had braced itself for a fall in overall tax revenues in 2004, but it reported happily this week that that they had in fact shown a modest rise. The competition can only get tougher. Romania, which is due to join the EU in 2007, has just introduced a 16% flat rate for income and corporate taxes, and its labour costs are far lower even than Slovakia's or Poland's. Looming further down the road is Turkey, which could carpet all Europe with low-paid workers from Anatolia. For all the countries of Europe, in short, enlargement is proving to be less a sudden shock than a long and salutary squeeze that should help to force them to become more competitive.
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