2015-10-26
Extensive offers of new housing cooled down the expectations of banks regarding real estate prices
The expectations of commercial banks in regards to housing prices are changing — only a year ago banks hoped that housing, particularly new construction, will see a rise in prices, while in a survey performed this autumn there wasn’t a single bank expecting a rise in housing prices.
“The abundance of new construction, particularly in Vilnius, operates as a price-stabilising factor, while the changed expectations of banks also reflect the rather balanced development of the real estate market. Now a greater number of banks expect that prices will not change, while some already signal about the possible drop in price corrections,” says Tomas Garbaravičius, Member of the Board of the Bank of Lithuania.
Bank expectations regarding changes in the prices of new construction housing over the coming 12 months
(share of respondents that answered, percentage)
According to T. Garbaravičius, we cannot reject the possibility that bank expectations regarding housing prices could have been influenced by the Bank of Lithuania-approved amendments to the Responsible Lending Regulations, which come into effect as of November and will screen too risky lending for house purchase transactions. By decreasing the maximum maturity of a loan to 30 years and obligating banks to verify the abilities of borrowers to repay the loans after a possible interest rate jump, the risk of over-indebtedness is decreased. At the same time, possibilities for price bubbles, such as those prior to the crisis, when a large number of real estate transactions were financed via irresponsible lending and borrowing, to grow would be limited.
According to the data of the latest survey, banks’ expectations regarding new construction housing changed most over the year. Three out of ten surveyed banks project that new construction housing in the near future will experience a drop of up to 10 per cent in prices, while the other participants of the survey expect stable prices and not one projects that new construction housing will grow more expensive. Last autumn, four out of ten banks expected that prices of new construction housing will increase at least up to 10 per cent.
This year, banks also do not expect that old construction housing will grow more expensive; the absolute majority expects that prices in the near future will not change, while one bank foresees a drop in prices reaching up to 10 per cent.
Banks assess the prospects for the commercial building real estate market slightly differently — one bank indicated that in this market a growth of 10 per cent is expected. However, nine out of ten banks indicate that commercial real estate market’s prices will be stable.
Detailed results of the Bank Lending Survey will be published next week. Lending surveys are aimed at obtaining information on lending conditions as applied by financial institutions, their lending costs and market expectations. The present Review was prepared using the generalised data from a survey of six commercial banks and four foreign bank branches.