2015-02-27
The development of the housing market is sufficiently sustainable; if necessary the Bank of Lithuania would take measures to stop potential price bubbles
With the euro having become Lithuania’s currency at the beginning of the year, it is difficult to right now see significant signs of imbalances in the development of the housing market. However, the Bank of Lithuania, having acquired a macroprudential policy mandate, is closely monitoring the changes in the real estate (RE) market and would take measures if there were signs of price bubbles.
“Although at the moment the development of the housing market is sustainable enough, the environment of exceptionally low interest rates poses the risk of excessive borrowing by residents. With interest rates returning to the usual multi-annual average, contributions to housing loans taken by residents can become a heavy burden; therefore we are already considering measures to prevent potential negative consequences,” says Tomas Garbaravičius, Member of the Board of the Bank of Lithuania.
Already in 2011 the Bank of Lithuania began to apply the Responsible Lending Regulations, preventing irresponsible lending. However, having transferred the provisions of the Capital Requirements Directive and Regulation, the Bank of Lithuania would acquire a wide arsenal of new measures for stopping credit and real estate bubbles. The measures that would be applied to credit institutions include the capital conservation buffer, countercyclical capital buffer, systemically important capital reserve of financial institutions, systemic risk reserve. If necessary, other additional requirements will be applied.
On Friday, at the conference “The Real Estate Market After the Introduction of the Euro”, held at the Bank of Lithuania, one of the topics discussed was the macroprudential policy mandate given to the Bank of Lithuania, possible measures to stop the formation of the credit and real estate price bubble, a model to assess whether the real estate prices are divorced from fundamental factors was presented, problems related to renovation were evaluated.
Presentations at the conference were given by representatives of RE and financial market participants; they covered questions related to the development of housing and commercial RE, RE rental, new construction market prospects after the euro adoption, changes in the RE and construction sector’s legal regulation, as well as other relevant questions related to the RE market.