Gladiator
1stMay2008, 16:51
http://www.independent.com.mt/news.asp?newsitemid=68511
2007 home price growth barely outstrips inflation by David Lindsay
http://www.independent.com.mt/images/articleimages/p1%20-%2001.05.08.jpg Malta’s 1.1 per cent growth in home prices last year just barely outstripped the country’s 0.7 per cent inflation rate. But over the next two years the problem could be compounded further by higher inflation levels forecast over 2008 and 2009 and with home price growth on a constant downward trend.
After having peaked at a growth rate of over 35 per cent in the second quarter of 2004, when Malta joined the European Union, home price growth levels have been falling consistently since – from an overall average growth of 20.3 per cent in 2004 to 9.8 per cent in 2005 and 3.5 per cent in 2006, according to figures published by the Central Bank of Malta last week.
Last year home price growth decelerated to just 1.1 per cent, just above 2007’s inflation of 0.7 per cent. If the home price trend continues on its current downward trajectory, it would not be long before Malta begins speaking of an actual deterioration in home prices.
Inflation, which stood at just 0.7 per cent last year, is forecast by the European Commission to spike to 3.4 per cent this year and ease to around 2.2 per cent in 2009 as food and energy prices are expected to begin dropping.
But considering the past explosive growth of the property prices, it would require a significant downturn in the market to bring prices back to pre-2004 levels.
The present slow-down could instead reflect a rationalisation of property prices from inflated levels.
As the European Central Bank noted in its own annual report for 2007, “Available country data suggest that the moderation in euro area house price inflation was particularly marked in those countries that have recorded relatively high residential property price rises in recent years, such as Belgium, Ireland, Spain, France and Malta.”
If the current trend persists, the Central Bank of Malta noted in its 2007 Annual Report, it could very well have detrimental effects on the local banking and the corporate bond sectors – in a reflection of financial market turmoil affecting the United States and now the United Kingdom.
In 2007, the bank noted, “favourable domestic economic conditions continued to sustain the financial sector’s positive performance”, with the corporate sector registering higher gearing and liquidity ratios and stable profitability – leading to an improvement in the quality of bank asset portfolios.
The bank, however, also observed that “the private sector continued to accumulate debt which, in the case of an economic downturn, could put some strain on repayment capability and, hence, on the banks’ profits and capital base”.
The eventuality, according to the CBM, “would be more acute if – given the high concentration of the banks’ exposures to real estate – a sharp fall in property prices resulted in a rise in borrowers’ default rates”.
Corporate borrowing from banks, meanwhile, remained the main source of finance for Malta’s businesses, and was driven primarily by real estate related loans, according to the CBM report.
“Risks associated with such lending have grown as a result of cyclical and structural factors,” the CBM observes. “These include both an increase in the mismatch between the supply and the demand for property, and the high concentration of bank exposures to this sector.”
Banks, however, already appear to be cutting their exposures to real estate fluctuations. Corporate bond issuance over 2007, the CBM notes, was largely related to the construction industry, which “may have partly resulted from tighter standards adopted by credit institutions”.
The line of thought was echoed by Bank of Valletta chairman Roderick Chalmers at the bank’s announcement of its interim results on Tuesday.
Asked for his views on the issue, Mr Chalmers “welcomed” the four-year slowdown in home price growth, observing that the property market was becoming “overheated”.
“We have seen the market being oversupplied over the past few years and, as a financial institution, we have taken a cautious approach.”
The bank, he explained, sees two segments to the property loan market: the market for property development, where the bank has “taken a cautious view over the last years”, and the home loan market, where, he says, the bank is still experiencing “modest” default and delinquency rates.
“We have ensured that we are well covered by the value of the properties against lending,” Mr Chalmers comments. In terms of home loans, where the bank has seen “sustained growth” over the last six months, “People are making their repayments, and the bank is not being necessarily impacted. Property development is another story, which is why we have been cautious over past years with loans for developments.”
While the CBM observed the financial condition of the household sector in general as having remained strong, it also sees that the “build-up of debt continued while debt servicing capability appears to have deteriorated during the year”.
Moreover, the CBM observed that while the financial position of the corporate sector “appears to have strengthened, there are indications of strain within the property and construction sectors”.
As such, the bank warned, any deterioration in the country’s macroeconomic conditions “could result in a reversal of the current improving trend in asset quality. This makes the domestic financial stability outlook more uncertain.”
* * *
Villa price growth falls from 10.6 to 0.9 per cent
Last year’s slowdown in home prices was most marked in prices of flats, where it appears supply is far outstripping demand. The only area continuing to grow healthily were the prices of terraced houses and houses of character.
According to figures published by the CBM, prices for the predominant category in Malta’s property market, those of finished flats, decelerated from their already modest growth of 2.5 per cent in 2006 to 1.8 per cent last year.
Growth in prices for flats in shell form, meanwhile, shrunk from 8.5 per cent growth in 2006 to growth of 1.4 per cent in 2007.
Prices for villas saw perhaps the greatest deceleration, falling from 2006’s growth rate of 10.6 per cent to a growth of just 0.9 per cent last year, while prices for maisonettes and town houses contracted by 4.6 and 7.1 per cent respectively.
Growth in property prices was kept afloat by more comparatively robust increases in the prices for terraced houses, which increased by 4.6 per cent, and houses of character, the prices for which grew by 11 per cent.
2007 home price growth barely outstrips inflation by David Lindsay
http://www.independent.com.mt/images/articleimages/p1%20-%2001.05.08.jpg Malta’s 1.1 per cent growth in home prices last year just barely outstripped the country’s 0.7 per cent inflation rate. But over the next two years the problem could be compounded further by higher inflation levels forecast over 2008 and 2009 and with home price growth on a constant downward trend.
After having peaked at a growth rate of over 35 per cent in the second quarter of 2004, when Malta joined the European Union, home price growth levels have been falling consistently since – from an overall average growth of 20.3 per cent in 2004 to 9.8 per cent in 2005 and 3.5 per cent in 2006, according to figures published by the Central Bank of Malta last week.
Last year home price growth decelerated to just 1.1 per cent, just above 2007’s inflation of 0.7 per cent. If the home price trend continues on its current downward trajectory, it would not be long before Malta begins speaking of an actual deterioration in home prices.
Inflation, which stood at just 0.7 per cent last year, is forecast by the European Commission to spike to 3.4 per cent this year and ease to around 2.2 per cent in 2009 as food and energy prices are expected to begin dropping.
But considering the past explosive growth of the property prices, it would require a significant downturn in the market to bring prices back to pre-2004 levels.
The present slow-down could instead reflect a rationalisation of property prices from inflated levels.
As the European Central Bank noted in its own annual report for 2007, “Available country data suggest that the moderation in euro area house price inflation was particularly marked in those countries that have recorded relatively high residential property price rises in recent years, such as Belgium, Ireland, Spain, France and Malta.”
If the current trend persists, the Central Bank of Malta noted in its 2007 Annual Report, it could very well have detrimental effects on the local banking and the corporate bond sectors – in a reflection of financial market turmoil affecting the United States and now the United Kingdom.
In 2007, the bank noted, “favourable domestic economic conditions continued to sustain the financial sector’s positive performance”, with the corporate sector registering higher gearing and liquidity ratios and stable profitability – leading to an improvement in the quality of bank asset portfolios.
The bank, however, also observed that “the private sector continued to accumulate debt which, in the case of an economic downturn, could put some strain on repayment capability and, hence, on the banks’ profits and capital base”.
The eventuality, according to the CBM, “would be more acute if – given the high concentration of the banks’ exposures to real estate – a sharp fall in property prices resulted in a rise in borrowers’ default rates”.
Corporate borrowing from banks, meanwhile, remained the main source of finance for Malta’s businesses, and was driven primarily by real estate related loans, according to the CBM report.
“Risks associated with such lending have grown as a result of cyclical and structural factors,” the CBM observes. “These include both an increase in the mismatch between the supply and the demand for property, and the high concentration of bank exposures to this sector.”
Banks, however, already appear to be cutting their exposures to real estate fluctuations. Corporate bond issuance over 2007, the CBM notes, was largely related to the construction industry, which “may have partly resulted from tighter standards adopted by credit institutions”.
The line of thought was echoed by Bank of Valletta chairman Roderick Chalmers at the bank’s announcement of its interim results on Tuesday.
Asked for his views on the issue, Mr Chalmers “welcomed” the four-year slowdown in home price growth, observing that the property market was becoming “overheated”.
“We have seen the market being oversupplied over the past few years and, as a financial institution, we have taken a cautious approach.”
The bank, he explained, sees two segments to the property loan market: the market for property development, where the bank has “taken a cautious view over the last years”, and the home loan market, where, he says, the bank is still experiencing “modest” default and delinquency rates.
“We have ensured that we are well covered by the value of the properties against lending,” Mr Chalmers comments. In terms of home loans, where the bank has seen “sustained growth” over the last six months, “People are making their repayments, and the bank is not being necessarily impacted. Property development is another story, which is why we have been cautious over past years with loans for developments.”
While the CBM observed the financial condition of the household sector in general as having remained strong, it also sees that the “build-up of debt continued while debt servicing capability appears to have deteriorated during the year”.
Moreover, the CBM observed that while the financial position of the corporate sector “appears to have strengthened, there are indications of strain within the property and construction sectors”.
As such, the bank warned, any deterioration in the country’s macroeconomic conditions “could result in a reversal of the current improving trend in asset quality. This makes the domestic financial stability outlook more uncertain.”
* * *
Villa price growth falls from 10.6 to 0.9 per cent
Last year’s slowdown in home prices was most marked in prices of flats, where it appears supply is far outstripping demand. The only area continuing to grow healthily were the prices of terraced houses and houses of character.
According to figures published by the CBM, prices for the predominant category in Malta’s property market, those of finished flats, decelerated from their already modest growth of 2.5 per cent in 2006 to 1.8 per cent last year.
Growth in prices for flats in shell form, meanwhile, shrunk from 8.5 per cent growth in 2006 to growth of 1.4 per cent in 2007.
Prices for villas saw perhaps the greatest deceleration, falling from 2006’s growth rate of 10.6 per cent to a growth of just 0.9 per cent last year, while prices for maisonettes and town houses contracted by 4.6 and 7.1 per cent respectively.
Growth in property prices was kept afloat by more comparatively robust increases in the prices for terraced houses, which increased by 4.6 per cent, and houses of character, the prices for which grew by 11 per cent.