The role of the land market to
provide financial stability in the EU
markets
Professor Elias Dinenis
Neapolis University Pafos
The
European
Property
The
place
of the Land
Market inMarket
the Economy
Can we talk about a
European Property
Market?
2
House Price Indices 2005 =100
135
130
125
120
115
110
105
100
95
GERMANY
Source : Eurostat
UK
FRANCE
SPAIN
GREECE
The real estate
markets are
closely linked
like the equity
markets
3
The place of the Property Market in the
Economy
BANKS
PROPERTY
MARKETS
REAL
ECONOMY
There are other players of course which are not included here mainly the
government, other institutional investors such as pension funds and
insurance companies and of course the capital markets which interact with
the property markets
4
The property markets
 Many property markets – residential – commercial
(retail, industrial, offices etc)
 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
5
The 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
 High property prices
create wealth effects
 Wealth effects lead to
higher consumption
 High wages
 Probably balance of
payments problems
 Monetary policy
reaction
Price
Number of Units
6
Spread on Greek Bonds
Cheap 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
(In percent of total loans to the private sector) Property and Banks
9
Deficit as % of GDP
10.0
5.0
Ireland
0.0
Greece
-5.0
Spain
-10.0
France
-15.0
Italy
-20.0
Cyprus
Portugal
-25.0
United Kingdom
-30.0
-35.0
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
Composition of Debt
Total Debt as % of GDP
400
350
300
France
USA
GREECE
250
Italy
Spain
200
UK
150
100
50
Germany
0
2000
2010
2000
2010
2000
2010
2000
2010
2000
2010
2000
2010
2000
2010
Unit Labour Costs
140
France
135
Germany
130
Greece
125
Italy
Spain
120
115
110
105
100
95
90
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
Trade Deficit as % of GDP
10
8
6
4
2
Germany
0
France
-2
Italy
Spain
-4
-6
-8
-10
-12
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
Construction and current account deficit
15
GDP growth
8.0
6.0
4.0
Germany
2.0
Greece
Spain
France
0.0
1999
-2.0
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
Italy
Cyprus
Portugal
-4.0
-6.0
-8.0
Unemployment Rate
23.0
Spain
9.1
Italy
20.5
Greece
2011
2000
5.6
Germany
9.8
France
0.0
5.0
10.0
15.0
20.0
25.0
Can the property sector kick start a
recovery?
1. Excess Supply of Residential and Commercial Units as a result of
overexpansion during the boom years
18
Spending in construction as a share of GDP
19
Can the property sector kick start a
recovery?
1. Excess Supply of Residential and Commercial Units as a result of
overexpansion during the boom years
2. Recession increases inability to service debt
20
Commercial Property
21
Can the property sector kick start a
recovery
1. Excess Supply of Residential and Commercial Units as a result of
overexpansion during the boom years
2. Recession increases inability to service debt
3. New regulations are forcing banks to sell property assets in order
to improve their balance sheets
22
Real Estate sales
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%
Sourse: JP Morgan Cazenove European Property Handbook Time for
Heavy Lifting – Remain constructive
23
Can the property sector kick start a
recovery
1. Excess Supply of Residential and Commercial Units as a result of
overexpansion during the boom years
2. Recession increases inability to service debt
3. New regulations are forcing banks to sell property assets in order
to improve their balance sheets
4. Forced sale depress prices
24
Sales and Depressing Effect
25
Can the property sector kick start a
recovery?
1. Excess Supply of Residential and Commercial Units as a result of
overexpansion during the boom years
2. Recession increases inability to service debt
3. New regulations are forcing banks to sell property assets in order
to improve their balance sheets
4. Forced sale depress prices
5. There is a funding gap
26
Commercial Property Funding
year – end 2010
Source: DTZ Research
27
Can the property sector kick start a
recovery?
1. Excess Supply of Residential and Commercial Units as a result of
overexpansion during the boom years
2. Recession increases inability to service debt
3. New regulations are forcing banks to sell property assets in order
to improve their balance sheets
4. There is a funding gap
5. Uncertain macroeconomic environment
28
Macroeconomic Outlook
29
Can the property sector kick start a
recovery?
1. Excess Supply of Residential and Commercial Units as a result of
overexpansion during the boom years
2. Recession increases inability to service debt
3. New regulations are forcing banks to sell property assets in order
to improve their balance sheets
4. There is a funding gap
5. Uncertain macroeconomic environment
6. Prices do not clear quickly enough to restore equilibrium
30
Demand Driven Downturn
31
Can the property sector kick start a
recovery?
1. Excess Supply of Residential and Commercial Units as a result of
overexpansion during the boom years
2. Recession increases inability to service debt
3. New regulations are forcing banks to sell property assets in order
to improve their balance sheets
4. There is a funding gap
5. Uncertain macroeconomic environment
6. Prices do not clear quickly enough to restore equilibrium
7. Anaemic prices to generate wealth effects
32
Quarterly House Prices
Average Indices for euro area and EU 27 (2005=100)
33
Quarterly House Prices in Euro Area and EU 27
% change compared to same quarter of previous year
34
Can the property sector kick start a
recovery?
1. Excess Supply of Residential and Commercial Units as a result of
overexpansion during the boom years
2. Recession increases inability to service debt
3. New regulations are forcing banks to sell property assets in order
to improve their balance sheets
4. There is a funding gap
5. Uncertain macroeconomic environment
6. Prices do not clear quickly enough to restore equilibrium
7. Anaemic prices to generate wealth effects
with great difficulty
35