Interest rate rises fail to slow European house prices in 2006 says RICS

Residential sales boom in Prague pre-VAT jump

Polish GDP growth to stay over 5%

China property market to stagnate

More property price falls to come in the US say economists

Aussie rental crisis to worsen

Interest rate rises fail to slow European house prices in 2006 says RICS

Despite interest rate rises and a supply increases in several buoyant housing markets, Europe continued to show solid house-price inflation across the board, according to RICS European Housing Review 2007.

Whilst most markets did not quite reach the highs of 2005, many were still achieving double digit growth. The only thing more buoyant than European house prices were the mortgage markets in those countries. Rate rises by the European Central Bank (ECB) did little to halt the rapid growth in mortgage debt with mortgage lending in eight out of the 12 euro-zone countries rising at double digit rates in 2006.

Whilst the ECB increased interest rates by 1.5% in the 2005-2006 period lenders failed to pass on the bulk of the rise with consumers still afforded the luxury of borrowing below these increases. This may go some way to explaining why Europe has failed to follow the US into a house-building drought.

Of the big four countries, only the UK outstripped its 2005 performance with house prises rising by 10%. This bounce back to form reflects the UK’s dire land and new housing predicament, as lack of supply continues to artificially inflate the market.

France dropped to 7%, a sign that one of Europe’s longest performing housing markets may be levelling out. Germany remained stagnant, but signs are showing that the housing market may begin to mirror the improving fortunes of the economy. Italy remained close to its 2005 growth, slightly down at 4%.

The Scandinavian countries continued their impressive growth with Denmark extending its bullish run matching 2005 at around 22%. Norway (17%) and Sweden (11%) also had impressive results, but failed to catch Poland, where price inflation was above 30%.

Residential sales boom in Prague pre-VAT jump

With the anticipated VAT hike for construction work, which is projected to rise from 5% to 19% from the start of 2008, developers are experiencing an increase in demand.

ING Real Estate has five residential projects under construction in Prague and its surrounding areas. Company spokeswoman Renata Kodadova reported that the VAT increase has sparked a jump in sales on the housing market saying: “ING Real Estate’s sales have increased by 25 to 30 percent this year compared to last year.”

Polish GDP growth to stay over 5%

Poland 's gross domestic product (GDP) grew at an annual rate of 5.8% in 2006, up from 3.5% in 2005, according to preliminary figures from the Central Statistical Office (GUS).

The strong economic growth resulted from increased consumer spending and rising exports. Investment spending was also a major growth driver. The growth figure was the highest in nine years.

The strong growth looks set to continue, according to the latest forecasts by the Finance Ministry, which estimates growth of 5.4% in 2007, up from prior forecasts for 5.1%. The main driver of economic growth continues to be domestic demand.

“The role of domestic demand will rise”, said Zajdel-Kurowska. “It will take the leading role in influencing the growth rates, at the expense of net exports.”

China property market to stagnate

A report from China’s National Development and Reform Commission has predicted that China’s residential housing market would become stagnant in 2008-2009, according to the China Securities Journal.

The report recommended China to limit the growth of the real estate market before completing its industrialization, and to accelerate the implementation of an estate tax, which it says will implemented by taxing each person per 30sqm they occupy.

The report also predicted that the growth of China’s national economy would drop below 10% this year, for the first. The report predicted that investment in the residential housing sector will grow further, that consumption will continue a rapid and steady growth at 13% and that export growth will slow down to 18%.

More property price falls to come in the US say economists

The housing market in the US is proving to be one of the biggest wild cards of the US economy as analysts are deeply divided about whether the worst is over or not.

According to a survey of 55 economists taken by the USA TODAY at the end of January, only 9% said the housing decline ended in 2006. Another 42% said the downturn will end in the first half of this year, and 45% said the housing will bottom out in the second half of 2007.

So far, sales of previously owned homes fell 8.2% last year, the biggest drop in 17 years, according to the National Association of Realtors (NAR).

But the economy may not be able to shrug off further declines. A.G. Edwards & Sons chief economist Gary Thayer reportedly says: “Lower energy prices and a strong job market have thus far helped consumers cope with the housing downturn and the increase in interest rates.” However, going forward he thinks that those two factors may not be big enough to offset further weakening.

The NAR is more optimistic though, saying that the high-level of unsold homes on the US market appears to have peaked in July last year.

Aussie rental crisis to worsen

The worst is yet to come for Australian tenants, according to the chairman of Australian property group Raine and Horne. Max Raine has reportedly warned renters in southwest and western Sydney that they may have to pay an extra £60 a week in rent by the end of the year.

Raine said the rental crisis will worsen, with many people unable to find a place to live: “Vacancy rates of about 2.5% traditionally indicate full occupancy as there is always a degree of movement of tenants between properties. But with vacancy rates currently at around 1.5%, there is clearly a pool of people who simply cannot get accommodation.”

Mr Raine said the historically low vacancy rates were pushing rents higher, with no quick fix in sight. He added that soaring rents were not necessarily driven by landlords in all cases, with competition between prospective tenants resulting in bidding wars with some tenants offering to pay many months of rent up-front.

However, Raine says: “Not surprisingly, given the current environment, many of these offers are getting knocked back, as landlords know they are likely to be offered more by someone else.”