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Banks around the world suppress real estate growth

Banks around the world suppress real estate growth

Over the past two years, prices for real estate have skyrocketed in developed countries. Fearful of the bubble and mindful of the 2007 crisis in the US, the world's central banks are cooling the industry through restrictions on mortgages. The introduction of such measures partly helped to stabilize the markets of New Zealand, Canada and Australia.

Ten years after the mortgage crisis of 2007, market analysts once again record a rapid rise in prices in the real estate market in developed countries, which causes concern of financial authorities.

Leading analyst Amarkets Artem Deev told RT that the fears of central banks are associated with the growth of investment demand for housing - that is, real estate is acquired not only by ordinary citizens for living, but also by real estate companies for further delivery or sale.

"Large Realtors create an empty inflated demand for real estate, which builds companies. If it suddenly turns out to be unclaimed and a large number of free real estate will enter the market, this will ruin the prices because of a lack of real demand, "Artem Deyev explained.

"If banks issue many mortgage loans, they appear on the balance sheet risks of changes in real estate prices. But this can complicate their work and even existence, if suddenly prices start to fall. Therefore, central banks are not profitable for growth to be rapid, because commercial banks are becoming too involved in lending, "RT Finance Professor Oleg Shibanov told RT.

According to UBS, the greatest risk in the property market is in Toronto, where prices have been rising for two consecutive years. In addition, the formation of a bubble is not ruled out in Stockholm, Munich, Vancouver, Sydney, London, Hong Kong and Amsterdam. In 2015, analysts of the investment bank warned of risks only in London and Hong Kong.

"The real house prices in these megacities since 2011 have increased by an average of almost 50%. In other financial centers, prices rose by about 15%. This gap does not strongly correspond to the differences in local economic growth and inflation rates, "UBS experts note.

To combat the risks of bubbles in the real estate market, central banks are increasingly resorting to macroprudential policy - that is, point cooling the market. The introduction of such practices does not harm economic growth, unlike the use of monetary measures - for example, raising the interest rate or reducing liquidity.

According to the International Monetary Fund (IMF), from 2000 to 2013, 119 countries used various macroprudential measures: they imposed restrictions on the minimum amount of the initial mortgage payment and on the growth of the volume of loans issued, and also increased the requirements for mortgages with a small initial contribution.

The most successfully cooled the real estate market was able to power New Zealand. Over the past ten years, housing prices in this country have increased by more than 50% due to low interest rates, lack of free "squares" and growing immigration. To contain the rise in housing prices, the Reserve Bank of New Zealand demanded that banks tighten the rules for mortgage lending.

Canada is also actively combating economic risks caused by rising real estate prices. According to the latest report of the Bank of Canada, the most vulnerable places in the country's economy are high prices for housing and household debts. According to Knight Frank, for the year the cost of houses and apartments in Canada has grown by more than 14%. According to the calculations of the OECD, the household debt in 2017 for the first time exceeded the level of the state's GDP.

In 2016, the Bank of Canada introduced stress tests that limit the number of mortgage borrowers. The weakening of the real estate market was also affected by the first increase in the key rate of the regulator in almost seven years. Next year, the country's central bank will continue to introduce new stress tests for mortgage loans. According to the authorities' forecasts, this measure will limit approximately 10% of Canadian borrowers, or $ 15 billion of loans annually.

According to the International Monetary Fund (IMF), from 2000 to 2013, 119 countries used various macroprudential measures: they imposed restrictions on the minimum rate of return on the mortgage holder, restrictions on the growth in the volume of loans issued, and raised the initial contribution.
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