Download The Greek Economy and its Real Estate Market as the Crisis Unfolds

The Greek Economy and its Real Estate Market as the Crisis Unfolds
Bank of Greece
2nd Conference on Real Estate Market
Theodosios Sampaniotis
Senior Economic Analyst
Eurobank EFG Economic Research
December 2, 2011
1
Outline of the presentation
I.
The Real Estate markets in the unfolding crisis
II.
The Greek Real Estate market
III. What does the future hold?
2
Ι. Different Euroarea countries confronted with different challenges
USA
GREECE
Ð Housing market
Ð Low competitiveness
Ð Financial system weaknesses
Leverage
Risk
Governance
Ð High fiscal deficits & debt
IRELAND
PORTUGAL
Ð Housing market
Ð Low competitiveness
Ð Banks Îrise of public debt
Ð Large fiscal deficits, but not debt
Ð High private debt
Ð High private debt
SPAIN
ITALY
Ð Low competitiveness
Ð Competitiveness
Ð Housing market
Ð High public debt
3
I. Evolution of dwellings prices
(1997 Q1=100)
350
300
250
200
150
Greece
Italy
Spain
Portugal
UK
USA
EA
2011 Q2
2010 Q3
2009 Q4
2009 Q1
2008 Q2
2007 Q3
2006 Q4
2006 Q1
2005 Q2
2004 Q3
2003 Q4
2003 Q1
2002 Q2
2001 Q3
2000 Q4
2000 Q1
1999 Q2
1998 Q3
1997 Q4
1997 Q1
100
Ireland
Note: Quarterly data.
Sources: Bank of Greece, ECB, OFHEO, HBOS
4
I. Construction Investment more sensitive in the recession
Construction Investment
Real Prices, % change 2011 - 2007
40
%
PL
20
DE
LU
0
FI
IT
-20
UK
HU
DK
PT
-40
LT
GR
EE
-60
IE
-80
-15
-10
BE SW
NO
RO FR
EU EA
ES
CH
NL
CZ
AT
SK
TR
CY
US
SI
y = 2,9409x - 17,832
2
R = 0,6601
IS
-5
0
5
Real GDP
% change 2011 - 2007
10
Source: EU Commission
15
20
%
5
I. 18
Construction Investment in Greece
Gross Fixed Capital Formation
Construction, % GDP
%
16
14
12
10
4.9
4.8
4.6
4.4
4.4
5.6
5.2
4.2 4.3 4.4
3.6
3.5
3.1
4.3
8
6
4
9.5 9.1 9.3 9.9 10.0 9.1 9.0 9.9 10.3 9.7 9.4
11.8
10.4
7.5
2
4.9
4.7
4.3
5.7 4.8
4.0
Dwellings
2011
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
0
Non residential
Source: EU Commission
6
-80
Slovakia
Lux/bour
Czech
Switz/lan
Finland
Germany
Austria
Romania
Poland
Belgium
France
Sweden
Italy
EA-12
EU-15
Neth/land
Japan
UK
Lithuania
Denmark
Cyprus
Spain
Slovenia
Portugal
USA
Estonia
Hungary
Greece
Iceland
Ireland
I. Construction Investment 40%
Gross Fixed Capital Formation, Dwellings
Constant prices, % Change 2011 – 2007
30
20
10
0
-10
-20
-30
-40
-50
-60
-70
Source: EU Commission
7
I. Employment & investment in the construction sector
60
%
TR
Employment in Construction
% change 2011 - 2007
40
20
FR
CY
0
SI
PT
-20
IS
US
-40
EE
IT
PL
SK SW
DE
NO
FI
RO
HU EA
DK
NL
CZ
LU
CH
GR
LT
-60
UK
BE
AT
ES
IE
-80
-80
-60
-40
-20
0
20
Construction Investment
Real Prices, % change 2011 - 2007
Source: EU Commission, EUROSTAT, OECD
40
%
8
I. Employment in the construction sector is rapidly
decreasing
15 %
Greece employment in construction,
% yoy, 1999 Q1 –2011 Q2
10
5
0
-5
-10
-15
-20
1999Q1
1999Q2
1999Q3
1999Q4
2000Q1
2000Q2
2000Q3
2000Q4
2001Q1
2001Q2
2001Q3
2001Q4
2002Q1
2002Q2
2002Q3
2002Q4
2003Q1
2003Q2
2003Q3
2003Q4
2004Q1
2004Q2
2004Q3
2004Q4
2005Q1
2005Q2
2005Q3
2005Q4
2006Q1
2006Q2
2006Q3
2006Q4
2007Q1
2007Q2
2007Q3
2007Q4
2008Q1
2008Q2
2008Q3
2008Q4
2009Q1
2009Q2
2009Q3
2009Q4
2010Q1
2010Q2
2010Q3
2010Q4
2011Q1
2011Q2
-25
Note: Not including persons employed in real estate agencies, bank departments dealing with mortgages, lawyers,
businesses related to housing (furniture) and of course undeclared employment.
Source: Eurostat
9
II
I.
The role of Real Estate markets in the unfolding crisis
II.
The Greek Real Estate market
III. What does the future hold?
10
II. Factors affecting prices
Factors affecting prices, according to empirical studies:
i. households disposable income, ii. real interest rates,
iii. demographic factors,
iv. supply side, v. credit availability,
vi. tax and regulatory environment 11
II. Rapid economic growth – Living standards convergence
% 8
90
6
85
4
80
2
75
0
70
-2
-4
65
-6
60
Source: EU Commission
2013
GDP per head in PPS (EU-15=100)- left axis
Real GDP growth rate - right axis
2012
2011
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
-8
12
II. Interest rates on new Housing Loans in Greece %
Jan-99
May-99
Sep-99
Jan-00
May-00
Sep-00
Jan-01
May-01
Sep-01
Jan-02
May-02
Sep-02
Jan-03
May-03
Sep-03
Jan-04
May-04
Sep-04
Jan-05
May-05
Sep-05
Jan-06
May-06
Sep-06
Jan-07
May-07
Sep-07
Jan-08
May-08
Sep-08
Jan-09
May-09
Sep-09
Jan-10
May-10
Sep-10
Jan-11
May-11
Sep-11
12
11
10
9
8
7
6
5
4
3
2
1
0
Note: Bank interest rates on new Housing loans from domestic credit institutions vis-à-vis individuals and individual nonprofit institutions, euro area residents. Floating rate or up to 1 year rate fixation.
Source: BoG
13
II. Credit expansion catching up with the Euroarea
Housing Loans
45
(% of GDP)
%
40
35
28.5
30
30.2
28.9
31.6
20
10
33.3
23.4
25
15
36.2
8.2
10.6
13.4
15.4
37.9
27.2
38.3
31.0
40.5 40.4
38.1 39.8
35.3 36.2
34.6
33.2
18.3
5
Greece
Note:
9/
20
11
20
10
20
09
20
08
20
07
20
06
20
05
20
04
20
03
20
02
20
01
20
00
0
Euro area
Credit to domestic non-MFI residents by domestic MFIs excluding the Bank of Greece, outstanding amounts at end of
period, individuals and private non-profit institutions, including securitised loans and corporate bonds that have been
derecognised from the balance sheet. For Greece: 2000 € 11.2 bn. September 2011 € 78.8 bn. For the Euro area:
2000 € 1,875.8 bn. September 2011 € 3,809.9 bn.
Source: BoG, ECB, EU Commission
14
II. Nominal house prices to rents ratio (P/E)
1995 Q1=100
UK
Ireland
Spain
EA
Greece
Italy
Portugal
USA
1997 Q1
1997 Q3
1998 Q1
1998 Q3
1999 Q1
1999 Q3
2000 Q1
2000 Q3
2001 Q1
2001 Q3
2002 Q1
2002 Q3
2003 Q1
2003 Q3
2004 Q1
2004 Q3
2005 Q1
2005 Q3
2006 Q1
2006 Q3
2007 Q1
2007 Q3
2008 Q1
2008 Q3
2009 Q1
2009 Q3
2010 Q1
2010 Q3
2011 Q1
2011 Q3
240
230
220
210
200
190
180
170
160
150
140
130
120
110
100
90
Notes: Quarterly data.
Source: Eurostat, OECD, ECB, Bureau of Labor Statistics, BoG, ECB, FHFA, HBOS, National Statistical Offices
15
II. High ownership rate
LT
BG
EE
RO
HU
SK
LV
ES
IC
SI
IT
GR
BE
NO
PT
PL
MT
LU
IE
UK
EU
TR
CY
US
SW
RU
FI
FR
NL
AT
DK
CZ
DE
47
43,2
40
50
59
57,4
57,2
56,2
54
60
69,5
68,2
68
68
67,2
66,3
63,8
70
88
87
85
82,5
82
80
80
78
76,7
76
75
75
75
74,5
80
90
92
97
96,5
96
95,7
Owner Occupation Rate
(% housing units)
100
Source: European Mortgage Federation
16
II. Housing cost overburden rate
DK
DE
GR
UK
RO
NL
SW
EU
EA
NO
ES
SW
SK
HU
CZ
BE
LV
IC
PL
IT
BG
PT
LT
AT
FI
EE
IE
SI
LU
MT
FR
CY
6,3
5,5
5,1
4,4
4,4
2,4
0
9,6
9,4
8,9
8,9
8,7
8,6
8,5
8,2
7,5
7,2
13,1
12,6
12,1
11,8
10,9
10,9
2009 data
% of the population living in a
household that spent 40% or
more of their equivalised
disposable income on housing
4
3,9
3,7
3,5
3,4
5
22,1
16,3
15,5
24,4
23,4
10
15
20
Source: Eurostat SILC
25
17
II. Transaction costs of purchasing property
OECD countries, 2009 data
Note:Transaction costs refer to average costs. The estimates do not take into account the various tax breaks that exist in countries
for certain dwellings implying that the estimated cost may overestimate the actual cost in some countries (for example in Italy)
where such tax breaks are frequent. In addition, VAT when applied to certain costs is not included due to data limitations.
Source: Johansson,A. (2011), “Housing Policies in OECD Countries: Survey-based Data and Implications”, OECD
Economics Department Working Papers
18
II. Low competitiveness scores
Doing Business 2012
Dealing with Construction Permits
Greece
Germany
Ireland
Portugal
USA
DB 2012 Rank out of 183 economies
41
15
27
97
17
Procedures (number)
14
9
10
14
15
169
97
141
255
26
3.4
49.7
33.1
47.2
12.8
Germany
Ireland
Portugal
77
2
90
34
17
6
3
5
5
4
77
17
205
64
68
59.2
49.9
91.1
54.6
16.8
Germany
Ireland
Portugal
150
77
81
31
16
Procedures (number)
11
5
5
1
4
Time (days)
18
40
38
1
12
12.0
5.2
6.5
7.3
0.8
Time (days)
Cost (% of income per capita)
Getting Electricity
Greece
DB 2012 Rank out of 183 economies
Procedures (number)
Time (days)
Cost (% of income per capita)
USA
Registering Property
Greece
DB 2012 Rank out of 183 economies
Cost (% of income per capita)
USA
Source:
World Bank 19
III
I.
The role of Real Estate markets in the unfolding crisis
II.
The Greek Real Estate market
III. What does the future hold?
20
ΙII. Confidence is very low in the construction sector
40
20
3 month moving average
0
-20
-40
-60
Dec-00
May-01
Oct-01
Mar-02
Aug-02
Jan-03
Jun-03
Nov-03
Apr-04
Sep-04
Feb-05
Jul-05
Dec-05
May-06
Oct-06
Mar-07
Aug-07
Jan-08
Jun-08
Nov-08
Apr-09
Sep-09
Feb-10
Jul-10
Dec-10
May-11
Oct-11
-80
Construction of buildings
Note: The arithmetic average of the balances (in percentage points) of the answers to the questions:
(1) Evolution of your current overall order books (sufficient or not)
(2) Employment expectations over the next 3 months (increase or decrease)
Source: European Commission
21
III. How long do housing cycles last?
40 years of housing cycles in 19 OECD countries
1970 Q1 – 2010 Q1
Duration (quarters)
Amplitude (%)
Sample
Mean
StDev
Mean
StDev
Complete upturns
49
24.1
14.8
61.3
56.3
Complete + ongoing
upturns
55
28.0
20.6
66.7
60.1
Complete Downturns
49
18.2
8.7
30.7
28.4
Complete + ongoing
downturns
62
18.4
12.5
28.8
27.5
Source: IMF Working Paper, Research Department, “ How Long Do Housing Cycles Last? A Duration Analysis for 19
OECD Countries”. Prepared by Philippe Bracke. Authorized for distribution by Prakash Loungani, October 2011
22
ΙII.
Housing Investment leads the economic cycle in the USA
Housing Starts
thous.
2.700
2.500
2.300
2.100
1.900
1.700
1.500
1.300
1.100
900
700
2011
2008
2006
2004
2002
2000
1998
1995
1993
1991
1989
1987
1985
1982
1980
1978
1976
1974
1972
1969
1967
1965
1963
1961
1959
500
Note: Housing Starts, thousands of New Privately Owned Housing Units Started, monthly data, shaded areas denote
recessions
Source: U.S. Department of Commerce, NBER
23
III. Real Estate Market ↔ Real Economy
Residential Investment
Cyclicality
Lead/Lag relation
with real GDP
USA
Euro Area
procycl
procycl
+2
+2
1986 – 2008
Lead/Lag in quarters
Real House Prices
Cyclicality
Lead/Lag relation
with real GDP
Lead/Lag relation
with real res. inv.
USA Euro Area
procycl procycl
-5
+1
0
0
Real Mortgage Debt
Cyclicality
Lead/Lag relation
with real GDP
USA
Euro Area
procycl
procycl
+3
+3
Source: “Housing, consumption and monetary policy how different are the us and the euro area?” by
Alberto Musso , Stefano Neri and Livio Stracca ECB Working Paper Series No 1161, February
2010
24
III. Short-term Greek economic outlook
2011
2012
%GDP
%change
%change
Private final consumption
76.1
-9.4
-6.1
Gen Gov consumption
17.2
-8.5
-9.0
Total consumption
83.3
-9.2
-6.7
Gross fixed capital formation
14.8
-15.0
-5.0
107.3
-10.0
-6.5
Imports g&s
27.7
-11.7
-7.6
Exports g&s
20.3
8.7
6.2
-5.8
-3.2
1.7
0.7
Domestic demand
Real GDP Growth
GDP Deflator
Simulation Assumptions: Real disposable income -11.7% in 2011, -7.6% in 2012, Δ(consumption) =
80% Δ(disposable income) due to intertemporal consumption smoothing, Exports a function of ULCs
& unitary elasticity w.r.t. trading partners’ growth rates, unitary elasticity of imports w.r.t. net
disposable income.
Source: Eurobank EFG Research
25
Future prospects
Positive factors:
™ Tourism
™ Legal framework is gradually being clarified – e.g. National Cadastral (Ktimatologio S.A.), unlicensed dwellings
™ Reestablishment of macroeconomic stability (e.g. 26th October decisions, new Eurozone framework)
Negative factors
™ Demographics
™ Lower incomes
™ Ever‐changing tax environment
™ Credit constraints
26
Concluding remarks
™
™
™
™
™
™
The Real Estate market was not a problem in Greece
Nevertheless, as expected it suffers from the historically severe economic downturn
The characteristics of the Greek housing cycle
9 Large credit expansion
9 A market led by fundamentals
9 High occupancy rates
9 Greek households viewed dwellings as safe long term investments Empirical research suggests that the duration and amplitude of the downturn will be smaller than the upturn
Investment in housing is a leading indicator for economic growth
As expected, the future of the Real Estate market depends mostly on the Greek macroeconomic environment
27
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