As Eurozone slows, Asia-Pacific house prices surge

Published 08th Aug 2007

The global house price boom continues in 2007, albeit at a much slower pace and with different set of countries, reports the Global Property Guide...

A dramatic slowdown has taken place in several countries in Europe, reports the Global Property Guide. House prices in Estonia, 2005 and 2006’s star performer, rose only 5.68% year-on-year to Q1 2007, dramatically lower than the 77.52% year-on-year increase to Q1 2006.

Higher interest rates and an overheating market were the main causes of the slowdown. The key interest rate of the European Central Bank (ECB) has been raised nine times to 4% in June 2007, from its historic low of 2% in Nov 2006.
Other European countries that experienced lower house price changes year-on-year to Q1 2007 than in 2006 included France, Sweden, Ireland, Spain, Greece, the Netherlands, Switzerland and Portugal.

Ireland’s annual house price growth slowed to 7.44% year-on-year to Q1 2007, a deceleration from 12.07% year-on-year to Q1 2006. Apart from the higher interest rate, the heating issue on Stamp Duty also contributed to the decline.

The US house price rise also slowed to 4.07% year-on-year to Q1 2007, down from 12.78% year-on-year to Q1 2006.
The US Federal Funds rate has risen sharply from its low of 1% in May 2004 to its current
level of 5.25%. The Fed has kept the rate unchanged since June 2006. This rate increase has meant trouble for sub-prime borrowers, leading to delayed payments and foreclosures.

Strong rises in non-Eurozone Europe
Interestingly, European countries which have not adopted the Euro have experienced stronger house price rises year-on-year to Q1 2007, than countries within the zone. Such is the case of Latvia which plans to adopt the Euro in 2010. Latvia took the lead in house price increases year-on-year to Q1 2007.

Latvia's capital, Riga, experienced a remarkable appreciation of 61.91% year-on-year to Q1 2007, higher than the 35.64% year-on-year increase to Q1 2006. However, recent data from Latio, Latvia's leading research-oriented real estate agency, show that prices have started to fall in Q2 2007.

Lithuania’s house prices rose by 26.32% year-on-year to Q1 2007, up from 25% year-on-year to Q1 2006. Lithuania has recently increased its long-term interest rate to 4.6% in June 2007, from 4.2% in March 2007. The European Commission rejected Lithuania’s bid to adopt the euro in 2007 because its inflation breached the required limit.

House prices in Norway were up by 16.69% year-on-year to Q1 2007. Norway rejected EU membership in a referendum in 1972, and again in 1994. Positive factors such as continued economic expansion and the strength of the labour market overpowered the pull exerted by higher interest rates.

After taking a breather in 2005 and early 2006, house price growth in the UK accelerated to 9.25% year-on-year to Q1 2007, up from 5.3% year-on-year to Q1 2006. Particularly, Northern Ireland and London saw double-digit year-on-year house price increases in Q1 2007, at 57.6% and 14.3%, respectively.

Cyprus, which is set to adopt the Euro starting January 2008, is in a middle of a housing boom with house prices rising by almost 10% year-on-year to Q1 2007. Liberalization of the financial sector, a decrease in interest rates, and increased demand for higher quality housing and second homes were the main drivers for the price boom.

Now it’s Asia–Pacific’s turn
The house price boom is now moving towards the Asia-Pacific region. Property prices in countries affected by the Asian Crisis are showing strong signs of recovery, prompting fears that a property bubble is developing anew in the region.
Property prices in the Philippines, Singapore and South Korea rose by more than 10% year-on-year to Q1 2007, higher than in 2006. Although Japan registered a nationwide land price drop of 1.48%, land prices in its six major cities increased by a remarkable 7.75% year-on-year to Q1 2007, suggesting a real recovery from the 15-year house price downturn. (There are no official house price statistics in Japan, so land prices are used as a proxy.)

Australia has recovered from its 2004-2006 slowdown. Despite higher interest rates, house prices rose by almost 8% year-on-year to Q1 2007, from 4% year-on-year to Q1 2006.
New Zealand’s house prices rose by 11.36% year-on-year to Q1 2007, significantly up from 9.55% year-on-year to Q4 2006. This is despite the fact that the Reserve Bank of New Zealand (RBNZ) has increased interest rates since early 2004 to cool down the housing market.

Elsewhere, South Africa saw 16.74% house price increases year-on-year to Q1 2007. South Africa’s house prices have been escalating for seven continuous years, with price increases peaking at 30% in 2004.

Canada’s house prices moved forward in Q1 2007, thanks to strong economic growth, low mortgage rates and large net immigration. House prices rose 9.30% year-on-year to Q1 2007, up from 7.55% year-on-year to Q1 2006.

The laggards
Thailand and Israel, after suffering from political crises, have not yet recouped the confidence of investors. This resulted in a drop of 5.09% year-on-year to Q1 2007 in Thailand’s house prices, down from an 8.03% year-on-year increase to Q1 2006. Israel’s house prices fell by 10.52% year-on-year to Q1 2007, due to increased political and security concerns in the Middle East.

Portugal’s sluggish economic expansion exacerbated the effect of higher Euro interest rates. House prices have risen by a meager 1.14% year-on-year to Q1 2007, after an already low growth rate of 2.17% year-on-year to Q1 2006.

Source: ' Move Channel Ltd '

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