ZAGREB (Croatia), February 14 (SeeNews) – The European Systemic Danger Board (ESRB) mentioned it has issued a warning on Croatia’s medium-term residential actual property vulnerabilities, because the fast credit score progress and home worth overvaluation create a possible threat to the nation’s monetary stability.
“The ESRB has recognized medium-term vulnerabilities within the residential actual property sector in Croatia as a supply of systemic threat to monetary stability, which can have the potential for critical unfavorable penalties for the true financial system,” the ESRB mentioned in a press launch on Friday.
“From a macroprudential perspective, the ESRB considers the principle vulnerabilities to be the fast progress in family credit score and potential indicators of home worth overvaluation, given the absence of express borrower-based measures that might mitigate the build-up of dangers associated to the residential actual property sector,” it added.
The ESRB was established in 2010 for the macroprudential oversight of the EU monetary system and the prevention and mitigation of systemic threat. The president of the European Central Financial institution, Christine Lagarde, is chair of the overall board, the ESRB’s decision-making physique.
Actual home worth progress in Croatia accelerated to eight% year-on-year originally of 2019. For the reason that outbreak of the COVID-19 pandemic, home worth dynamics have remained strong, the ESRB mentioned. In keeping with the estimates by Croatia’s central financial institution, home costs are more and more diverging from their long-term fundamentals.
One of many elements on the native housing market is that in some areas of the Adriatic nation, a major a part of housing demand, estimated at some 10%, has come from international patrons, the ESRB mentioned. Whereas general transaction exercise was decrease after the outbreak of the COVID19 pandemic, the share of international patrons remained at pre-crisis ranges.
As one other medium-term issue, ESRB identified penalties of two earthquakes in 2020, which hit the Zagreb area and broken dwellings. The earthquakes revealed some deficiencies within the high quality requirements of the dwellings that have been constructed earlier than the Nineteen Sixties, earlier than anti-seismic requirements have been launched in Croatia. “In consequence, the comparatively decrease stage of liquidity of a few of these dwellings might cut back the inventory of housing to be transacted, doubtlessly resulting in a better common home worth stage,” the ESRB added.
Yet one more issue driving the true property costs is that in 2020, the federal government prolonged the housing subsidy scheme, which has been in place since late 2017 and gives greater subsidy charges in much less developed areas, to first-time patrons. Despite the fact that solely a half of housing transactions are financed by means of financial institution credit score, actual mortgage credit score progress accelerated within the second half of 2019 and through 2020. It stood on common at some 7.5% between January and August 2021.
“To some extent, this dynamic has been pushed by the federal government housing subsidy scheme, with the share of subsidised loans rising from 18% in 2019 to 35% in 2020,” the ESRB famous.