BID PRICE MORTGAGE RATE DWELLING …

BID PRICE MORTGAGE RATE

HOUSEHOLD FLAT

DWELLING

VILLA

BID PRICE

RESIDENTIAL

HOUSING RENT

HOUSING

AFFORDABILITY

TRANSACTION PRICE

RENT

VILLA

BID PRICE

BID PRICE

BIDFPRICLE AT DWELHLIONGUSEHOLD RENT VILLA

RESIDENTIAL MARKET MORTGAGE RATE

AFFORDABILIT Y OWN HOUSING RESIDENTIAL

PRICE

REAL ESTATERESIDENTIALDWELLINGTRANSACTION PRICE

HOUSING

VILLA TRANSACTION PRICE M O R T G A G E R AT E RESIDENTIALMARKET RENTALMARKET OWNHOUSING

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DWELLING TRANSACTION PRICE

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AFFORDABILITY

Property Index Overview of European Residential Markets

Where does residential price growth end? 8th edition, July 2019

Property Index | 8th edition, July 2019

Introduction

03

Highlights

05

Where Does Residential Price Growth End?

06

Economic Development in Europe

08

Comparison of Residential Markets ? Housing Development Intensity

10

Comparison of Residential Property Prices in Selected Countries and Cities

15

Mortgage Markets in Europe

28

Annex: Comments on Residential Markets

30

Contacts

40

2

Property Index | 8th edition, July 2019

Introduction

We are pleased to present you the eighth edition of the Property Index, Overview of European Residential Markets. During its long history the Property Index has become one of the most important European real estate publication and has acted as a valuable source for many, whether private or public institutions. Property Index analyses factors influencing the development of residential markets and compares residential property prices in selected European countries and cities. Our goal is to provide you with European residential market data on a regular basis and answer questions on how Europeans live and at what costs. We hope you will find this eighth issue of the publication interesting and inspiring for you and for your business.

3

Property Index | 8th edition, July 2019

This year we especially focus our attention on: ?? Austria (AT); ?? Belgium (BE); ?? Croatia (HR); ?? Czech Republic (CZ); ?? Denmark (DK); ?? France (FR); ?? Germany (DE); ?? Hungary HU); ?? Italy (IT); ?? Latvia (LV); ?? Netherlands (NL); ?? Norway (NO); ?? Poland (PL); ?? Portugal (PT); ?? Spain (ES); and ?? United Kingdom (UK).

Most presented indicators are on a year-on year basis and are to some extent also influenced by geopolitical situation or various factors affecting the volume of supply and demand.

The Property Index was prepared by a proven international and cross-functional team of Deloitte professionals in the development, mortgage and real estate markets. This publication has been prepared using data collected by individual Deloitte offices in selected countries.

The Property Index capitalises on Deloitte's extensive knowledge of the real estate and development industry, enabling us to provide you with independent and credible information.

4

Property Index | 8th edition, July 2019

Highlights

22%

Dwelling prices, surprisingly, increased by 22% in Prague, which was the largest growth among all examined capitals.

3.8 years

The most affordable housing can be found newly in Portugal, where you need to save on average only 3.8 years to buy a new dwelling.

321%

Properties in Paris (inside) were on average 321% of the national average and recorded therefore the largest difference. A virtually identical figure was observed in Lisbon (320%).

12,910 EUR/sq m

Paris (inside) was the most expensive city among surveyed cities with a price tag reaching 12910 EUR/sq m.

4,043 EUR/sq m

Despite close economic connection within the EU, the residential market evolved diversely in particular countries. For the first time Norway took a leading position from the United Kingdom as the most expensive country in our research (4,043 EUR/ sq m).

25.3 EUR/sq m

Newly provided data from Norway show that rental housing is comparatively expensive. Oslo, followed by Trondheim occupied second and third place within our research with the value 25.3 EUR/sq m and 21.3 EUR/sq m per month respectively after Paris.

Italy

Housing prices rose in 15 out of the 16 selected countries since 2015. The only exception was Italy, where dwelling prices have been dropped constantly since the beginning of the financial crisis.

Berlin

Despite the current disorders due to rising rental prices mainly in Berlin, rent levels are low compared to other European cities.

5

Property Index | 8th edition, July 2019

Property Index | 8th edition, July 2019

Where Does Residential Price Growth End?

What has been the defining characteristic of the residential market within Europe in recent years? Undoubtedly, the price growth.

Another reason may also be that the price base has always been lower in CEE countries and now we see an elimination of price differences and gradual approximation to Western countries. However, it should be noted that there are still fundamental discrepancies in terms of average wages, for example, which implies worse conditions for housing affordability.

The majority of European countries may be at risk of a future development as

a result of expansionary monetary policy from the European Central Bank (ECB) in the future. If the ECB maintains its monetary policy stance further, average house prices will exceed pre-crisis levels. Potential impacts of the real estate bubble on the real economy depend, in part, on the extent to which rising house prices are accompanied by rising debt and a construction boom. It is clear that rapid price growth will have to end once.

The House Price Index (HPI) published by Eurostat measures price changes of all residential properties purchased by households (flats, detached houses, terraced houses etc.), both new and existing, independently of their final use and their previous owners. Only market prices are considered, self-build dwellings are therefore excluded. The land component is included.

Housing prices have been on the rise in 15 out of the 16 selected countries since 2015. The only exception was Italy, where dwelling prices have been dropping constantly since the beginning of the financial crisis.

The average annual growth of property prices in the EU was 5% in the last three years. The dwelling prices in the Czech Republic, Hungary, Latvia and Portugal grew twice as fast as the EU average. Due to the significant rise in property prices in those countries, the possibility of home

ownership tends to diminish. The culprit is the consequences of the debt crisis, or the poor and slow administration of the state building authorities, which hampers the construction of new real estate. This reduces the supply that eventually fails to meet the high demand for housing.

House Price Index (2015 = 100) ? quarterly data 140.0

135.0

130.0

125.0

120.0

115.0

110.0

105.0

100.0

95.0

90.0

Source: Eurostat

2015 Q1

6

2015 Q2

2015 Q3

2015 Q4

2016 Q1

2016 Q2

2016 Q3

2016 Q4

European Union Spain Netherlands Hungary

France Austria Belgium Croatia

NO EU

2017 Q1

2017 Q2

2017 Q3

Poland Czech Republic Italy Portugal

Denmark Latvia United Kingdom Norway

Germany

HU

CZ

PT

LV NL

AT

ES

DE UK

DK

PL

HR

BE

FR

IT

2017 Q4

2018 Q1

2018 Q2

2018 Q3

2018 Q4

7

Property Index | 8th edition, July 2019

Economic Development in Europe

Similarly to other economies the European economy was significantly affected by the global financial crisis of 2008. It slightly recovered during 2010 and 2011 after the resulting recession. However, the EU was struck by the debt crisis of some of its member states in 2012 and the economy went through another short recession. The last five years were years of moderate growth. The European economy continued growing in 2018 however, the growth decelerated. GDP in the whole EU-28 grew by 2.0%, the Eurozone rose by 1.8%.

External conditions were tough as the US ? China and US ? EU trade tensions continued. The US growth accelerated to 2.9% from 2.4% in 2018 despite these tensions. The Chinese economy slightly decelerated from 6.9% to 6.6%. The Japanese economy also decelerated from 1.9% to

0.8%. The Russian and Brazilian economy continued in moderate growth. Because of tough external conditions, the EU economy decelerated from 2.5% to 2.0%. Further deceleration is expected this year.

In December 2018, the ECB decided to terminate its asset purchases programs. ECB policy rates remained on their historical lows (deposit rate -0.40%, refinancing rate 0.00%, marginal lending rate 0.25%). Despite termination of asset purchases programs, the monetary policy of ECB will remain very accommodative. ECB could renew asset purchases programs this year in response to slowdown of EU economy.

The real unit labour costs remained at the level of the year 2017 (0.56). In 2018 imports grew more than exports and consequently the trade surplus of EU turned

8

Property Index | 8th edition, July 2019

from a surplus of EUR 22 billion to a deficit of EUR 25 billion. The unemployment rate descended from its high of 10.9% in 2013 to 6.8% in 2018.

Fiscal policy in most European countries remained neutral or tightened in an effort to get closer to the long-term sustainability of public finances. General government deficit declined (or surpluses increased) in 19 out of 28 EU countries in 2017.

Europe still faces geopolitical risks that could have an impact on its economy. EU faces threat of tariffs on exports of cars and car parts to the USA (tariffs on exports of steel and aluminium were already imposed). Sanctions on Iran lead to higher oil prices that negatively affect EU economy. Sanctions against Russia are still in place. The United Kingdom entered the process of leaving the EU in March 2017 but did not leave yet. The date of departure has been postponed to 31st October 2019.

The long-term prospects of the EU and the Eurozone are expected to be negatively affected by the slow growth of total factor productivity. An aging population will add some pressure to the labour markets and could slowdown GDP growth as well. While the average growth in the 10 years before the financial crisis (1998?2007) reached 2.6%, expected long-term growth in coming years is likely to oscillate between 1.5?2.0%.

Growth of Real GDP in EU 28

4%

2.3%

2%

1.8%

1.8%

2.2%

2.0%

2.5%

0.3% 0%

-0.3%

-2%

2.0%

1.4%

1.6%

-4% -4.3%

-6%

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

Source: Eurostat. Forecast: Deloitte

The housing market is usually sensitive to economic conditions, especially GDP growth and interest rates. Correlation between lagged GDP growth and house prices in the EU reached 83% during the last 10 years. Thus, the expected sluggish economic growth is likely to limit inflation

in house prices in the coming years. On the other hand, the accommodative monetary policy of the ECB and other central banks in the EU will keep interest rates at low levels and together with the steadily falling unemployment rate supporting the housing market.

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