It will eventually burst
Last autumn, after a brief respite, housing prices in Ukraine resumed their growth. Since the beginning of the year, apartment prices in Kyiv have increased by 50-60%, and in the regions, real estate has risen by an average of 30-40%. The fastest growing in price are one-room apartments. Today for a one-room apartment in the Ukrainian capital, sellers ask – depending on the district – from $80,000 to $130,000. On average, a square meter in Kyiv costs about $2,000. Apartments in Kharkiv, Lviv, Donetsk, Odesa, Dnipropetrovsk are almost twice as cheap. However, price increases have also been recorded in these cities. According to forecasts by Ukrainian realtors, the situation on the market will stabilize only at the beginning of next year. Some of them suggest that the demand for housing is fueled by rumors about the upcoming introduction of a real estate tax for individuals: the specific tax rates are still unknown, which only increases uncertainty. In addition, apartment speculators are heating up the market – according to some estimates, they participate in 30 to 50% of transactions. Moreover, the volume of mortgage lending is increasing.
In the second half of the year, the Belarusian real estate market also revived. If at the beginning of 2006 apartment prices in Minsk remained almost stable, then in October the analytical center Realt.by recorded a price surge – real estate rose by 3%, and currently on the Minsk housing market the average price is about $1,200 per square meter. Overall, since the beginning of the year, housing in the Belarusian capital has risen by about 15%.
Housing prices continue to rise in Kazakhstan as well. "Prices are rising speculatively," the country's president, Nursultan Nazarbayev, recently said. According to him, the cost per square meter is "inflated" day by day. The leaders in growth are Astana and Almaty. So, average real estate prices in Astana are about $1,500 per square meter. Nazarbayev called on financiers, the National Bank and the government to "study this phenomenon in detail" and expressed concern that if it continues like this, the real estate market faces serious shocks. "It will eventually burst, for sure," he said.
According to Ober Haus, real estate prices in Latvia have risen by about 30%. In the autumn the market stabilized, and price growth continued mainly in Riga – over six months, housing here rose by an average of 20%. The price range per square meter in new buildings located in the center of the Latvian capital currently ranges from $4,000 to $8,000 (that is 10-15% higher than in Vilnius and Tallinn). Average prices on the secondary market are $1,500-2,000 per square meter. According to experts, the steady growth in housing prices in the Baltic countries is supported by low interest rates on loans and rising incomes of the population.
Steady growth
Optimistic sentiments prevail on the UK housing market – its participants give encouraging forecasts. This summer, real estate prices in this country increased slightly, and in September realtors felt a significant drop in demand. However, the downturn turned out to be short-lived. Already in November, according to the mortgage company Nationwide, the growth in housing prices in the UK was 1.4%. According to British research companies, the level of supply on the real estate market is now at a two-year low, so in the medium term they expect a steady increase in prices. According to Knight Frank, in 2007 the growth in housing prices in the UK will be about 6%. By the way, according to British banks HBOS and Halifax, residential house prices in the UK have risen by 187% over 10 years, and in London by 240%.
According to Knight Frank, next year high rates of real estate price growth may be recorded in Croatia, Cyprus, Estonia, Poland, Romania, Slovakia and Turkey. Most likely, the upward trend will also continue on the French housing market. In any case, this year prices have been steadily rising, and French construction firms have shown good financial results. Thus, the quarterly profit of the second largest French construction company Bouygues in December increased by 36% compared to the same period last year, due to the execution of road construction contracts and demand for residential houses in France. Moreover, the company announced its intention to hire an additional 35,000 workers to meet the growing demand for construction works in France and abroad.
Real estate prices continue to rise in China. However, compared to last year's indicators, the growth has slowed significantly. Thus, in October, in 70 large and medium-sized cities, new commercial housing rose by only 0.3%. Housing prices increased most rapidly in Beijing (10.7%), while in Shanghai they even fell. In just eight months of this year, the volume of investment in Chinese real estate reached about $138 billion, exceeding last year's figures by almost a quarter.
It should be noted that the Chinese government is seriously concerned about the rapid development of the real estate market, since the boom in the construction sector creates a number of infrastructure problems. Today, in Chinese cities, buses are slower than bicycles, and the average speed of cars on the largest capital highways has halved compared to 1996. On approximately 100 out of 183 main intersections in the city, traffic jams regularly occur. Interestingly, the program "Affordable Housing for City Residents" is currently being implemented in Beijing. True, unlike the vague Russian housing project, it contains a specific list of measures. In particular, in the next five years, Beijing plans to limit the construction of luxury housing and focus on the construction of commercial buildings with small apartments, houses with apartments for rent at affordable prices, as well as housing that will be sold at reduced prices to families with medium and low incomes.
Dramatic Changes
The U.S. real estate market is in turmoil. After several years of continuous growth, property prices have stalled. The current average cost of new single-family homes is about $248,000. According to expert estimates, the increase in housing prices this year will not exceed 3%, and next year prices may even decline slightly.
This is an unfamiliar situation for Americans, as last year U.S. real estate prices rose by more than 13%. Now, market participants are recording a decrease in demand for housing and a decline in the volume of new home construction. According to the National Association of Realtors, home sales levels through the end of the year will be below forecast indicators due to an imbalance between supply and demand on the market. Sellers are currently having a hard time – they have to make additional efforts in negotiations with potential clients. American economists seriously fear that a prolonged downturn in the housing market could also affect related industrial sectors.
Incidentally, American homebuilding companies have already felt the effects of the cooling real estate market. For example, in the third quarter, the profit of the third-largest construction company – Lennar Corp. – fell by 39% (from $337.3 million to $206.7 million). In addition, expecting further deterioration in the housing market, Lennar lowered its forecast indicators. The quarterly profit of homebuilding company D. R. Horton decreased by 50.7%. Its revenues fell by 4.4% to $4.8 billion compared to $5.02 billion a year earlier.
"Dramatic changes are taking place in the U.S. housing market," a representative of homebuilding company Hovnanian Enterprises Inc. recently stated at a symposium. He reported that prices for new homes have decreased slightly due to various discounts and programs aimed at stimulating sales and attracting customers. Moreover, the share of resellers and investors among buyers turned out to be higher than previous estimates by homebuilding companies, and now this category of clients is selling off housing, thereby increasing supply in the residential real estate market.