The r ole of the land m arket to p rovide financial stability in the EU m arkets

1. The role of the land market to provide financial stability in the EU markets Professor Elias Dinenis Neapolis University Pafos

2. The place of the Land Market in the Economy The European Property Market Can we talk about a European Property Market?

3. House Price Indices 2005 =100 The real estate markets are closely linked like the equity markets Source : Eurostat

4. The place of the Property Market in the Economy REAL ECONOMY BANKS PROPERTY MARKETS There are other players of course which are not included here mainly the government, other institutional investors such as pension funds and insurance companies and of course the capital markets which interact with the property markets

5. The property markets • Many property markets – residential – commercial (retail, industrial, offices etc) • Trading of services, land, space and property based securities • As any other market it is the resource allocation mechanism • It determines the price of property

6. The property market and the real economy • Supply Inelastic in the short run • Construction activity a very important component of the economy (percentage of GDP, percentage of fixed investment • Links to other profession • Innovation and new knowledge creation • Infrastructure and productivity • Strong Multiplier effects • High property prices create wealth effects • Wealth effects lead to higher consumption • High wages • Probably balance of payments problems • Monetary policy reaction Price Number of Units

7. Spread on Greek Bonds

8. Cheap Credit etc • Cheap credit created asset bubbles especially in housing • Increased public sector debt • Wealth effects increased wages consumption and imports

9. Spain: Exposure of Credit Institutions to the Property Sector (In percent of total loans to the private sector) Property and Banks

10. Deficit as % of GDP

11. Composition of Debt

12. Total Debt as % of GDP

13. Unit Labour Costs

14. Trade Deficit as % of GDP

15. Construction and current account deficit

16. GDP growth

17. Unemployment Rate

18. Can the property sector kick start a recovery? • Excess Supply of Residential and Commercial Units as a result of overexpansion during the boom years

19. Spending in construction as a share of GDP

20. Can the property sector kick start a recovery? • Excess Supply of Residential and Commercial Units as a result of overexpansion during the boom years • Recession increases inability to service debt

21. Commercial Property

22. Can the property sector kick start a recovery • Excess Supply of Residential and Commercial Units as a result of overexpansion during the boom years • Recession increases inability to service debt • New regulations are forcing banks to sell property assets in order to improve their balance sheets

23. Real Estate sales Sourse: JP Morgan Cazenove European Property Handbook Time for Heavy Lifting – Remain constructive

24. Can the property sector kick start a recovery • Excess Supply of Residential and Commercial Units as a result of overexpansion during the boom years • Recession increases inability to service debt • New regulations are forcing banks to sell property assets in order to improve their balance sheets • Forced sale depress prices

25. Sales and Depressing Effect

26. Can the property sector kick start a recovery? • Excess Supply of Residential and Commercial Units as a result of overexpansion during the boom years • Recession increases inability to service debt • New regulations are forcing banks to sell property assets in order to improve their balance sheets • Forced sale depress prices • There is a funding gap

27. Commercial Property Fundingyear – end 2010 Source: DTZ Research

28. Can the property sector kick start a recovery? Excess Supply of Residential and Commercial Units as a result of overexpansion during the boom years Recession increases inability to service debt New regulations are forcing banks to sell property assets in order to improve their balance sheets There is a funding gap Uncertain macroeconomic environment

29. Macroeconomic Outlook

30. Can the property sector kick start a recovery? • Excess Supply of Residential and Commercial Units as a result of overexpansion during the boom years • Recession increases inability to service debt • New regulations are forcing banks to sell property assets in order to improve their balance sheets • There is a funding gap • Uncertain macroeconomic environment • Prices do not clear quickly enough to restore equilibrium

31. Demand Driven Downturn

32. Can the property sector kick start a recovery? • Excess Supply of Residential and Commercial Units as a result of overexpansion during the boom years • Recession increases inability to service debt • New regulations are forcing banks to sell property assets in order to improve their balance sheets • There is a funding gap • Uncertain macroeconomic environment • Prices do not clear quickly enough to restore equilibrium • Anaemic prices to generate wealth effects

33. Quarterly House PricesAverage Indices for euro area and EU 27 (2005=100)

34. Quarterly House Prices in Euro Area and EU 27% change compared to same quarter of previous year

35. Can the property sector kick start a recovery? • Excess Supply of Residential and Commercial Units as a result of overexpansion during the boom years • Recession increases inability to service debt • New regulations are forcing banks to sell property assets in order to improve their balance sheets • There is a funding gap • Uncertain macroeconomic environment • Prices do not clear quickly enough to restore equilibrium • Anaemic prices to generate wealth effects with great difficulty