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European house price boom continues unabated, market analysis shows

Residential property prices rose in 17 of the 22 European housing markets for which figures were available during the year to Q2 2016, Global Property Guide’s latest detailed analysis of individual regions and countries shows.

In total, six of the ten strongest housing markets in the Global Property Guide’s global survey are in Europe, with Romania now the strongest housing market in the region.

Property in Romania


Romania is now the strongest housing market in Europe and the third best performer in Global Property Guide’s global survey, amidst strong economic growth and the government's focus on rebuilding public trust. The average selling price of apartments rose by 10.1% during the year to Q2 2016, from year-on-year rises of 11.55% in Q1 2016, 7.74% in Q4 2015, 7.57% in Q3 2015, and 4.83% in Q2 2015. House prices increased 0.77% quarter-on-quarter in Q2 2016.

This comes as a surprise given Romania's disappointing performance from 2008 to 2014, amidst struggling economy. House prices plunged by 24.22% in 2009, 22.08% in 2010, 6.99% in 2011, 5.96% in 2012, 10.43% in 2013, and 1.59% in 2014. It was only in the second half of 2015 that the housing market fully began to recover. The Romanian economy expanded by a robust 3.7% in 2015, one of the EU's highest growth rates, and a marked contrast to the almost zero growth between 2009 and 2014. Romania's economy is expected to grow by 4.2% this year, due to tax cuts and salary increases.

Property in Germany

Germany's housing market remains strong, mainly due to supply shortages and strong economic fundamentals. The price index for apartments rose by 9.89% during the year to Q2 2016. Apartment prices rose by 3.71% q-o-q in Q2 2016.

Long a picture of housing market stability, Germany was one of the few countries that avoided a house-price slump in the wake of the 2008-2009 global financial crisis. Since then, extremely low interest rates have encouraged demand. In Q2 2016, the economy expanded by 3.1% from a year earlier, up from an annual growth rate of 1.5% in Q1 2016, according to the Federal Statistics Office. The economy is expected to expand by 1.7% this year and by 1.4% next year, after growing by 1.5% in 2015, 1.6% in 2014, 0.4% in 2013 and 0.6% in 2012, according to Bundesbank.

Property in Turkey

Turkey's housing market remains robust, with house prices in Istanbul rising by 9.67% during the year to Q2 2016. House prices increased 0.36% q-o-q in Q2 2016.

Turkey's housing market was boosted by strong foreign investment and growing population, despite a collapsing currency, dissatisfaction with the government, and geopolitical tensions.

From 2007 to 2011, house prices in Turkey fell by 29% inflation-adjusted as economic growth slowed sharply to 0.7% in 2008, a sudden end to the impressive of 6.8% annual GDP growth during 2002-2007. Existing house prices plunged 14.65% in 2008, by 2.82% in 2009, by 3.54% in 2010 and by 2.39% in 2011. The Turkish housing market finally recovered in 2012, with house prices rising by an average of 8% annually from 2012 to 2015. The economy grew by a striking 4.8% in Q1 2016 from a year earlier, after expanding by 3.8% in 2015, 2.9% in 2014, 4.2% in 2013, 2.1% in 2012, 8.8% in 2011, and 9.2% in 2010. The economy is projected to grow by 3.8% this year, and by another 3.4% in 2017, according to the IMF.

Meanwhile the decline of the Turkish lira against all major currencies, especially the euro, made residential properties more affordable to foreign homebuyers. In just two year, the lira lost about 13.2% of its value against the euro to TRY3.31691 = EUR1 in August 2016. Over the same period, the lira depreciated by almost 27% against the US dollar to TRY2.95954 = USD1.

Property in Malta

Malta's property market is performing very well, buoyed by government measures aimed at supporting property demand, such as the Individual Investor Programme and stamp duty exemption for first time homebuyers. Maltese property prices rose by 7.63% during the year to Q2 2016, up from a y-o-y increase of 3.59% a year earlier. Despite this, property prices declined 5.6% q-o-q in Q2 2016.

The Maltese property market enjoyed strong growth from 2000 to 2007, with house prices rising by 53.4%. However, property prices fell with the global financial crisis by 9.1% in 2008, 1.1% in 2009 and another 5% in 2010. After a short-lived recovery in 2011, house prices fell again by 5.2% in 2012. The housing market bounced back in 2013, due to government's launch of new property-related measures. House prices rose by 5.34% in 2013, 4.32% in 2014, and 8.66% in 2015. The economy is expected to expand by 3.6% this year, and by another 3% in 2017, after growing by 6.3% in 2015, 3.7% in 2014, 4.1% in 2013, and 2.8% in 2012, according to the IMF.

Property in Ireland

Ireland remains strong with house prices rising by 6.34% during the year to Q2 2016, at par with an annual rise of 6.19% a year earlier. This surge can be attributed to strong demand, coupled with limited housing supply, especially in the capital city of Reykjavik. House prices in Iceland increased 1.17% q-o-q in Q2 2016. Iceland’s economy is expected to grow by a robust 4.2% this year, after expanding by 4% in 2015, 2% in 2014, 4.4% in 2013, 1.2% in 2012, and 2% in 2011, according to the IMF.

Ireland's house prices continue to rise, albeit at a slower pace, with residential property prices up by 6.27% during the year to end-Q2 2016. During the latest quarter (Q2 2016) Irish house prices dropped slightly by 0.9%.

The Irish economy is now the fastest-growing economy in the EU according to the official GDP growth figure of 26.3% in 2015 (revised up from the previously estimated 7.8% growth) However note that the spectacular revised figure largely reflects tax-based financial alchemy, rather than real growth - if it were real and continued the Irish economy would be larger than China's by 2037!  The Irish economy is expected to grow by a healthy 5% this year and by another 3.6% in 2017. Ireland is considered by some to be Europe's austerity star performer, having introduced structural reforms early in the crisis and it is, according to this narrative, now reaping the benefits.

Other European property markets

Other strong European housing markets include Riga, Latvia, with house prices rising by 5.61% y-o-y in Q2 2016, followed by Slovak Republic (5.46%), the Netherlands (5.41%), Vilnius, Lithuania (5.28%), and the UK (4.82%). All saw positive quarterly growth during the latest quarter. Also, all performed better in Q2 2016 compared to a year earlier.

European housing markets with minimal house price rises included Portugal with house prices rising by 2.87% during the year to Q2 2016, Tallinn, Estonia (2.75%), Spain (2.22%), Norway (2.04%), Finland (0.92%), and Macedonia (0.72%). All, except Estonia and Macedonia, recorded positive quarterly growth during the latest quarter. All, except Estonia and Norway, showed better performance in Q2 2016 compared to a year earlier.

 Property in Russia

Russia remains depressed, along with some others.

Russia remains the weakest housing market in the global survey, with residential property prices plunging by 12.46% y-o-y in Q2 2016, slightly worse than last year's residential price decline of 11.13%. Russia's house prices fell by 2.27% during the latest quarter.

After a period of soaring consumer prices, inflation has somewhat stabilized, thanks to prudent monetary policies. In July 2016, headline inflation fell to 7.2%, from 7.5% in the previous month and its lowest level since March 2014, according to the Federal State Statistics Service. However, it remains high by international standards. The high inflation rate is the reason for the substantial difference between the nominal y-o-y decline in Russian house prices (-6.03%) and the real decline (-12.46%). The overall inflation rate had surged to 15.5% in 2015, the highest rate since 2002. Inflation is expected to be 8.4% this year, according to the IMF.

In August 2016, crude oil prices stood at US$46.97 per barrel, up by 26.5% from US$37.13 per barrel in December 2015 but still 55.7% down from US$106.1 per barrel in June 2014.

In 2015, Russia's economy experienced its steepest contraction since 2009, with GDP falling by 3.7%, according to the International Monetary Fund (IMF). The economy is expected to contract again by 1.8% this year, amidst international sanctions and low oil prices, according to the Ministry of Economic Development. Russia's currency has collapsed, and interest rates are high.

From the perspective of foreign homebuyers the price decline has been much greater, since the ruble has declined against major currencies. The ruble lost more than 44% of its value against the US dollar in just two years, from an exchange rate of RUB36.20= US$1 in August 2014, to RUB64.87 in August 2016. Over the same period, the ruble depreciated against the euro by almost 34%, from RUB48.18 = EUR1 in August 2014 to RUB72.70 = EUR1 in August 2016.

Property in Montenegro

In Montenegro, prices of dwellings in new residential buildings dropped 10.15% y-o-y in Q2 2016, in sharp contrast with an annual rise of 2.38% in the previous year. On a quarterly basis, house prices dropped 0.78% during the latest quarter. The economy grew by 4.1% last year, its strongest growth since 2008. Economic growth this year is projected to be a healthy 4.7%, according to the IMF.

More European markets

Other European countries with minimal house price falls included Kiev, Ukraine, with house prices falling by 2.95% during the year to Q2 2016, Greece (-1.95%), and Switzerland (-1.15%). All recorded negative quarterly price changes during the latest quarter (Ukraine, -1.58%; Greece, -2.1%; and Switzerland, -1.36%). Despite this, only Switzerland showed worse performance in Q2 2016 compared to a year earlier.


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