Since the beginning of the second quarter of the year 2022 in particular, the main real estate markets in Europe are witnessing severe pressures, heralding a crisis that will worsen day after day, in light of the conditions resulting from the economic repercussions of the war in Ukraine.
This comes with the rise in inflation rates, the decisions of central banks to raise interest rates, and then the decline in the demand for borrowing to buy real estate and the decrease in demand for them, and in light of the fears of economic recession dominating the markets there.
Companies operating in the field of real estate in Europe were the most beneficiaries for long periods of low interest rates on borrowing in order to obtain a property, which prices were sometimes zero percent, but the winds came with what the ships did not desire, as the war in Ukraine and its repercussions afflicted this. sector, to find these companies themselves in real trouble with the decline of medicine on real estate.
- The European Central Bank recently raised interest rates five times in a row
- The Bank raised the main interest rate by 3 percentage points in just seven months, as part of attempts to rein in inflation
- At its last meeting, last month, the ECB raised the deposit rate to 2.5% from 2%
- At its last meeting, the Bank of England raised interest rates (for the tenth time in a row) to 4 percent
This resulted in a shock in the real estate sector in particular, which has recently witnessed a decline in prices. As a result of the cessation of borrowing at high interest rates, and then the cessation of demand.
In this context, the “Standard & Poor’s” credit rating agency issued a report on the prospects for the real estate sector in Europe, which included expectations of a continued decline in house prices in most European countries during 2023 and 2024, but it is a relative and not a sharp decline that leads to collapses in the sector.
In the same context, the report highlighted several factors with which it is possible to talk about the relative resilience of the sector in facing the challenges related to the repercussions of high interest rates on the real estate sector, among the most prominent of these factors: (limited supply in the market) in addition to the Europeans enjoying financial surpluses, especially those that they obtained. Through government support during the Corona period.
However, the report spoke at the same time about the variation in the extent and depth of vulnerability between European countries and the recovery period needed by the sector in each country.
The longest period of decline in real estate prices in many years
Dr. Anwar Al-Qasim, an economist from London, told Sky News Arabia that real estate prices in Europe in general and the United Kingdom in particular are suffering from an alarming decline. As a result of the repercussions of the Corona epidemic first, and then the war in Ukraine, which ignited energy prices and imposed widespread price inflation, the highest in nearly forty years, stressing that “real estate prices in Britain, for example, continued to decline for the fifth month in a row, which is the longest period of consecutive decline.” Since 2008, the date of the global economic crisis, this sends negative indicators for investors in this sector.
Al-Qasim points out that the real estate sector in the United Kingdom is the second largest real estate sector in Europe after Germany, with an estimated market value of more than 250 billion pounds sterling, and therefore any shock to this sector is a strong blow to the entire economy.
The economist from London notes that real estate prices fell in Britain between last October and November by 2.3 percent, which is the largest monthly decline since the beginning of the global economic crisis.
Expectations of a continued decline in 2023
And Dr. Anwar Al-Qasim confirms, in his interview with “Sky News Arabia Economy”, that this decline is expected to continue during the current year 2023, due to the central bank’s policy of raising the interest rate in order to control its rate, as it is expected to rise to 4.75 percent. By the end of this year.
Expectations indicate that prices will decline by between 5 and 12 percent, while some estimates go to the worst scenario, which is a collapse of 20 percent.
Al-Qasim sheds light on another group of reasons leading to the decline in the real estate market, explaining that the decline in tourism and the purchasing power of Europeans has a significant impact on real estate markets, especially in European countries that have suffered from turmoil for about two years with regard to economic sectors.
He stresses that the return of the real estate sector to its previous activity and growth depends on the course of the war in Ukraine, the recovery of tourism and the exit from the economic crises facing most countries of the world, including Europe.
Real estate in the face of inflation!
On the other hand, the economist and director of the Corum Center for Studies in London, Dr. Tariq Al-Rifai, believes that the war in Ukraine has no direct impact, but the main reason affecting real estate prices in Europe today is the very high inflation rate, adding: “We are talking about the highest levels of inflation almost since the creation of the euro.
And he adds, in statements to the “Sky News Arabia Economy” website, that this is the first test for the euro currency with the severe inflation crisis in this way, and of course the reaction of the European Central Bank was to raise interest rates, and raising interest rates was slower in Europe compared to, for example, the United States. America, due to the fragility of European banks and thus the central bank’s fear of raising interest rates at a faster pace, causing a crisis in the European banking sector.
Al-Rifai says: “Therefore, we began to see the rate of inflation decrease in America, while in Europe we still see high levels of inflation, and the central bank must intervene again and raise interest rates higher than it was before, and this will lead to more pressure, of course, on the European real estate sector.” The same applies to the banking sector, as the situation today in Europe is very difficult.”
German real estate in the wind
Apart from Britain, which is at the forefront of those affected, the real estate sector in Germany is facing mounting pressures.
In this context, Reuters conducted a poll of the opinion of a number of economic analysts, who unanimously agreed that house prices will decline significantly not only this year, but next year as well, and perhaps more than was previously expected, and they pointed out that the pressures resulting from the high prices of living and high Interest rates and inflation have caused many Germans to give up their dreams of owning a home, and instead continue to live in rented accommodation.
The respondents stressed that with expectations of raising interest rates at least twice in the next few months, and inflation continuing at about 9 percent, it is unlikely that any change in the real estate market situation will happen soon, pointing out that average house prices in Germany are expected to decrease. , which is the largest economy in Europe, by 5.8 percent this year, and 2.5 percent next year.
Commenting on this, Professor of Economics at the University of Portsmouth, Dr. Ahmed Abboud, says in exclusive statements to “Economy Sky News Arabia” that there is a sharp decline in real estate prices in Europe, reaching 15 percent in some countries, and about 7 or 8 percent in other countries. Others such as Italy, explaining that Germany also witnessed a decline in the real estate market that it had not seen in about 10 years, as a result of the war crisis in Ukraine, which directly affected inflation rates.
And he points out that raising the interest rate led to a decrease in the demand for borrowing, and thus a decrease in demand rates in the real estate market, and then an inflationary stagnation, stressing that this decline will continue as long as the inflationary stagnation faced by Europe and a country like Germany in particular persists.
