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World property market price slide worsens in second quarter

Vol. XXII, No. 44 [ BusinessWorld Online ]
Thursday, September 25, 2008 | MANILA, PHILIPPINES

PHILIPPINE HOUSE prices fell by more than 13% in the second quarter from a year earlier as financial markets tumbled, joining 26 other cities and countries whose house prices declined in nominal terms.

Local house prices lost 13.35% in the second quarter in nominal terms, but adjusted for inflation, the dip was lower at 3.26%, online property research house Global Property Guide said in a report. Inflation hit a 17-year record of 12.5% in August.

The research firm said inflation-adjusted house prices fell in 27 out of the 33 countries for which there are updated published data.

The Baltics, the US, the UK and Ireland led the global decline in the second quarter, the latest date for which comprehensive global statistics was available.

The biggest house price declines took place in Latvia, previously a leader of the global house price boom. House prices in Riga have fallen by 21.23% in nominal terms at the end of the second quarter, and by 33.08% in real terms.

Prices in Estonia’s Tallinn fell during the year by 11.02% in nominal terms, and 14.06% when adjusted for inflation.

"Quarterly data suggest that things are getting worse, with declines in inflation-adjusted house prices over the quarter in all except [six] of the 33 countries tracked," the Global Property Guide said.

Latvia’s Riga saw the largest quarterly decline in the second quarter, with average dwelling prices falling by 5.2% in nominal terms, and by 8.16% in real terms.

While quarterly data are subject to seasonal variations and are thus less reliable, the slide suggests that the situation was worsening, the research house said.

Dramatic downturns

Since last year, there has been a dramatic turnaround in the world’s housing markets. Only five out of 33 countries, at this stage last year, had seen year-on-year declines in house prices in real terms. This year’s total is 21.

"Even in countries that have continued to record house price rises over the past year like China, transaction volumes have fallen sharply, suggesting that buyers are now nervous," the Global Property Guide said.

Shanghai prices were up 36.32% year on year in nominal terms and 27.28% higher when adjusted for in inflation.

While property markets in some regions like the Middle East apparently remain in boom, it is hard to confirm this by reliable data. With the exception of Israel, none of the Middle East’s property registries, statistical institutes or central banks publish good data on housing markets.

The Global Property Guide found it interesting that Slovakia’s house prices were still accelerating, having risen by 32.2% this year (25.57% in inflation-adjusted terms), against a rise of 20.47% from a year earlier (17.56% when adjusted for inflation).

"Clearly, the boom in Eastern Europe is not entirely finished. There have also been strong price increases in Monaco, Montenegro and Albania, although no official house price statistics is available," it added.

Rescue efforts

Efforts to rescue the world’s housing markets are becoming increasingly global, the Global Property Guide said.

In the US, authorities are seeking a $700-billion "mother of all bailouts" package to buy almost all of the country’s bad mortgage debts in an effort to unfreeze the nation’s credit markets.

In the second quarter, house prices in major US cities fell by 15.4% in nominal terms and by 18.9% in real terms from a year earlier, according to the Case-Shiller house price index. It was the sixth consecutive quarter that the house price index dropped on a yearly basis.

In Britain, the stamp duty exemption has been hiked to £175,000 from £125,000 for houses bought between September 2008 and September 2009.

The government also unveiled a £1-billion package to help first-time home buyers and households struggling with their mortgage payments. In September 2007, Northern Rock, one of Britain’s largest lenders, was bailed out by the Bank of England.

In the second quarter, house prices in Britain fell by 6.33% when adjusted for inflation (9.77% in real terms) from a year earlier, according to Nationwide.

In Spain, the government released a _3-billion rescue package. Certain real estate investment companies were given tax breaks to rent out unsold new homes for a fixed period.

In the second quarter, house prices in Spain rose by 2% — a fall of 2.49% in real terms — from a year earlier, according to official statistics that is widely believed to understate the problem.

In Ireland, the 2009 budget will include a "stimulus package" providing assistance to first-time home buyers.

During the quarter, house prices in Ireland fell by 9.65% (13.92% in real terms), according to official statistics.

In South Korea, the government is set to grant tax breaks and ease restrictions on construction.

In the second quarter, house prices in South Korea went down by 4.94% in nominal terms, a fall of 0.58% in real terms, according to official statistics.

Thailand and Indonesia are planning to relax foreign ownership limits to lift their housing markets. In the second quarter, house prices in Indonesia rose by 5.6% and by 4.18% in real terms.

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