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“I would not dare to say that we now have a housing bubble because there are many factors.
The bubble would occur if the rise in prices was driven by the expectation that prices would rise. I, as an economist, can now explain the rise in house prices through fundamental actions. Wages grew 10 percent, we had struggle environment: the construction of a new house was suspended and the bottleneck effect was created. We have a rising construction price due to higher prices for raw materials and labor, which also makes housing more expensive. But I do not deny that the profit margins of real estate developers have also increased, “G. Šimkus told reporters on Friday.
The housing bubble
At the same time, however, he admits that the real estate market is active – activity has grown significantly, as prices have risen significantly – by roughly 10 percent.
“We see and appreciate that this market is fashionable. Furthermore, we are thinking and debating what measures to take,” said the Governor of the Bank of Lithuania.
He emphasizes that these trends became evident not only in Lithuania, because the states invested large sums of money in the economies.
“And that money is looking for work. We are seeing strong growth in stock prices and audible speeches, and when will they fall. Investments in financial markets and financial instruments are not as developed in Lithuania. Furthermore, Lithuanians only understand two investment directions: deposits and real estate, ”said G.Škus.
It is true, he added, that in June there was already a tendency to slow down the activity of the new real estate market.
It’s as much about taxes as it is about loan tightening.
Although the governor of the Bank of Lithuania claims that he still does not see the housing bubble, he promises that the central bank will take all measures to control the heating of the housing market.
It is true that he emphasizes that these measures are limited: the central bank can operate through credit institutions, loans, but half of real estate transactions are carried out through cash financing. For this reason, the Bank of Lithuania also submits proposals to the ministries.
Among the measures planned to combat the heating of the real estate market, G. Šimkus highlighted three. The Bank of Lithuania may have the greatest influence on the terms of home loans through the provisions on responsible lending: the Governor of the Bank of Lithuania revealed that the Bank is currently discussing the possibility of setting more complicated loan requirements or more strict for second homes.
“Decisions are made by the Board, but Bank of Lithuania employees analyze, evaluate and calculate which proposal to present,” reported G. Šimkus.
Sigismund Gedvila / 15min photo / Gediminas Šimkus
When asked if we can expect such an adjustment this year, the Governor of the Bank of Lithuania confirmed: “I think it is possible to wait.”
He added that another alternative to affect the mortgage market is countercyclical capital or systemic risk reserves.
The Bank of Lithuania also appealed to the Ministry of Justice to propose an amendment to the Civil Code in order to start registering preliminary home purchase agreements. This measure aims to prevent speculation in undeveloped housing and better understand what is happening in the market.
Furthermore, G.Šimkus emphasizes that it is important to have an effective real estate tax in the country.
“We have presented the position in 2019 and we hope it will be heard, we have a mechanism that the real estate tax base should be expanded,” reported the Governor of the Bank of Lithuania.
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