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International Internet Magazine. Baltic States news & analytics Friday, 29.03.2024, 10:53

Risks on Estonian residential real estate market are connected to price growth

BC, Tallinn, 29.11.2016.Print version
The main risks on the Estonian residential real estate market are connected to growing real estate prices, it can be seen from a fresh report published by the European Systemic Risk Board (ESRB) citing LETA/BNS.

Estonia's residential real estate (RRE) market's biggest risk factors are connected to the rising prices which have reached a pre-crisis level, ESRB states in the report published on Monday.


Since the first quarter of 2009 nominal RRE prices have increased by 50% and real prices by 27%, and prices have now reached just over 90% of pre-crisis levels.


Furthermore, different valuation methods suggest that, on average, RRE prices are in line with fundamentals for the moment. Risks and vulnerabilities in the household and banking stretches appear more contained, owing to relatively low indebtedness of the household sector, moderate growth in RRE lending and high capital adequacy of the banking sector.


The Estonian economy is, however, exposed to risks in the global economy and the banking sector is structurally vulnerable due to its high degree of concentration and interconnectedness, in particular with the Swedish banking system. International risks could spill over to Estonia through both credit supply and trade channels.


The Estonian authorities have implemented a combination of precautionary policy measures to prevent RRE lending standards from loosening from their current level and to increase the resilience of the banking sector. The policy measures are appropriate and expected to be sufficient given the current level of and trend in vulnerabilities.


Should the risks around RRE lending increase, the Bank of Estonia is able to tighten the requirements.


Overall, the macroprudential policy package is comprehensive and assessed to be appropriate and expected to be sufficient in addressing the identified vulnerabilities related to RRE, it is written in the report.






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