2023-09-17 19:00:12
Same cause, same effect: the very rapid increase in the interest rate by the European Central Bank (ECB), from − 0.5% to 4% in a little over a year, is causing a chill on all European real estate markets, both residential and commercial. Sales drop of 25% in Ile-de-France in the second quarter, building permits fell 26% in Germany in May compared to 2022… In the first quarter, thirteen of the fourteen European countries covered by Eurostat recorded a decline in real estate transactions.
Thursday September 14, Christine Lagarde, the president of the European Central Bank, almost apologized for this effect, a direct consequence of the increase in rates that she led. “The real estate sector, whether commercial or residential, (…) reacts strongly to current circumstances. (…) We are aware of this”, she admits. Simply, she continues, her mandate as central banker is to bring inflation down to 2% (it is currently at 5.3% in the euro zone), not to support specific sections of the economy.
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For the moment, no country is truly in the grip of a real estate crash. After years of impressive growth, it is rather a correction, more or less serious: − 6% in the Netherlands expected in 2023, − 6.8% in the first quarter in Germany over one year, − 0, 8% in France in the second quarter compared to the first quarter…
“Shadow banks”
Beyond the financial impact for households, the question for the ECB is whether the fall in prices can have a contagion effect throughout the financial system. In 2008, the banking panic came from American real estate. Fifteen years later, the situation has nothing to do with it, assures Luis de Guindos, vice-president of the ECB, because the numerous banking regulations put in place have greatly strengthened the solidity of financial establishments. However, he who is responsible for financial stability issues is monitoring the subject very closely. “Commercial real estate had started to decline even before monetary tightening, because of Covid and the development of teleworking”he recalls.
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However, a large part of commercial real estate financing no longer goes through banks, limited by new regulations, but through investment funds, nicknamed “shadow banks”. “There are real estate mutual funds which are very exposed to this sector, and which we must monitor closely”continues Mr. de Guindos.
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