Loan issuing must grow to break the fall on the real estate market

No life will be on the real estate market before loan issuing has turned upward again, real estate specialist Tõnu Toompark writes in his blog.

“Surplus on housing loans continuously grows, but growth tempo is slowing down fast. Supply is diminishing in tens of percents,” Toompark wrote.

In Q3 this years housing loans in amount of EEK 5 bln were issued, that is twice less than in Q4 in 2006 when issued housing loans exceeded EEK 11 bln.

“Compared to last year, issuing housing loans diminished 36 pct,” Toompark noted.

Trends do now show that downturn would change anytime soon. Rather we have to consider that issuing loans will decrease more. But financial system is economy’s bloodstream and money is the blood needed to survive.

“When amount of money diminishes it’s clear that economy will vegetate. So vegetates the real estate sector and high risk estimates given to this sector mean there won’t be more money. That means the market won’t rise any time soon,” Toompark wrote.

The smaller amount of loans decreases liquidity on the market and makes making real estate transactions harder.

“Downtrend spiral in spinning downwards until real estate prices are that low that speculative interest makes one buy real estate,” Toompark writes.

Alternative would be that banks will issue more loans one day and that’ll break the fall.
“As a note I should say that one day exactly the same spiral, spinning in other direction, was causing real estate prices to rise,” explained the specialist.

Then getting a loan was easier, prices rose and more transactions were made.

“The banks have the key to turn the market trend, because even speculators mostly want to use banks’ help for buying real estate. What’s happening in the world economy doesn’t allow to think that trend will turn any time soon,” Toompark writes.

Artikli autor on Marge Tubalkain-Trell. Artikkel ilmus 11/11/2008 väljaandes Balticbusinessnews.com.

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