HOW NOT TO INCREASETHE REAL ESTATE BUBBLE?

Too many flats under private ownership, a practically nonexistent private rental sector, and people very reluctant to move to another place for a job: The situation in Slovak real estate is, according to an OECD study, one of the causes of long-term unemployment in the country. A more flexible real estate market could be a cure. The rental market is supposed to better help cope with painful economic changes. It’s also supposed to be beneficial for real estate. It can prevent the overpricing of property. Proposals from OECD are coming a bit later than is wanted. The Slovak real estate bubble is already starting to pop and the players in this market have already started to adapt to the situation. For the future it’s important to find out how to avoid, or at least not allow, the potential bubble to expand enormously. Property prices for residences have been growing in the last few years because people have been making more money, interests have been decreasing, and there have been few flats on offer. The volume of mortages have been increasing dramatically and banks have been simultaneously making loan conditions easier to meet. OECD acknowledges the average growth of all loans for living between October 2006 and October 2008 at the level of about 40% annually. That is, compared to 6% of the Eurozone, much more. This rate is typical of all the countries catching up to the developed world, starting practically with a zero amount of loans. The mortgage debit index compared to the GDP is currently still only 11% in Slovakia, the Eurozone average being 40%.  I Pg 64