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The Baltic states housing bubble is an economic bubble involving major cities in Estonia, Latvia and Lithuania. The Baltic States had enjoyed a relatively strong economic growth between 2000 and 2006, and the real estate sectors had performed well since 2000. In fact, in between 2005Q1 and 2007Q1, the official house price index for Estonia, Latvia and Lithuania recorded a sharp jump of 104.6%, 134.3% and 106.7%. By comparison, the official house price index for Euro Area increased by 11.8% for a similar time period.〔 The crisis eventually sets in 2007 due to financial crisis of 2007-08 resulted in a fragile Baltic economies. The housing price correction began in Estonia by mid-2007 followed by Latvia and Lithuania in mid-2008.〔 Subsequently, the Latvia and Estonia experienced recession by first half of 2008, while Lithuania experienced a slowdown in its economy by first half of 2008.〔Servaas, D.; Elena, F.; Gabriele, G.; and Alessandro, T.(July 2010)''The Tale of the Baltics: Experiences, Challenges Ahead and Main Lessons''.European Commission〕 The situation worsened after the September 2008 global financial crash sending the entire region into a full-blown recession. All three countries experienced recession by 2009.〔 The increase of credit supply to private sectors was largely to be blamed for the housing bubble in Baltic states, due to availability of financing from foreign lenders (dominantly Scandinavian banks).〔 Domestic bank (notably Parex Bank, national bank in Latvia) were largely reliant on rolling their foreign loans (denominated in Euro) with large exposure to the real estate sector.〔Lina, B.; and Daniel, K.(December 2012)''Real Estate Price Dynamics, Housing Finance and Related Macro-prudential Tools in the Baltics''.European Commission〕 The condition was further worsened due to the absence of loan-to-value ratio as well as negative real interest rate has spurred speculators to drive the market housing demand higher.〔 The credit supply was then deteriorated at the peak of the boom as both foreign and domestic banks tighten lending standards due to higher credit risk in the region.〔 Subsequently, real estate market were dragged down, further deteriorate credit quality, forced banks to further tighten lending standards.〔 The severity of the crisis differed from one to another; with Latvia was the hardest hit by the crisis. Latvia applied for balance of payments support from International Monetary Fund, the European Union and regional members in November 2008 in order to strengthen the fiscal situation following the bail out of Parex Bank (largest bank in Latvia).〔Kristina, M.; and Liva, Z.(2013)''Economic Miracle in the Baltic States: An Exemplary Way to Growth?''.Jacques Delors Institute〕 Lithuania experienced lesser impact from the crisis compared to Latvia, as it adopted significant austerity measures and more stimulus measurements compared to the both Baltic states. Nevertheless, public sector wage faced cuts as well as lesser social benefits.〔European Commission (2010)''Assessment of the Action Taken By Lithuania and Romania''. Communication to the Council〕 Estonia, on the other hand, saw the public sector wages and benefits slashed in order to improve the budget balance in preparation for the adoption of euro.〔Kattel, R. and Raudla, R.Kattel (2013).''The Baltic Republics and the Crisis of 2008-2011''.Europe-Asia Studies〕 ==Background== The economy in the Baltic states has been among the fastest growing in the European Area following the collapse of the Soviet Union as well as the recession due to 1998 Russian financial crisis. To minimize its dependence on Russia, the Baltic states opted to integrate closer to the Western Europe. By early 2000, the Baltic states' economy began to grow, to some extent higher than some of its Euro Area counterparts. Following the EU accession of Estonia, Latvia, and Lithuania in 2004, the period in between 2005 and 2007 witnessed an overheated economy of the three Baltic states. A combination of growth above potential, high inflation and far widening of current account deficit has been singled out as causes behind the overheating economy in the Baltic states.〔Lamine,B.(2008)''Estonia: Overheating and Sectoral Dynamics''.ECFIN Country Focus〕 Credit boom in addition to bullish real estate investment spurred by foreign banks (dominantly by Scandinavian Banks) worsened the scenario.〔 All these factors led to housing bubble in the Baltic states, in which piloting the real estate sector beyond sustainable. Table 1: Key economic indicators for 2005–2007 Estonia Latvia Lithuania (Sources: ''Eurostat, World Bank'') Indicators of overheating economy in Baltic states: * Unsustainable economic growth: All three Baltic states experienced very high market growth compared to the rest of Euro Area. The real GDP for Latvia achieved double digits for three consecutive years from 2005 and Estonia for two consecutive years from 20005. Even the real GDP for Lithuania from 2005-2007 is considered higher than the average growth in the Euro Area. Such high economic growth largely due to their measurement to attract foreign capital to their shore.〔Yoji, K.(September 2010)''Economic Crisis in the Baltic States: Focussing on Latvia''.Volume LV, July – September 2010〕 In Estonia the amount of foreign direct investment (FDI) inflow hit as high as 22.5% of GDP and successfully maintained the inflow double-digit up to 2007. Both Latvia and Lithuania managed to attract substantially high FDI to their shore though much lesser share compared to Estonia. In all three Baltic states majority FDI are directly benefits the real estate and construction sectors. Unlike their preceding years, manufacturing sectors received far less than the real estate and construction sectors.〔 Economists at the UniCredit Group opined the growth rate as consumption-led economic growth, with trade, finance, commercial services, real estate and construction fueled the growth.〔 Simultaneously, external imbalances became more worrying as the imports were growing twice faster than the exports.〔 * Inflow of "hot money" abroad: The bulk lion share of investment flows come in the form of foreign credit, to the smaller extent in the form of foreign direct investments and portfolio investments. The degree of foreign ownership in the Baltic banking is quite high, thus majority credit growth was largely financed by heavy borrowing of biggest players in the lending market from the parent banks.〔Olga, E.(2010)''Baltic States: Credit Crunch or Return to Equilibrium Level?''. International Conference On Applied Economics〕 Consequently, there is a sizeable inflow of debt (denominated in foreign currency) into the banking sector from parent banks to support the credit growth in the Baltic states.〔 Throughout 2004–2007, total loans outstanding grew by 30-60% annually in the Baltic states with majority of loans granted to mortgage loans.〔 * Labour market tightening: Following the EU accession, many low-skilled workers, especially Latvian and Lithuanian, left their homes to emigrate to United Kingdom and Republic of Ireland for better wages prospect.〔 The biggest impact is on the unemployment rate in the Baltic states. Estonia saw their unemployment rate slid from as high as 11.9% in 2001 to 4.7% in 2007.〔Pan European Institute (2009)''Baltic Rim Economies''Issue No 6,11-12-2009〕 Unemployment rate in Latvia down from 12.1% in 2001 to 5.4% in 2007, while Lithuania from 17.4% in 2001 to 4.3% (Institute, 2009). As a result, the labour market became tight – which forced the nominal wages to rise in accelerative manner for two successful years in Estonia, Latvia and Lithuania.〔 Such raise in the nominal wages actually fanned the inflation besides eroding the competitiveness of the affected Baltic states – due to widening current account balance. * Fiscal policy: In Estonia, the biggest issue lies on the current account deficit which was contributed by the rapid credit growth, which in return stimulated demands for imports〔Fredrik, E.(2010)''Baltic Economic Reforms: A Crisis Reviews of Baltic Economy Policy''. European Centre for International Political Economy Working Paper〕 The deficit was largely financed by a combination of FDI inflows, excessive borrowing by domestic bank from foreign parent banks, and an increase access to EU funds.〔 On the positive side, Estonia has been running on a surplus to enable the government to repay debts. In order for Estonia accession to the EU, Estonia largely maintained a surplus till before the crisis, to fulfil the Maastricht Criteria of budget deficit below 3% of the GDP.〔 Thus, Estonia maintained the position as the most stable public finances during the crisis.〔 The situation in Latvia was far more worrying than its two neighbouring countries. By 2005, the International Monetary Fund (IMF) issued caution to Latvia in order to minimize the economy risk from overheating.〔Janis,K.(2013)''Study on the Economic and Social Situation in the Baltic States: Latvia''European Economic and Social Committee〕 Latvia only responded by 2007 by clamping down on the credit market when the inflation has skyrocketed to double digit.〔 The scenario was further worsened due to its budgetary policy always with deficit due to the wrong assumption that the economy would always go stronger than expected.〔 In Lithuania, certain government policies have caused much controversy in clamping the overheated economy. For instance, income tax incentives for individual taking housing loans and absence of the property tax appeared to lend support to credit and housing price growth.〔Raimondas, K.; Tomas, R.; Lietuvos, B.(2009)''From Boom to Bust: Lessons from Lithuania''〕 “Red tape” among the highly bureaucratic central and municipal governments distorted the market supply and demand equilibrium for housing.〔 During the economy overheating, the ruling democratic coalition reduced the tax and increased the government spending on social programmes.〔 The wages for public sector also stoked up the inflation rate, besides worsening the current account deficit.〔 *Overheating property market: In Estonia, property prices bubble largely concentrated in Tallinn, Tartu City and Pärnu City. The average price of apartments purchased in Estonia excluding Tallinn in 2004 was estimated at EEK10,045 (€642) per square metre but increased to EEK18,134(€1,159) per square metre in 2007.〔 In Tallinn, from an average of EEK14,035(€897) per square metre in 2004, the average price fetched up EEK25,447(€1,620) per square metre in 2007.〔 Elsewhere in Tartu City, the average price per square metre touched as high as EEK18,290 (€1,169) in 2007 compared to EEK10,123 (€647) per square metre in 2004.〔 Meanwhile, in Pärnu City, the average price of apartments purchased in 2007 was estimated at EEK20,027 (€1,280) per square metre compared to EEK11,093 (€709) per square metre in 2004.〔 In Latvia, property prices bubble can be detected in Riga, Jūrmala, Liepāja and Jelgava. The average price for urban localities on average per metre square was LVL158 (€224) in 2004 but gone up to LVL665 (€946) in 2007.〔 Riga experienced the highest incremental in term of apartment price per metre square – from LVL229 (€325) (in 2004) to LVL841 (€1,196) (in 2007), a jump of 267%.〔 Jurmala of Pierīga region recorded a huge jump, in terms of price per square metre; from LVL 222 (€315) (in 2004) to LVL916 (€1,303) (in 2007).〔 Other cities also recorded a similar pattern: Liepāja (Kurzeme) from LVL79 (€112) per metre square in 2004 to LVL 338 (€480) per metre square in 2007, Jelgava (Zemgale) from LVL96 (€136) per square metre in 2004 to LVL 396 (€563).〔 In Lithuania, the property bubble can be seen in Vilnius, Kaunas and Klaipėda. In Vilnius, average price per square metre in 2005 fetched LTL2,618 (€758) but hit as high as LTL 5,500 (€1,592) in 2008.〔 In Kaunas, average price per metre in 2008 fetched up LTL5,083 (€1,472) compared to LTL1,916 (€554) in 2005.〔 In Klaipeda, the average per metre in 2005 was about LTL1,416 (€410) but gone up to LTL4,000(€1,158).〔 抄文引用元・出典: フリー百科事典『 ウィキペディア（Wikipedia）』 ■ウィキペディアで「Baltic states housing bubble」の詳細全文を読む スポンサード リンク
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