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23. The Impact of Rapid Credit Growth on Slovakia Housing Market (december 2015)

IFP v spolupráci s EK pripravilo pohľad na politiky trhu s bývaním.

Since joining the EU in 2004, bank lending to the non-financial private sector in Slovakia has grown continuously. While corporate credit volumes stopped growing in the aftermath of the 2008/09 global financial crisis, household borrowing has continued to grow at double digit rates, mainly to finance property purchases.

We evaluate the impact of these developments on household debt levels in Slovakia, investment activity and house prices. We find that credit expansion has not resulted in any apparent macroeconomic imbalance, as household debt levels remain relatively moderate, despite the rapid growth in housing-related borrowing. The ratio of residential construction investment to GDP has not been subject to boom-type dynamics. The performance of the banking sector’s household loan portfolio has also remained relatively stable in recent years. Although the proportion of non-performing loans rose briefly in 2009-2010, they swiftly returned to low pre-crisis levels. House prices, which began a sharp correction in 2009, have been rising again since late 2014 but it is too early to judge the extent to which this trend will continue.

To avoid the development of any possible excesses in the housing market, some reassessment of fiscal and regulatory policies related to the housing sector could be useful. Policies to develop the formal rental market and a shift to value-based taxation of residential property could reduce the strong preference for owner-occupied housing in Slovakia. Addressing regulation bottlenecks in housing construction could also help to increase the responsiveness of housing supply.