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Assessing real estate prices in Slovakia - a structural approach

Author

Listed:
  • Martin Cesnak

    (National Bank of Slovakia)

  • Jan Klacso

    (National Bank of Slovakia)

Abstract

In this paper, we apply the borrowing capacity approach and the intrinsic value approach to assess property prices in Slovakia. We estimate the maximum attainable house price for a given household. It means that we apply downpayment, DSTI or DTI parameters in line with the macroprudential limits implemented by the NBS. We consider the possible top-up in the form of a consumer loan for households not having enough own capital. Finally, we make use of an internal database of NBS of individual retail loan data that gives us a better picture of the average income of borrowers. Results based on the SBC approach point to a possible overvaluation during the pre-crisis period in 2007 and 2008. After the crisis, lowering interest rates and increasing income led to a robust increase of affordability. Since 2014, the implementation of borrower-based measures decreased the affordability, at least for households with not enough own capital. Based on the results, borrower-based measures could under some circumstances ease the upward pressure on house prices even in an environment of historically low interest rates, unemployment and increasing income.

Suggested Citation

  • Martin Cesnak & Jan Klacso, 2021. "Assessing real estate prices in Slovakia - a structural approach," Working and Discussion Papers WP 3/2021, Research Department, National Bank of Slovakia.
    • Handle: RePEc:svk:wpaper:1080
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    References listed on IDEAS

    as
    1. Andrej Cupák & Ján Klacso & Martin Suster, 2020. "Surveying the Impact of the Covid-19 Recession on the Financial Situation of Indebted Households," Working and Discussion Papers WP 6/2020, Research Department, National Bank of Slovakia.
    2. Krzysztof Olszewski, 2013. "The Commercial Real Estate Market, Central Bank Monitoring and Macroprudential Policy," Review of Economic Analysis, Digital Initiatives at the University of Waterloo Library, vol. 5(2), pages 213-250, December.
    3. Gattini, Luca & Hiebert, Paul, 2010. "Forecasting and assessing Euro area house prices through the lens of key fundamentals," Working Paper Series 1249, European Central Bank.
    4. Hana Hejlová & Michal Hlaváček & Luboš Komárek, 2017. "A Comprehensive Method for House Price Sustainability Assessment in the Czech Republic," Prague Economic Papers, Prague University of Economics and Business, vol. 2017(3), pages 269-285.
    5. Nicolas Philiponnet & Alessandro Turrini, 2017. "Assessing House Price Developments in the EU," European Economy - Discussion Papers 048, Directorate General Economic and Financial Affairs (DG ECFIN), European Commission.
    6. Michal Andrle & Miroslav Plašil, 2019. "Assessing House Prices with Prudential and Valuation Measures," IMF Working Papers 2019/059, International Monetary Fund.
    7. Krzysztof Olszewski, 2012. "The impact of commercial real estate on the financial sector, its tracking by central banks and some recommendations for the macro-financial stability policy of central banks," NBP Working Papers 132, Narodowy Bank Polski.
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    Cited by:

    1. Martin Cesnak & Jan Klacso & Roman Vasil, 2021. "Analysis of the Impact of Borrower-Based Measures," Working and Discussion Papers OP 3/2021, Research Department, National Bank of Slovakia.
    2. Martin Cesnak & Jan Klacso & Patrik Kupkovic & Andrej Moravcik & Stefan Rychtarik & Roman Vrbovsky, 2024. "Assessing Residential Real Estate prices in Slovakia: Possible Approaches and Indices," Working and Discussion Papers OP 1/2024, Research Department, National Bank of Slovakia.

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    More about this item

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
    • E37 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Forecasting and Simulation: Models and Applications

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