The exchange rate has dropped in the past 10 days from 7.45 to 7.57 kuna per euro. The interest rate on a 500-euro housing loan has increased by 60 kuna. If the kuna drops to 7.80 - provided that part of the season is saved - it will be a rise in rates of almost 200 kuna. Demand for housing is cooling off, there are no trips, no foreign visitors or tourists, but there is fear.

RIJEKA - History, as Governor Boris Vujčić said recently, teaches us that after a strong rise in housing prices, there usually follows a decline. And if a decline occurs, homeowners who bought their homes on credit will be left with large debts, and the lower value of the housing will leave them with a heavy burden. In the meantime, there has been no rise in interest rates, in fact, more and more money is being injected into the system, but the coronavirus has struck, an external shock that threatens to bring on a recession. The possible decline in economic activity and the increase in unemployment sends fear into the bones, causing the market to tighten up, and only the most necessary things are being acquired - food, hygiene products, and so on. Everything else is on hold. The crisis is first felt in the price of housing. The stock market has already started to fall, but investment in the stock market is not a mass sport in our country, so this has a negligible effect on household budgets. However, the majority of Croatian citizens own real estate, from the home they live in to alternative apartments or houses that they rent out to others.

Making do with less

At this point, there is a standstill, there is no foreign demand, nor trips, nor foreign visitors or tourists, but there is fear. The housing market is said to be feeling the effects of the crisis, with property viewings being cancelled, as reported by some agents. This is perfectly logical in this situation. Domestic demand, however, is still relatively stable, since the credits that are being pushed by the government have been prepared for some time now. However, there are no foreign buyers, nor tourists. Although housing creates a sense of security and increases the feeling of wealth, those who have been saving in them have realized in recent days that - housing cannot be eaten. It cannot be quickly sold, and certainly not when hardly anyone thinks about investing. Everyone in the uncertainty appears to be somehow 'squeezed', and savings are increasing - which are mostly not planned - and only the basic costs are being covered. Investment and planning are not a priority. The coronavirus is already in place, causing a certain correction in terms of demand. Whether this will lead to an actual price correction is of course dependent on the intensity and duration of the crisis situation. However, in addition to the classic 'dents' that could affect the value of housing - and which are always risks associated with any purchase or sale - the situation is also complicated by the fact that over half of the properties that have been bought on credit were purchased with a foreign currency clause. The kuna is weakening against the euro, despite the central bank's interventions, which means that the cost at which the property is repaid is increasing. In other words, the collateral is under pressure due to its weakness, and the credit rates are still increasing. To cite an example, the exchange rate dropped 12 days ago from 7.45 to 7.57 kuna per euro, and it is predicted to continue to fall, depending on the extent of the damage in the tourism sector, which is of course dependent on the extent of the epidemic. This means that someone with a 500-euro housing loan is now having to pay back 60 kuna more. And if the kuna drops to 7.80 - provided that part of the season is saved - it will be a rise in rates of almost 200 kuna.

Ensuring liquidity

Banks are thinking about imposing a moratorium on credit, the HNB apparently has some additional measures in place, but the government is waiting for a guarantee before making any decision. The decision is expected to be made today. Companies, and the government itself, which is indebted to the value of euros, are seeing their debts growing. The HNB is protecting the exchange rate, but in doing so it is also withdrawing the necessary liquidity from the system and then, on the other hand, is having to release it. The lesson is that a rentier economy is not reliable. There is nothing else but to start producing, and in times of crisis, the importance of these basic industries is once again shown, above all, of course, food production. Here, we still stand to some extent, but taking into account the conditions we have, it's a shame that we have to fear hunger. A price ceiling is being introduced, domestic producers are providing support, but we are an import-oriented economy: we don't produce, but mostly import. The last crisis saw the flow of money coming to a standstill, with bankruptcy looming. Now, the flow of goods is slowing down. The HNB has plans to introduce structural operations, freeing up large amounts of liquidity for the financial industry this week. Banks, in relation to the latest court ruling, however, are not expected to use their reserves to pay court costs to the same extent. Therefore, it seems necessary to find space to act, to ensure that credit rates at least do not increase, and that currency interventions are not sufficient. Source: novilist.hr

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