Hanfa stress test: Crisis would topple funds
Regulator's analysis shows property prices in Croatia would keep rising even in a severely adverse scenario, albeit at a slower pace, while financial assets would suffer significant losses.
Regulator's analysis shows property prices in Croatia would keep rising even in a severely adverse scenario, albeit at a slower pace, while financial assets would suffer significant losses.
A serious economic crisis stemming from an escalation of the conflict in the Middle East would have significant consequences for financial assets in Croatia, but property prices would continue to rise. This is one of the key findings of the stress test published by the Croatian Financial Services Supervisory Agency (Hanfa) in its document 'Financial Stability', as reported by Poslovni dnevnik.
According to Hanfa's stress scenario, property prices would rise this year and next, albeit at a slower pace, by 1.6 percent and 1.7 percent, respectively. At the same time, the value of assets held by pension and investment funds, as well as insurance and leasing companies, would decline. This paradoxical outcome for the real estate market does not surprise Boro Vujović, owner and director of Opereta.
Vujović explains that the market, although appearing somewhat calmer than two or three years ago, is not as slow as the nearly halved number of actual transactions might suggest. "It doesn't surprise me at all because what I see on the ground is that the market, admittedly, looks somewhat calmer than two or three years ago, but nowhere near as much as the nearly halved number of actual transactions would indicate. At the same time, the same statistics show that residential property prices have continued to rise at double-digit rates. That sounds paradoxical to many, but it actually describes the state of the Croatian market very well. The reason is simple: the number of completed transactions is not the same as the level of demand. There are still many buyers. What is lacking are quality properties," Vujović told Poslovni dnevnik.
As one of the main reasons for the current state of the market, Vujović highlights the chronic shortage of new construction. He emphasizes that Croatia today builds significantly fewer apartments than it did two decades ago.
"It is often forgotten that Croatia today builds significantly fewer apartments than twenty years ago. In the record years before the financial crisis, around 25,000 apartments were built annually, while in recent years that number has hovered around 16,000 to 17,000 apartments. At the same time, the number of households is increasing, lifestyle habits are changing, the number of single-person households is rising, interest in investment purchases is growing, and a significant portion of demand comes from foreign buyers, especially on the coast. In other words, demand has remained strong, while supply has failed to keep pace with its growth for years. It is logical that such a market always results in rising prices," Vujović is clear.
Hanfa's stress scenario assumes prolonged disruptions in energy markets, rising inflation, deteriorating financing conditions, and corrections in financial asset prices. Under such circumstances, inflation in Croatia would pick up again but would remain below the levels seen in 2022. According to this scenario, inflation would reach 7.8 percent in 2026 and 9.6 percent in 2027.
The deterioration of the macroeconomic situation would also affect public finances. Due to rising energy prices, the need for fiscal support would increase, while weaker economic activity would lead to lower budget revenues. Although the scenario is severely adverse, Hanfa notes that the analysis shows the financial services sector can withstand the simulated systemic shocks.
