European property markets slow in 2007

A majority of European property markets saw prices moderate or begin to fall in the second half of 2007, according to the Royal Institution of Chartered Surveyors (Rics) European Housing Review 2008.

Increasing interest rate levels introduced to combat inflation were behind the trend in many cases, says Rics, with the knock-on effect of European Central Bank (ECB) policies leading to a slowing of Europe's markets.

Rics finds Cyprus (15 per cent) and Iceland (15 per cent) were the only countries in which house prices outstripped the growth seen in 2006.

Poland also saw prices increase, with a dramatic rise of 28 per cent over the second half of 2007.

In contrast, Ireland was among the worst performing - with average prices down seven per cent.

The Baltic countries – Estonia, Latvia, and Lithuania – were also hard hit.

"The often repeated dilemma currently facing monetary authorities is that slowing economies - and housing markets - need lower interest rates, but higher inflation is against them," said professor Michael Ball, the report's author.

"How Europe's housing markets fare in 2008 depends on how that tug-of-war develops."

The review also finds, while Germany’s economy may have turned the corner, the country's housing market is yet to see the benefit.

Similarly, the slowdown in the French economy has hit the housing sector, with Belgium, the Netherlands and Scandinavia also experiencing a similar quieting.

"There are prospects for some house price falls during 2008 but the scale of any housing market downturn is likely to be far less than the last downturn in the early 1990s," continue Mr Ball.

"The UK housing market looks much better placed than many others in Europe because of the greater interest rate flexibility."

However, in contrast to the UK, autumn's credit crunch – the tightening of lending criteria following the subprime crisis in America – has failed to make a significant impact on continental property markets.

Borrowing remains fluid across Europe, with the UK the only country to register a significant drop.