The Influence of Transition Economy Pecularities on the Formation of Housing Price Level

Abstract

The article deals with a global problem – the influence of transition economy peculiarities on the formation of a housing price level. Real estate market takes a significant share in global economics which suggests the important position of the real estate market in global economic processes. Processes of world globalisation strengthen the links between the real estate market and cycles of overall economics. These links are less understandable and less apparent in transition economies trying to successfully integrate into the communities of market economies and catch up with developed countries. Processes in the real estate markets in transition economies have not been fully researched, and they differ from the processes of the real estate markets in developed economies with their peculiarities, possible market participants’ reactions to economic shock and outcomes for the country’s economy.

Common problems with property privatization, formation of legal and financial systems, real estate market cycle are specific and the countries with transition economy face them. Specificity of a narrower real estate market share – housing market – is determined by the need of housing market participators to procure and possess own housing unsatisfied during the period of command economy. The need for housing is constant and reflects the present level of people’s wellbeing, however, in the case of countries with transition economy a big share of new players who allow making irrational investment decisions because of the lack of historical experience and information interfere with processes in housing market.

Understanding and forethought of the tendencies of real estate price level formation is becoming extremely important in transition economies, where legislative base of the real estate market has not been formed, people are hardly familiar with the processes of the real estate market and not sufficiently understand their impact on the economy of the country.

Deeper analysis in this field has been also encouraged by the fact that scientific literature lacks the establishment of the key factors determining the formation of housing price level in transition economies. That is why, considering an increasing demand for housing in transition economies, the authors find it necessary to carry out the research to include the processes of housing market, the tendencies of housing price level formation and the impact of bank policy directions on housing market participants and a housing price level. The scientific literature has not still provided a clear answer to the question “What transition economy peculiarities are the most important and have the greatest impact on housing price level variations?”.

The aim of the work is to determine the most important peculiarities of transition economy country that have the greatest influence on the formation of a housing price level, and with this aim the authors seek to review the conditions and factors determining the formation of a housing price level in transition economies, study theoretical features and peculiarities of the transition economy country which could have an impact on the formation of housing price level, establish the main factors determining the formation of a housing price level in the transition economy country in the case of Lithuania, use the method of expert evaluation in order to verify the impact of the most important factors, typical of transaction economy, on the formation of a housing price level.

The analysis of the scientific literature proposes the conclusion that the main peculiarities determining the formation of housing price level in transition economies are targeted formation of housing market participants’ behaviour and high money supply. The authors have revealed the connection between the formation of legislative base and tax policy as well as between bureaucratic barriers of land management and change of housing price level. They have also revealed the link between the number of real estate market participants and housing price level increase. The more speculative objectives real estate market participators have, the higher demand is stimulated and housing prices rise. The research has also shown that there is interdependence between change of housing prices and irrational behaviour of consumers. It is worth highlighting the fact that the formation of housing price level in transition economy country is influenced by a complex of different factors.

http://dx.doi.org/10.5755/j01.ee.22.5.973