Overseas Property Recovery Still Patchy
14 September 2011
In the final quarter of 2008 any markets that had avoided recession thus far succumbed to the international crisis. Brazil, Thailand, Malaysia and a handful of other markets had avoided recession, and many (including me) believed that they might just avoid it. This, we believed would make them continued favourites in the overseas property world. We were wrong.
By the end of 2008 hardly anyone was buying hardly anything anywhere. But since the middle of 2009 we have seen reports of sales increases with one thread running through; that the recovery was patchy and unpredictable. This has been the case throughout and is still the case now.
A look at my Google Reader (RSS aggregator) today shows that UK sales have dropped to the lowest level since 2009, but that UK house prices rose in August. It also shows that Romania's property crash is continuing to worsen, while the Hungarian market is stabilising, and the French property market is "looking a little bubbly". If that isn't patchy...
In those snippets alone we have patchiness in the recovery across regions, across countries and across sectors. We also have a clear example of how the core change in overseas property sentiment is not only a partial cause of the patchiness, but is also perpetuating it.
Romania is a prime example of patchiness across regions, countries and across sectors. Patchiness across regions because we know from the above that Hungary is stabilising, and we know from other reports that other property markets in the region are performing much better including Slovakia and Czech Republic. Patchiness across countries and sectors because Bucharest was recently named in a report as being one of Europe's best performers in terms of commercial property investment.
In the UK we have severe patchiness at the country level, with house prices being driven up almost entirely because of the performance of the market in London and the south west.
Meanwhile France illustrates the changed market we live in. Throughout the financial crisis, the French property market has been a stalwart of stability. As we all know, Spain, the US, Dubai and many more markets completely crashed, but the fact that prices, especially in Paris have grown strongly since 2009 now brings fears over a bubble. During the boom there was no such thing as a market growing too fast, but now we all know the dangers of the dreaded bubble.
This change in the market has led to a lot of the recovery patchiness. According to data from the Global Propert y Guide In 2009 the recovery was driven primarily by Asian countries, but as those markets grew hotter, bubble fears led to government clamp downs and the markets began to cool. Thus, in 2010 Europe's best markets, Germany, France and the emerging markets in Eastern Europe overtook Asia in terms of performance. This change led to Global Property Guide to proclaim that the overseas property recovery had stalled in 2010 because less markets were growing than were falling.
Thank fully this patchiness is not all bad; it means that the good patches make for exceptionally good investment opportunities standing out from the crowd. A prime example; Turkey is standing out amidst Europe with its sovereign debt crisis, and the Arab world still trying to rebuild after the Arab Spring uprisings. As a result investment in Turkish property is growing rapidly, and prices are rising at around 6% per year on average.
Germany is another good example; undervalued property and a strong economic recovery is bringing good rental yields to savvy investors. Many still see stability in most parts of France, and it is still on my investment shortlist as well.