Did you heed Warren Buffet's advice? Two years ago he told us “the time to get greedy is when others are fearful”. He said this after he bought a chunk of troubled Goldman Sachs bank when most other investors were rushing for the exits - the banking crisis was at its peak.
At that time I argued Buffet's approach can work for property investment, a view that proved correct - many investors who got greedy for bricks and mortar over the last 24 months have been rewarded.
The global housing slump reached its low point two years ago, since when house prices have risen by 10 per cent on average estate agency, Knight Frank, reports.
“Each quarter we are presented with further evidence that the impact of the global recession on the world’s housing markets is diminishing,” says Liam Bailey, head of residential research at Knight Frank, “Economic stimulus measures put in place by many western governments such as ultra-low interest rates, first time buyer concessions and targeted support for banks have encouraged house buyers.”
Investors who ploughed money into East Asian markets in 2010 may feel they have the Midas touch. Property prices rose by more than a quarter in Hong Kong, and by a third in Singapore and China's biggest cities, last year. Those who braved the Latvian housing market must feel smug. The Baltic state's housing market was devastated by the crash. It's home prices sank 43 per cent from a 2007 peak, but in 2010 they recovered strongly, rising about 20 per cent, making it Europe's best performing housing market over the past twelve months.
Other buoyant markets included Brazil, Russia, Australia and South Africa. In France, modest property price rises kept pace with inflation.
It does not always pay to be greedy. Those who bought homes in most other European countries including Spain, Ireland, Monaco and Switzerland may wish they had not done so, because values fell. The same was true for most of the United States.
Knight Frank's forecast for 2011 is for a gentle recovery in the West and a reining in of excessive price rises in the East.
“The potential risks to future growth are many and varied,” says Bailey, “For western economies the availability of new funding, the scale of austerity measures, earnings and employment growth will prove critical to the health of their housing markets. In Asia, a lot hinges on how far governments intervene in fiscal policy.”
Some European countries, including France, Italy and Switzerland, will enjoy price rises this year the agency says. This must be viewed as the best case scenario, because a Eurozone crisis has not been averted. If the unflaterringly labelled PIGS(debt laden Portugal, Ireland, Greece and Spain) fail to manage their finances better, then their economies and housing markets will suffer. And so will the rest of Eurozone which would have to bail them out.
Even if the Greeks, Irish and Iberians do keep a grip in 2011, they will still suffer. Knight Frank forecasts a 3 per cent fall in Irish property values in 2011. However, a new set of tax rises and public spending cuts in the wake of the International Monetary Find (IMF) and European Union (EU) bailout will surely exacerbate price falls. Harsh austerity measures in Spain, Greece and Portugal will drag down property values in these countries.
However, if the Euro were to collapse on international exchanges as a result of government debt problems, then Eurozone property would become much cheaper for buyers from outside the region - the resulting influx of Britons, Chinese, Arabs, Kazaks and others could help buoy some markets, especially top end holiday home destinations and prime areas in capital cities. Paris, Cote'D Azur, Tuscany, Umbria and the Alps would top the list - these destinations are established and not over-built.
Even without Eurozone government debt crises, a lack of mortgage funding will continue to squeeze demand and prices in the region in 2011.
Britain's position is precarious. The EU is Britain's largest trading partner and its banks have lent heavily to Ireland, so it's economy and property market would struggle if the Eurozone's financial crises spread. Such potential disasters aside, economists are split on Britain's prospects. Bailey forecasts a modest 2 per cent rise in Britain in 2011, partly because demand outstrips limited supply. Consultancy, Capital Economics forecasts a -10 per cent fall, because a shrinking mortgage market and government austerity programme will drain the housing market of cash.
London was Britain's strongest housing market in 2010, mainly because of strong demand from foreign buyers attracted by the weakness of Sterling. Bullish economists say the capital's private sector revival will give London home prices a boost in 2011, but sceptics say they will fall further than elsewhere in Britain, because affordability levels are overstretched.
Most likely, Britain will be a mixed bag. Property markets in locations dependent on public sector funding and old declining industries will fair badly, while those in areas with vibrant private sectors with strong knowledge-based businesses, good communications and attractive, well maintained housing stock, will do better. In short, locations, like central London, Reading, Brighton and Cambridge have the best prospects.
Ironically, Europe's strongest property market in 2011 may be in a country shunned by the EU: Turkey - it came through the banking crisis relatively unscathed, its mortgage market is expanding, the economy is growing and interest rates are coming down. Morocco is tipped as a hot spot by some agencies - the growing list of luxury holiday home resort communities being built there is a vote of confidence from developers.
In the United States, a revival in Wall Street's fortunes meant property markets in high end locations of Manhattan and Brooklyn boomed in 2010. The Hamptons, the playground of bankers and stockbrokers, also fared well. As for most of the rest of the United States, the end of homebuyer tax credits in April signalled the start of another slide in US property values. Capital Economics expects US property prices to be 5 per cent lower than they are now this time next year. Knight Frank is more positive, forecasting a 1 per cent rise in 2011.
In Asia, bubbles are forming. In Beijing, the average cost of a home is 22 times earnings. Taiwan's market is rife with speculators buying up property in anticipation of large Chinese investment in the years ahead.
In Hong Kong, prices are inflated largely because interest rates are barely at 1 per cent. In locations like Hong Kong and the United Arab Emirates currencies are pegged to the US Dollar, and their interest rates to those of the Fed. US interest rates are low to help reflate the American economy, but in Hong Kong these low rates are over-inflating an economy that is already boomimng.
Eventually, when the Fed raises interest rates, they will rise correspondingly in Hong Kong, so people taking out large, cheap loans in that Special Administratuve Region of China today will find them becoming expensive. If banks absorb these rate rises, then borrowers may escape unscathed.
After losing half of its value in 2009, the UAE property market slipped back a relatively modest -6 per cent in 2010.
Steven Morgan, head of estate agency, Cluttons UAE, is confident about Dubai's prospects.
“A number of encouraging indices such as the re-entering of (lenders) Tamweel and Amlak into the mortgage market, increased tourism numbers in Dubai, and growing container shipments through Jebel Ali all point to stabilisation and even modest recovery within the real estate market in 2011,” says Morgan.
On the other hand, the supply of housing in Dubai is enormous, so a quick-turnaround in fortunes is unlikely.
In these uncertain times many of us may prefer not to buy a home fearing we may lose money if markets fall. Maybe the way to approach this conundrum is to ask “What would Buffett do?”. The Sage of Omaha is sanguine about uncertainty. Plan for the long term he advises. “Only buy something that you'd be perfectly happy to hold if the market shut down for ten years,” is a famous Buffett quote. He was referring to stocks and shares, but, as we have found, his approach works for property ownership too.
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