Two property markets are emerging in Britain. Prime central London is looking increasingly buoyant, but most of the rest of the UK is troubled. Let's see why they differ.
First, the whole of the UK - the basic problem of the banks not lending still remains. In addition to that, unemployment is rising, tax rises are on the way and big public sector cuts are in the offing, and all the industrial relations turmoil that goes with that. All this will put the dampners on the national property market over the next year or two.
In prime central London, things are slightly different - old money, City money and foreign money rules, and it is less mortgage reliant. Foreigners are buying, because of the cheap pound, and City folk are buying, because the stock market is recovering. Result: property prices are rising in these areas.
Prices have also been supported by very little stock coming on the market. However, this will right itself eventually, because many people who have been renting out their own homes will get fed up with that and want to sell, so they can make that big move up or down the property ladder.
The upturn in prime central London has happened much faster than anyone expected. Whether it can be sustained is a big question, but it is looking more that way. Some agents, like Cluttons, and some consultancies, like Capital Economics, are sceptical however.
A good time to buy may appear in the late autumn, because traditionally there are few other buyers around then, so those who do try to sell will include many "motivated sellers".
There is much uncertainty in the market. Sentiment is such an important factor, so gauging that will be key to figuring what the future holds. One indicator of confidence is the Young Index, published by the Young Group, which shows the majority of investors in the second quarter of 2009 believed London prices would be higher in twelve months time.
One thing is certain, if there is an upturn happening, then it is starting in the same place it always does, prime central London. In past upturns, it ripples out from the capital's most des res areas to the rest of the city and then on to the remainder of the UK. Savills say this is starting to happen with the market hotting up in south east England.
However, with the economy and public finances still in a mess, it may be a long time for this upturn to ripple out any further from London and its surrounding commuter belt. What's more, when those public sector cuts are made after the next election, any property price rises recorded outside of London's prime markets now and in the next few months, will be wiped out.
One exception, may be the country house market, which, like prime central London, relies on cash-rich foreigners, aristocrats and City boys to prop it up. The new City catchphrase "bonuses are back" suggests some people, at least, will be doing well over the next few months, even if the rest of us are struggling.
(All The World's a Home : Global Property News)
Monday, 29 June 2009
Friday, 26 June 2009
HEMP HOUSE
Necessity really is the mother of invention, especially if you are an architect. The combined problems of recession, climate change, commodity shortages, congested cities, lack of affordable housing and a host of other irritants would be enough to have many of us lie down in a darkened room with a wet towel wrapped round our heads, not so if you are one of the many enterprising architects coming up with clever ideas at the moment.The latest wheez to come off the drawing board is a house built entirely out of hemcrete, a mix of hemp and lime. Called The Renewable House, it is low carbon, relatively cheap to build and constructed mostly from a material that can be grown in many countries.
Since hemp absorbs carbon dioxide from the atmosphere while it grows, the house's carbon footprint is reduced further. Designed by British-based Archial Architects, the modular homes can be used in either terraced, semi-detached or detached formats.
(All The World's a Home : Global Property News)
BARGAIN BASEMENT USA
Nowhere is safe. Property prices in The Hamptons, the Long Island playground of loaded New Yorkers, are falling for the first time after 20 years of continuous growth. Asking prices for one-third of Hamptons homes have been cut by an average of 11 per cent.
But if you think they have problems, then head west to the San Fransisco Bay Area where prices have crashed by 34 per cent over the past 12 months - masses of repossessed properties have been dumped on the market, accounting for half of sales.
A clue to what might happen next is found in Detroit where the car industry is becoming the stuff of history books. These days this city is less Motown than buy-to-let town. Prices for homes in the city have slumped by a third over the past year to an average of only USD80,000, a level so cheap, that investors from across the world, from Australia to Lithuania, are buying them up ten at a time.
These investors are banking on a long term reival in the city's fortunes. After all, this is not the first time the city has come through an economic crisis - the Great Depression of the 1930s is comparable. On that basis, a Californian investor has bought 178 homes in Detroit. Now that's confidence for you.
(All The World's a Home : Global Property News)
But if you think they have problems, then head west to the San Fransisco Bay Area where prices have crashed by 34 per cent over the past 12 months - masses of repossessed properties have been dumped on the market, accounting for half of sales.
A clue to what might happen next is found in Detroit where the car industry is becoming the stuff of history books. These days this city is less Motown than buy-to-let town. Prices for homes in the city have slumped by a third over the past year to an average of only USD80,000, a level so cheap, that investors from across the world, from Australia to Lithuania, are buying them up ten at a time.
These investors are banking on a long term reival in the city's fortunes. After all, this is not the first time the city has come through an economic crisis - the Great Depression of the 1930s is comparable. On that basis, a Californian investor has bought 178 homes in Detroit. Now that's confidence for you.
(All The World's a Home : Global Property News)
CHINA WANTS YOU?
China may make it easier for overseas investors to buy property there..... again.A slump in foreign investment in its economy is worrying Beijing, because so many jobs depend on it. If red tape is cut, and foreign investors are given more freedom to buy Chinese property, then luxury home prices will rise by as much as 30 per cent, estate agents say.
Demand for des res abodes in big cities like Shanghai has risen sharply in the last couple of months, because Chinese HNWIs and investors are seeking safety in property from the turmoil in stocks and shares, and rising inflation. Foreign investors who can circumnavigate the bureaucracy are buying too.
Beijing's policies towards foreign investors tend to yo-yo back and forth, from encouraging them when times are bad to discouraging them when a speculative bubble appears, so if the government does relax its rules again, and you want a toe-hold in the world's third largest economy, then make the most of the opportunity while it lasts.
In Hong Kong, pictured here, where foreigners can buy property freely, flat and house prices have been rising since the start of 2009.
(All The World's a Home: Global Property News)
ITALIAN DEALS
Discounts of up to 15 per cent are available on apartments in Umbria and La Marche according to estate agents. These two Italian regions have become popular in recent years with overseas holiday home buyers who want a piece of the glorious Italian countryside, but not at relatively steep Tuscan prices.
A restored farmhouse in Umbria and La Marche usually costs from Euro1 million, and a two bedroom apartment in a restored farmhouse from Euro270,000. Wrecks are considerably cheaper.
A number of holiday home projects are appearing in this part of north west Italy, including Castello di Reschio, on the Tuscan/Umbrian border, where 50 farmhouses are being restored by Count Benedikt Bolza.
If your heart is set on something really special in Tuscany, then estate agency Cluttons is marketing a restored 18th century villa, pictured here, with Italianate garden near Lucca. The estate also includes a second villa in need of restoration, farmhouse, private chapel and 57 hectares of woodland, vineyards and olive groves. POA.
(All The World's a Home : Global Property News)
EYE OF THE STORM
The British property market appears to be staging a recovery. Don't be fooled. Savills says prices in prime central London rose 4.3 per cent in the second quarter. Hometrack says prices nationally held steady at 0 per cent rise/fall for the second month running in June. And Your Move says rents rose 1 per cent in June.
However, this may only be the eye of the storm, because as the recession and banking crisis recede, so huge public spending cuts and tax rises needed to pay off the national debt loom large on the horizon - these storm winds will most likely whip up sometime after the next general election which must be held within the next nine months.
Whichever political party wins that election, they will have to make thousands of public sector employees redudant and all of us pay more tax. Both of those things mean less money in the economy which means less money available for spending on housing. There's little chance big home loans will make up the difference, because banks are likely to remain reticent about lending on a massive scale for a long time yet.
In any case, the house prices to earnings ratio, currently at about 5, is still too high says consultancy, Capital Economics, so prices will fall 10 per cent this year, 5 per cent in 2010 and 5 per cent in 2011 until the long term average of 3.7 is reached. Either that or earnings must rise substantially and there is little sign of that happening.
(All The World's a Home : Global Property News)
However, this may only be the eye of the storm, because as the recession and banking crisis recede, so huge public spending cuts and tax rises needed to pay off the national debt loom large on the horizon - these storm winds will most likely whip up sometime after the next general election which must be held within the next nine months.
Whichever political party wins that election, they will have to make thousands of public sector employees redudant and all of us pay more tax. Both of those things mean less money in the economy which means less money available for spending on housing. There's little chance big home loans will make up the difference, because banks are likely to remain reticent about lending on a massive scale for a long time yet.
In any case, the house prices to earnings ratio, currently at about 5, is still too high says consultancy, Capital Economics, so prices will fall 10 per cent this year, 5 per cent in 2010 and 5 per cent in 2011 until the long term average of 3.7 is reached. Either that or earnings must rise substantially and there is little sign of that happening.
(All The World's a Home : Global Property News)
Tuesday, 16 June 2009
ROCK SOLID GIBRALTAR
The devaluation of Sterling against other major currencies has helped draw overseas investors to Gibraltar's property market this year. The Gibraltar pound is pegged to Sterling, so property prices in Britain's small Mediterranean territory have become 25 per cent cheaper for buyers earning in euros, dollars and currencies pegged to the Greenback, like the Dubai's dirham and Hong Kong dollar, since early 2008.
British estate agency, Beauchamp Estates, has received dozens of enquiries from potential overseas buyers for Admiralty House, a colonial-style, seven-bedroom residence it is marketing, since the start of 2009. On offer for an undisclosed sum, the cliff face, Georgian home boasts a swimming pool and sea views.
“The Gibraltar pound is fixed to the Sterling pound, therefore buying power in dollars or euros is now greater,” says Gary Hersham, director at Beauchamp Estates.
In addition to the devaluation of the Gibraltar pound, a slide in The Rock's property prices has made homes cheaper to buy.
According to Jeremy Boyd, director of estate agency Chesterton Gibraltar, prices have fallen 10 per cent from their peak in late 2007. With a population of only 30,000 and land area of 6.5 square kilometres, statistics on Gibraltar's housing market are scanty.
“There is no institution that monitors price movements, because Gibraltar is too small and monitoring is too expensive for them, so agents must feel their way through the market,” he says, “In consultation with other agents, bank valuers and from our own sales I would say price levels now comparable to early 2007.”
The market for good quality homes valued at £400,000 or more was firmer than for lower priced properties he said, because of strong demand from incoming business executives working in Gibraltar's expanding services industries. Most buyers bought in cash or with a small mortgage he said.
The market for homes valued at £400,000 or more is also helped by steady demand from wealthy individuals moving to Gibraltar to take advantage of low personal taxes estate agents say. Gibraltar runs a scheme called, Category Two, whereby wealthy overseas individuals have taxes on their worldwide income capped at £22,000 each year if they take up residency in the territory. It is very popular with Britons.
According to Hersham, Gibraltar has 330 high net worth foreign residents taking advantage of its Category Two scheme, and receives 40 applications each year from others wanting residency.
Gibraltar has few personal taxes. There is no VAT, wealth tax, inheritance tax, nor capital gains tax, and the maximum level of stamp duty is 2.5 per cent. The standard rate of income tax is 30 per cent, but this is not levied on income from investments. There are no exchange controls.
“Gibraltar competes exceedingly well with all the Caribbean tax havens as well as the Isle of Man,” Hersham says.
Overall, housing demand is underpinned by Gibraltar's rapid GDP growth since the 1990s. It grew at 8 per cent in 2008 and is forecast to expand by 5 per cent in 2009. Its jobs market has grown 45 per cent over the past ten years government figures show.
The government has encouraged economic diversification since the mid-1990s to ease reliance on providing port facilities for the Royal Navy. Developing itself into a shopping centre for the western Mediterranean and tax haven has created new jobs in financial and legal services, retail and, most recently, internet gaming.
Main Street, Gibraltar's biggest shopping thoroughfare, is lined with international outlets like Dorothy Perkins and Marks & Spencer, and local stores selling luxury goods like Rolex.
Shipping, a long-term mainstay of the economy, and tourism account for about 50 per cent of GDP between them.
According to Peter Caruana, Gibraltar's chief minister, the territory would have the 13th highest GDP per capita in the world if it was defined as a sovereign state, because of its rapid growth. In 2005, its GDP per capita was estimated to be $38,200.
Demand for offices and housing in Gibraltar has been given a new boost by the government's decision to set corporation tax at a standard rate of 10 per cent for all companies from July 2010, says Boyd, because it was attracting more overseas businesses to the territory. Existing corporation tax rates range from zero to 27 per cent.
“We just heard at the end of March that William Hill (British gaming company) are relocating 40 executives to Gibraltar, because of the corporation tax cuts,” he says, “Insurance companies are relocating to Gibraltar at the moment - they are building their offices, and the staff will follow later.”
He said Dublin's property prices rose when the Irish government introduced a relatively low 12.5 per cent flat rate of corporation tax in 1998, because it increased business investment, so he expected Gibraltar's property prices to rise for the same reason.
Although tax havens have come in for much criticism from politicians across the world this year, and pressure is growing on some to stop sheltering tax evaders and money launderers, Gibraltar's position remains secure, because it does not have high levels of banking secrecy, he says.
Although Spain objected to Gibraltar setting a standard rate of 10 per cent corporation tax, the territory has received backing for this reform from both Britain and the European Court of Justice in December 2008. Gibraltar is not on the OECD's blacklist of un-cooperative tax havens.
The falling pound has been good news for Gibraltar's landlords, because demand for rental properties in the territory is rising - the strengthening euro has made Spanish rents 30 per cent more expensive than in early 2008 for those earning in pounds, Boyd rays.
Traditionally, expatriates working on The Rock prefer to rent a house with garden in Spain, because these properties are rarely available in high-rise Gibraltar. But times are changing, he says.
“This quarter we are seeing that executives are now thinking whether Spain does offer value for money, because the euro has risen against the pound, so some of these guys are moving back to Gibraltar,” he says.
They are also attracted to improvements in the quality of housing at new developments in Gibraltar he adds.
These include several schemes at Ocean Marina Village. At the Village's 16-storey Imperial Ocean Plaza, prices range from £160,000 for studios to £580,000 for three bedroom apartments. Fairhomes, is building 32 detached villas at prices ranging from £895,000 to £4 million next door.
In the second-hand market, studios are on offer for £80,000 through surveyors, Brian Francis & Associates. Pricier properties marketed by the company include a 140 square meter, three bedroom flat with basement in a Colonial-style building for £450,000 million.
BUYERS GUIDE
The Gibraltar government encourages overseas investment in its property market. As mentioned in the main article above it runs a low tax scheme for wealthy foreigners that requires them to buy a home there.
Under the Category Two scheme, individuals with at least GBP2 million in assets can declare themselves Gibraltar residents for tax purposes. This means they pay a maximum of GBP22,000 on their worldwide income each year. They do not need to be physically resident in the territory, but must buy a home there.
Most applications for the Category Two scheme are approved, because the government is primarily concerned with weeding out money launderers, Gary Hersham, director at estate agency, Beauchamp Estates said.
According to estate agency, Chesterton Gibraltar, void periods for rental properties are usually only a few days each year, because tenant demand is strong and stock limited. Developers promise 5.5 - 6 per cent rental returns at their projects. Mr Hersham said yields can be 7 per cent for properties with direct access to the sea.
Since the Gibraltar pound is pegged to the British pound it means its exchange rate with the Hong Kong dollar is the same. Interest rates in Gibraltar follow those set by the Bank of England which are 0.5 per cent (at time of writing). The British pound can be used in Gibraltar.
Mortgage interest rates are low at the moment. Mortgages for 90 per cent of the value of a property are available from NatWest Bank at an interest rate 2.2 per cent above the Bank of England base rate.
As a British overseas territory, Gibraltar's legal system is based on English law. As in Britain, properties are sold either leasehold or freehold.
English is the official language. Gibraltar is part of the European Union.
(All The World's a Home : Global Property News)
British estate agency, Beauchamp Estates, has received dozens of enquiries from potential overseas buyers for Admiralty House, a colonial-style, seven-bedroom residence it is marketing, since the start of 2009. On offer for an undisclosed sum, the cliff face, Georgian home boasts a swimming pool and sea views.
“The Gibraltar pound is fixed to the Sterling pound, therefore buying power in dollars or euros is now greater,” says Gary Hersham, director at Beauchamp Estates.
In addition to the devaluation of the Gibraltar pound, a slide in The Rock's property prices has made homes cheaper to buy.
According to Jeremy Boyd, director of estate agency Chesterton Gibraltar, prices have fallen 10 per cent from their peak in late 2007. With a population of only 30,000 and land area of 6.5 square kilometres, statistics on Gibraltar's housing market are scanty.
“There is no institution that monitors price movements, because Gibraltar is too small and monitoring is too expensive for them, so agents must feel their way through the market,” he says, “In consultation with other agents, bank valuers and from our own sales I would say price levels now comparable to early 2007.”
The market for good quality homes valued at £400,000 or more was firmer than for lower priced properties he said, because of strong demand from incoming business executives working in Gibraltar's expanding services industries. Most buyers bought in cash or with a small mortgage he said.
The market for homes valued at £400,000 or more is also helped by steady demand from wealthy individuals moving to Gibraltar to take advantage of low personal taxes estate agents say. Gibraltar runs a scheme called, Category Two, whereby wealthy overseas individuals have taxes on their worldwide income capped at £22,000 each year if they take up residency in the territory. It is very popular with Britons.
According to Hersham, Gibraltar has 330 high net worth foreign residents taking advantage of its Category Two scheme, and receives 40 applications each year from others wanting residency.
Gibraltar has few personal taxes. There is no VAT, wealth tax, inheritance tax, nor capital gains tax, and the maximum level of stamp duty is 2.5 per cent. The standard rate of income tax is 30 per cent, but this is not levied on income from investments. There are no exchange controls.
“Gibraltar competes exceedingly well with all the Caribbean tax havens as well as the Isle of Man,” Hersham says.
Overall, housing demand is underpinned by Gibraltar's rapid GDP growth since the 1990s. It grew at 8 per cent in 2008 and is forecast to expand by 5 per cent in 2009. Its jobs market has grown 45 per cent over the past ten years government figures show.
The government has encouraged economic diversification since the mid-1990s to ease reliance on providing port facilities for the Royal Navy. Developing itself into a shopping centre for the western Mediterranean and tax haven has created new jobs in financial and legal services, retail and, most recently, internet gaming.
Main Street, Gibraltar's biggest shopping thoroughfare, is lined with international outlets like Dorothy Perkins and Marks & Spencer, and local stores selling luxury goods like Rolex.
Shipping, a long-term mainstay of the economy, and tourism account for about 50 per cent of GDP between them.
According to Peter Caruana, Gibraltar's chief minister, the territory would have the 13th highest GDP per capita in the world if it was defined as a sovereign state, because of its rapid growth. In 2005, its GDP per capita was estimated to be $38,200.
Demand for offices and housing in Gibraltar has been given a new boost by the government's decision to set corporation tax at a standard rate of 10 per cent for all companies from July 2010, says Boyd, because it was attracting more overseas businesses to the territory. Existing corporation tax rates range from zero to 27 per cent.
“We just heard at the end of March that William Hill (British gaming company) are relocating 40 executives to Gibraltar, because of the corporation tax cuts,” he says, “Insurance companies are relocating to Gibraltar at the moment - they are building their offices, and the staff will follow later.”
He said Dublin's property prices rose when the Irish government introduced a relatively low 12.5 per cent flat rate of corporation tax in 1998, because it increased business investment, so he expected Gibraltar's property prices to rise for the same reason.
Although tax havens have come in for much criticism from politicians across the world this year, and pressure is growing on some to stop sheltering tax evaders and money launderers, Gibraltar's position remains secure, because it does not have high levels of banking secrecy, he says.
Although Spain objected to Gibraltar setting a standard rate of 10 per cent corporation tax, the territory has received backing for this reform from both Britain and the European Court of Justice in December 2008. Gibraltar is not on the OECD's blacklist of un-cooperative tax havens.
The falling pound has been good news for Gibraltar's landlords, because demand for rental properties in the territory is rising - the strengthening euro has made Spanish rents 30 per cent more expensive than in early 2008 for those earning in pounds, Boyd rays.
Traditionally, expatriates working on The Rock prefer to rent a house with garden in Spain, because these properties are rarely available in high-rise Gibraltar. But times are changing, he says.
“This quarter we are seeing that executives are now thinking whether Spain does offer value for money, because the euro has risen against the pound, so some of these guys are moving back to Gibraltar,” he says.
They are also attracted to improvements in the quality of housing at new developments in Gibraltar he adds.
These include several schemes at Ocean Marina Village. At the Village's 16-storey Imperial Ocean Plaza, prices range from £160,000 for studios to £580,000 for three bedroom apartments. Fairhomes, is building 32 detached villas at prices ranging from £895,000 to £4 million next door.
In the second-hand market, studios are on offer for £80,000 through surveyors, Brian Francis & Associates. Pricier properties marketed by the company include a 140 square meter, three bedroom flat with basement in a Colonial-style building for £450,000 million.
BUYERS GUIDE
The Gibraltar government encourages overseas investment in its property market. As mentioned in the main article above it runs a low tax scheme for wealthy foreigners that requires them to buy a home there.
Under the Category Two scheme, individuals with at least GBP2 million in assets can declare themselves Gibraltar residents for tax purposes. This means they pay a maximum of GBP22,000 on their worldwide income each year. They do not need to be physically resident in the territory, but must buy a home there.
Most applications for the Category Two scheme are approved, because the government is primarily concerned with weeding out money launderers, Gary Hersham, director at estate agency, Beauchamp Estates said.
According to estate agency, Chesterton Gibraltar, void periods for rental properties are usually only a few days each year, because tenant demand is strong and stock limited. Developers promise 5.5 - 6 per cent rental returns at their projects. Mr Hersham said yields can be 7 per cent for properties with direct access to the sea.
Since the Gibraltar pound is pegged to the British pound it means its exchange rate with the Hong Kong dollar is the same. Interest rates in Gibraltar follow those set by the Bank of England which are 0.5 per cent (at time of writing). The British pound can be used in Gibraltar.
Mortgage interest rates are low at the moment. Mortgages for 90 per cent of the value of a property are available from NatWest Bank at an interest rate 2.2 per cent above the Bank of England base rate.
As a British overseas territory, Gibraltar's legal system is based on English law. As in Britain, properties are sold either leasehold or freehold.
English is the official language. Gibraltar is part of the European Union.
(All The World's a Home : Global Property News)
Wednesday, 3 June 2009
GUARANTEED RIP-OFF
Investors, be warned. If a developer offers you a guaranteed rental return on one of their properties that lasts a year or two after you have bought it, then it may have inflated the sales price to fund that.
“A property priced at GBP80,000, but worth GBP60,000, allows the developer to give back to the purchaser GBP20,000, fulfilling a guaranteed yield of GBP10,000, or 12.5 percent per year over two years,” says John Scott, director at property investment specialist, Asset Property Brokers, “This ruse particularly applies to apartments, villas or hotel rooms, built in areas with poor occupancy rates and oversupply.
"The result is at the end of the guarantee period in the third year buyers are left with properties that earn them very little, if any, rental income, and a financial disaster.”
From Turkey to Thailand and beyond the phenomenon is widespread, so buyers must do their homework on prices, rents and rental demand Scott says.
“A property priced at GBP80,000, but worth GBP60,000, allows the developer to give back to the purchaser GBP20,000, fulfilling a guaranteed yield of GBP10,000, or 12.5 percent per year over two years,” says John Scott, director at property investment specialist, Asset Property Brokers, “This ruse particularly applies to apartments, villas or hotel rooms, built in areas with poor occupancy rates and oversupply.
"The result is at the end of the guarantee period in the third year buyers are left with properties that earn them very little, if any, rental income, and a financial disaster.”
From Turkey to Thailand and beyond the phenomenon is widespread, so buyers must do their homework on prices, rents and rental demand Scott says.
BRITAIN BOUNCES BACK
Want to put a floor under a falling property market? All you need is plenty of red tape and weave it tight to create a soft landing mat. In Britain, the government's half-hearted financial incentives to prop up house prices have failed, but giving sellers a ton of extra paperwork has done the job nicely.
Sellers have become scare since the Government added lengthy questionnaires to Home Information Packs (HIPs), in April, and insisted properties could not be marketed until they were prepared. The resulting supply and demand imbalance means asking prices are up and gazumping is back. The property shortage is exacerbated by few new homes being built. HIPs contain sales information which the seller must give prospective buyers.
Experts are divided about whether this mini-boom means the market has bottomed out. Buying activity will drop in late summer when rising unemployment, rising insolvencies and shrinking GDP takes its toll some say. Others say pent-up buyer demand is so great prices will rise next year.
For what it's worth, this journalist has put his home on the market to make the most of this dead cat bounce. With higher taxes and public sector cuts on their way after the next election, more economic pain will dibilitate the housing market over the next year or so. If you think I'm wrong, buy my flat!
Sellers have become scare since the Government added lengthy questionnaires to Home Information Packs (HIPs), in April, and insisted properties could not be marketed until they were prepared. The resulting supply and demand imbalance means asking prices are up and gazumping is back. The property shortage is exacerbated by few new homes being built. HIPs contain sales information which the seller must give prospective buyers.
Experts are divided about whether this mini-boom means the market has bottomed out. Buying activity will drop in late summer when rising unemployment, rising insolvencies and shrinking GDP takes its toll some say. Others say pent-up buyer demand is so great prices will rise next year.
For what it's worth, this journalist has put his home on the market to make the most of this dead cat bounce. With higher taxes and public sector cuts on their way after the next election, more economic pain will dibilitate the housing market over the next year or so. If you think I'm wrong, buy my flat!
UNDERVALUED AMERICA
United States homes are now undervalued economists say. Property prices have fallen by a third since the market peaked in 2006. In nominal terms, property values are back to where they were in 2002, but in real terms (after inflation is factored in), they are back to where they were in 2000. This means six years of heady gains have been wiped out in three years of massive falls.
US homes are now undervalued by one-fifth according to the house price-to-disposable income ratio. Three years ago, they were 35 per cent overvalued, so quite a turnaround. Another indicator, the house price-to-rent ratio, shows sales prices are 9 per cent below “fair value” consultancy, Capital Economics, says. Unfortunately, this does not mean prices are set to rise. On the contrary, they will fall another 5 – 10 per cent the consultancy forecasts, possibly more if growing unemployment means wage cuts for those still in work.
DEFLATED IRELAND
Ireland is in the grip of deflation. Shop prices are falling at a rate of about 2 per cent per annum. Deflation usually means wages get cut, and plenty of anecdotal evidence shows this is happening. This is bad news for the country's housing market, because it means there is less money around for home purchases. Also, deflation makes the size of people's debts grows larger relative to their earnings, another good reason not to take out a home loan. No wonder mortgage lending is down two-thirds on a year ago.
Ireland has a lot of debt. Private sector indebtedness is 175 per cent of GDP, compared to the Eurozone average of 98 per cent, so it will be a long time before anybody wants to take on a big mortgage again.
The economy is forecast to contract by 8 per cent this year, so the downward pressure on property values is growing heavier.
In addition to deflation, another dreaded "d" word is looming large. If the economy contracts by 10 per cent this year that would mean Ireland had moved from recession into depression.
GLOBAL SUFFERING
Housing markets continue to collapse around the world. According to Knight Frank's Global House Price Index, Quarter One, 2009, three-quarters of the 46 countries surveyed experienced house price falls in the twelve months to March 2009. Indeed, first quarter data could not be collected from 14 countries, because their authorities could not or would not provide it, a reflection of their ailing property markets researchers say.
Top performers, Israel, the Czech Republic, Jersey, Switzerland and India, reported modest, mainly single digit price rises year-on-year. Bottom of the heap was Latvia, where prices fell 36 per cent.
“The inescapable trend is that the worst and most widespread economic recession since the 1930s continues to batter housing markets across the globe,” says Nick Barnes, head of international research at Knight Frank, “the shorter term future direction of most underlying economies suggests that the world’s residential markets are likely to continue to suffer for some while.”
Top performers, Israel, the Czech Republic, Jersey, Switzerland and India, reported modest, mainly single digit price rises year-on-year. Bottom of the heap was Latvia, where prices fell 36 per cent.
“The inescapable trend is that the worst and most widespread economic recession since the 1930s continues to batter housing markets across the globe,” says Nick Barnes, head of international research at Knight Frank, “the shorter term future direction of most underlying economies suggests that the world’s residential markets are likely to continue to suffer for some while.”
A FRACTION CONFUSED
Just when the operators of fractional ownership schemes thought they could cash in on the credit crunch by offering their projects as a cheap alternative to buying a whole property outright, regulators have to come along to spoil the party. The European Union's Timeshare Directive lumps fractional ownership in with timeshare as something that needs careful monitoring and control.
Fractional ownership advocates are worried their “product” will be “tarnished” by this association with timeshare and “consumers will be confused”.
For the record, a fractional ownership scheme allows a buyer to own part of the property, the whole of which they can use for part of the year. Timeshare gives a purchaser use of the property for part of the year, but no ownership of it. Fractional ownership properties include apartments, villas and hotel rooms, including this villa pictured above at Eden Rock, on the island of St Barths in the Caribbean.
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