Over the last few days we have seen headlines in the press suggesting that the worst may well be over for various property markets around the world. However while we would all very much like to believe this is the case the fundamentals do not seem to support these overly optimistic views. The worldwide economy is still very much on its knees and while governments around the world would like you to believe that various rescue packages have already kicked in, the facts very much seem to indicate that this is not yet the case.
Let us take a look at some of the main property markets around the world and update ourselves as to the local problems, prospects for the future and any potential timescales:-
UK property market
Despite all of the headlines just a couple of weeks ago regarding the perceived success of the financial rescue package we have yet to see any real follow-through in the UK property market. Despite taking billions of pounds in loans from the UK taxpayer, mortgage providers have yet to pass on any savings or indeed improve the quality and availability of mortgage finance to the UK homeowner market.
The government was very quick to take credit for the short-term bounce in investment markets after the rescue package was announced but since then we have seen the stock market and property markets fall back even further. However, on a positive note it was a relief to see inflation start to fall back after a period in which the cost of living has increased substantially.
Without being overly pessimistic it would be foolish to assume that the UK property market is in anyway primed for a short term recovery. Recent forecasts on a recovery date have seen any one year between 2009 and 2013 plucked out over the air by an array of so-called property market experts.
US property market
To say that the US property market is in a worse state than the UK market would be a massive understatement. We have seen the demise of household financial institutions, the investment banking sector is no more and the emergence of so-called tent cities where many who have lost their homes have been forced to live.
As ever hope seems to spring eternal in the US property market with hopes that the new president, who will be elected over the next few days, will be able to wave a magic wand and literally resolve all problems in the US market overnight. The reality is very much different with the government spending hundreds of billions of dollars buying up financially crippled companies as well as injecting both liquidity and capital into the financial markets. Nobody quite seems to realise that the new president will inherit such a mess that it could literally take a full term in office before any real progress can be made.
Chinese property market
Even when the US and UK markets were showing signs of slowdown it was very much the Chinese economic expansion which allowed some overseas investors to make substantial gains in the local Chinese housing market. In reality the Chinese property market had been primed for expansion by the authorities who even to this day continue their vice like grip on the supply and demand figures.
However even this has not been enough to see China avoid the consequences of the worldwide economic slowdown. We have seen a number of so-called property hotspots burst as both local and overseas investors decide to jump ship. As a consequence a great number of the Chinese population have been left decimated with savings severely reduced and long-term mortgage liabilities which may actually be larger than the value of many properties.
Emerging property markets
As we have seen over the last few days the likes of Iceland, Hungary and the Ukraine have all taken substantial rescue packages from the International Monetary Fund in order to try and rescue failing economies. This situation has been repeated across numerous parts of Eastern Europe in property markets where many overseas investors had built up substantial exposure.
While many will try to pass off the fall in property prices as a short-term consolidation period the fact is that the majority of these new markets have no underlying strength and were overly dependent upon overseas investors who have now repatriated much of their investment funding. These are markets that will not return overnight and many will take years to come back to anywhere near former levels.
Overseas investors
While many overseas investors have decided to repatriate much of their investment portfolio, in all honesty many have had little choice as their assets have been decimated by the ongoing fall in worldwide property prices and stock markets. Even though many of these investors will have made substantial actual and paper profits from many of these developing property markets, the vast majority will probably have reinvested a substantial amount of this back into the market.
Even though the credit crunch has only exacerbated a problem which was evident in the financial markets for sometime we have seen many investors swing full circle from the joys of being involved in perceived long-term growth markets to holding investments which they have in many cases been unable to sell. These are the investors which would normally return to the markets after a dip to pick up “cheap” properties but have now been so severely scarred that it may take some time for them to return.
Conclusion
We have seen a massive mix of property expert views, comments and forecast for the future, some of which have been ultra-cautious while others have been over optimistic. While the truth is probably somewhere in between it is impossible to predict market by market as and when property prices will even stabilise left alone increase in value.
While overly optimistic comments may be welcomed by some in the property investment market, unless backed up by serious factual data they can give false hope which can be very dangerous in the short to medium term. The truth is that many have called the bottom of the market for many months but nobody actually knows when this will occur in local property markets around the world.