Has the UK real estate market benefited from keeping a distance from the Euro?
While there is no doubt that the European economy and investment markets, taking in the enormous real estate sector, are closer than ever, the UK government seems to have negotiated the best of both worlds. When the authorities refused to take up the euro they were mocked, ridiculed and accused of being far too shortsighted. There were many reasons why the UK authorities refused to take up the offer of a currency change and perhaps this has proven to be justified of late?
UK real estate
In reality no real estate market around the world avoided the US mortgage led crisis in 2008. This prompted an enormous loss of confidence in real estate markets, in economies, governments and currencies. Here we are seven years later with UK base rates still at 0.5%, although the Governor of the Bank of England indicated the next move would be upwards, and the European situation seemingly going from bad to worse.
If you compare the UK real estate market, which in some areas of the country is approaching its pre-crash high, to its European counterpart there is no comparison. Due to the fact that the UK refused to adopt the euro as its currency of choice there has been a flood of overseas investment into the UK real estate market. There is growing confidence in the UK economy, sterling is now strengthening and while there is still a long way to go to balance the books, there is no real choice between the UK and the rest of Europe.
Reacting to dangers
The reality for the Bank of England and the UK government of the day is the fact that they will never please all of the people all of the time. Mistakes have been made, reactions to the banking crisis were slow at best, but the UK now has one of the strongest economies in the Western world and appears to be going from strength to strength. This renewed confidence in the UK economy, although yet to feature in wage inflation, has not only attracted overseas investors to the real estate sector but also domestic buyers.
It was also interesting to see that the UK authorities reacted fairly quickly to concerns of yet more problems building up in the mortgage arena. A tightening of the criteria for mortgage acceptance, more regulations for the banking system and the general withdrawal from higher risk situations initially impacted real estate business but should have a positive impact in the longer term.
Is it time to look towards European real estate?
When you bear in mind the impressive performance of the general UK real estate market, especially compared to its European counterpart, at some point there will be an argument for switching assets. European banks still hold massive portfolios of unwanted properties which will at some point flood the market when demand begins to emerge. We have seen signs of “bottom fishing” although the ongoing problems with Greece have cast yet another dark cloud over the European economy and European real estate market in the short-term.
It will be interesting to see as and when investors switch from the better performing real estate markets because when the European market does turn many believe there is significant pent-up demand. When this will be is anybody’s guess because at the moment the European real estate market seems to be staggering from one issue to another. Is it always darkest before the dawn?