Experts concerned stock market sell-off could hit property

Despite the fact that property seems to be the new “gold” safe haven for many investors there are growing concerns that a prolonged stock market sell-off, which began in China, could eventually hit property. This despite the fact that the UK property market continues to go from strength to strength even though the average property is now valued at 10 times average earnings. So, are experts right to be concerned about contagion from the prolonged problems of the Chinese stock market?

Supply issues

Whether governments admit it or not, there is no doubt there are significant supply issues with regards to the UK property market. When you bear in mind that new build numbers are well below that required to meet demand this is an issue, we have covered on numerous occasions, which is likely to get worse before it gets better. This alone will not protect the UK property market from a prolonged stock market sell-off but there are few signs of reducing demand for limited UK real estate supply.

Low finance costs

Even though UK base rates are expected to increase in 2016 this will only be a gradual move higher. The historic low in UK base rates has seen UK consumers rack up a staggering £40 billion of debt. If the latest report from insurance giant Aviva is to be believed this is an increase of 42% over the last six months. This would seem to suggest that many in the UK are using historic low interest rates to finance their everyday living costs as well as investments in the property market.

The average family is now said to owe over £13,500 on credit cards, personal loans and overdrafts which is up by £4000 over the last year. When you also take into account the average mortgage debt which stands at just under £63,000 it does seem as though many consumers are living on a knife edge.

Banking profits

If the stock market crisis continues there is no doubt some property investors would be looking to bank their profits. When you bear in mind the rise in UK real estate, to name but one buoyant market, can you really blame property investors who consider banking profits? Even though interest rates are relatively low a number of experts are now suggesting caution for investors. Indeed it is also worth noting that the Royal Bank of Scotland recently suggested “selling everything” but high-quality bonds because of stock market and oil price concerns.

Looking longer term

While there are obvious concerns regarding the state of the Chinese stock market, and the underlying economy, it may be more beneficial to take a long-term view of the worldwide property market. True, some areas of the UK property market do seem a little overextended but there is still value in many regional UK property markets. Whether investors decide to sit on the sidelines while the stock market crisis continues remains to be seen but potential panic selling could open up an array of interesting long-term investment opportunities.

Stay focused on the longer term, monitor worldwide stock markets and do not be surprised to see growth in UK property prices slow during these uncertain times.

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