Over the last few years we have seen a dramatic change in property market trends around the world with new property hotspots coming into play while some of the old favourites fade into the background. One area which has struggled since the 2008 US mortgage crisis is Europe with the situation not assisted by the eventual Euro crash. But why do property markets and property market trends change so quickly?
There are a number of factors to take into consideration when looking at property markets around the world which will allow you to decide whether to go ahead with an investment or perhaps look elsewhere.
Relative value for money
The value of identical properties can vary enormously around the world depending upon which country you are in. The potential investment attraction of a property is very much dictated by its relative value when taking into account the local economy and area of the world. Relative affordability is also very closely associated with relative value and local employment markets and business arenas also play a major role in local property markets.
Quote from PropertyForum.com : “Despite the fact that many experts believe the UK property market is moving ahead to far too quickly, it continues to go from strength to strength. Are we on the verge of yet another property market correction in the UK or will a resurgent economy offer support?”
A perfect example of a property market impacted by “relative value” is Spain where the ongoing economic crisis has fed directly through to the local property market. The economy is in ruins, the employment market has been shot to pieces and austerity measures are having a major impact upon not only standards of living but also sentiment. As a consequence the affordability factor for many Spanish properties has collapsed in the short term. But what happens when the economy recovers?
One other factor which has had a major impact upon the European property market is a lack of finance being made available by European banks. The cost of mortgages is relatively high compared to the boom times, when taking into account rock bottom base rates, as many European banks attempt to consolidate their balance sheets and jettison unwanted assets. It is unlikely that we will return to readily available property finance within Europe in the short term which is likely to hold back the European property market.
It is also worth mentioning that many Spanish and Portuguese banks have been left with unwanted properties on their balance sheet. These foreclosure properties are likely to be sold in the short to medium term with banks more interested in liquidating as much funding as they can rather than pushing for the highest price. As a consequence this is likely to hold back any recovery in the Spanish and Portuguese property markets, as just two examples, in the short to medium term.
On the surface a local property market can appear to be relatively unchanged, the economy fairly strong and the employment market holding up. However, investor sentiment can change frequently as we saw in Dubai back in 2008 when after initially maintaining faith in the midst of a worldwide economic downturn, investors decided to cash in their chips. A trickle of property sellers very quickly snowballed into a mass rush for the exit which subsequently led to the downfall of many property companies in the region and financial institutions came under enormous pressure.
Even though the worldwide economic downturn is still evident in many areas of the world a number of investors are now starting to look again towards the Dubai property market. Investor sentiment has been building for some time, prices are moving ahead faster than many are comfortable with and in many ways Dubai has become a property hotspot yet again.
So, there are many fundamentals to take into account when valuing property markets and individual properties but investor sentiment is in many cases an unpredictable variable!